Market Action

May 12, 2017

You have no idea how happy I am that my technical difficulties have been resolved!

(table deleted)

Update, 2017-5-16 Recalculated Tables:

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.1669 % 2,172.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1669 % 3,986.8
Floater 3.51 % 3.68 % 53,306 18.08 4 -0.1669 % 2,297.6
OpRet 0.00 % 0.00 % 0 0.00 0 0.0862 % 3,026.2
SplitShare 4.70 % 4.53 % 64,586 3.95 5 0.0862 % 3,613.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0862 % 2,819.7
Perpetual-Premium 5.31 % -3.35 % 72,125 0.09 22 -0.0142 % 2,788.1
Perpetual-Discount 5.08 % 5.04 % 105,471 15.32 14 -0.0836 % 3,013.6
FixedReset 4.45 % 4.04 % 214,072 6.60 94 -0.0799 % 2,331.5
Deemed-Retractible 4.99 % 4.42 % 133,442 0.12 30 -0.1636 % 2,889.2
FloatingReset 2.50 % 3.08 % 48,842 4.46 10 -0.0605 % 2,533.7
Performance Highlights
Issue Index Change Notes
MFC.PR.C Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 6.17 %
PWF.PR.P FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 15.88
Evaluated at bid price : 15.88
Bid-YTW : 4.03 %
MFC.PR.F FixedReset -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.24
Bid-YTW : 9.51 %
MFC.PR.B Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 5.77 %
TRP.PR.A FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 18.89
Evaluated at bid price : 18.89
Bid-YTW : 3.97 %
TRP.PR.F FloatingReset 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 3.27 %
TRP.PR.B FixedReset 2.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 14.76
Evaluated at bid price : 14.76
Bid-YTW : 3.87 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.N FixedReset 333,300 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.79
Bid-YTW : 9.03 %
HSE.PR.C FixedReset 127,385 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 22.73
Evaluated at bid price : 23.42
Bid-YTW : 4.47 %
TD.PF.A FixedReset 116,591 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 21.27
Evaluated at bid price : 21.56
Bid-YTW : 3.86 %
BMO.PR.K Deemed-Retractible 110,091 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-11
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 3.48 %
HSE.PR.E FixedReset 109,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 23.00
Evaluated at bid price : 24.01
Bid-YTW : 4.74 %
BMO.PR.L Deemed-Retractible 99,290 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 4.42 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.I Deemed-Retractible Quote: 22.65 – 22.96
Spot Rate : 0.3100
Average : 0.1900

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.65
Bid-YTW : 6.16 %

BNS.PR.D FloatingReset Quote: 21.70 – 22.05
Spot Rate : 0.3500
Average : 0.2506

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 4.70 %

TRP.PR.H FloatingReset Quote: 13.78 – 14.05
Spot Rate : 0.2700
Average : 0.1992

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 13.78
Evaluated at bid price : 13.78
Bid-YTW : 3.31 %

HSE.PR.C FixedReset Quote: 23.42 – 23.65
Spot Rate : 0.2300
Average : 0.1661

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 22.73
Evaluated at bid price : 23.42
Bid-YTW : 4.47 %

BAM.PR.C Floater Quote: 12.95 – 13.20
Spot Rate : 0.2500
Average : 0.1862

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 12.95
Evaluated at bid price : 12.95
Bid-YTW : 3.68 %

PWF.PR.P FixedReset Quote: 15.88 – 16.08
Spot Rate : 0.2000
Average : 0.1378

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-12
Maturity Price : 15.88
Evaluated at bid price : 15.88
Bid-YTW : 4.03 %

Market Action

May 11, 2017

Better late than never!

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0742 % 2,176.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0742 % 3,993.4
Floater 3.50 % 3.65 % 50,431 18.15 4 0.0742 % 2,301.4
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1878 % 3,023.6
SplitShare 4.70 % 4.55 % 64,369 3.95 5 -0.1878 % 3,610.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1878 % 2,817.3
Perpetual-Premium 5.31 % -3.04 % 72,463 0.09 22 -0.0815 % 2,788.5
Perpetual-Discount 5.07 % 5.09 % 105,657 15.34 14 0.1046 % 3,016.2
FixedReset 4.44 % 4.05 % 212,955 6.55 94 -0.0869 % 2,333.4
Deemed-Retractible 4.98 % 4.32 % 132,830 0.12 30 0.0773 % 2,893.9
FloatingReset 2.46 % 2.99 % 47,293 4.47 10 -0.1069 % 2,535.2
Performance Highlights
Issue Index Change Notes
PWF.PR.T FixedReset -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 22.75
Evaluated at bid price : 23.13
Bid-YTW : 3.73 %
PVS.PR.E SplitShare -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 4.72 %
TRP.PR.E FixedReset -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 4.07 %
BAM.PF.H FixedReset 1.64 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 3.30 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.R FixedReset 272,595 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 4.13 %
TRP.PR.J FixedReset 122,350 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 3.56 %
BNS.PR.H FixedReset 112,026 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 3.61 %
NA.PR.X FixedReset 90,965 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-15
Maturity Price : 25.00
Evaluated at bid price : 26.85
Bid-YTW : 3.60 %
NA.PR.Q FixedReset 81,108 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.82
Bid-YTW : 3.65 %
BAM.PR.T FixedReset 63,854 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 4.40 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CCS.PR.C Deemed-Retractible Quote: 24.05 – 24.54
Spot Rate : 0.4900
Average : 0.3879

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 5.74 %

PWF.PR.T FixedReset Quote: 23.13 – 23.48
Spot Rate : 0.3500
Average : 0.2543

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 22.75
Evaluated at bid price : 23.13
Bid-YTW : 3.73 %

BNS.PR.Z FixedReset Quote: 22.05 – 22.32
Spot Rate : 0.2700
Average : 0.1848

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.05
Bid-YTW : 4.98 %

SLF.PR.H FixedReset Quote: 19.02 – 19.32
Spot Rate : 0.3000
Average : 0.2188

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.02
Bid-YTW : 7.13 %

PWF.PR.A Floater Quote: 14.95 – 15.25
Spot Rate : 0.3000
Average : 0.2208

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 3.16 %

TRP.PR.F FloatingReset Quote: 18.64 – 18.89
Spot Rate : 0.2500
Average : 0.1743

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-11
Maturity Price : 18.64
Evaluated at bid price : 18.64
Bid-YTW : 3.27 %

Issue Comments

Moody’s Downgrades Canadian Banks

Moody’s Investors Service has announced that it:

has today downgraded the Baseline Credit Assessments (BCAs), the long-term ratings and the Counterparty Risk Assessments (CRAs) of six Canadian banks and their affiliates, reflecting Moody’s expectation of a more challenging operating environment for banks in Canada for the remainder of 2017 and beyond, that could lead to a deterioration in the banks’ asset quality, and increase their sensitivity to external shocks.

The banks affected are: Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Canada, National Bank of Canada, and Royal Bank of Canada.

The BCAs, long-term debt and deposit ratings and CRAs of the banks and their affiliates were downgraded by 1 notch, excepting only Toronto-Dominion Bank’s CRA, which was affirmed. The short term Prime-1 ratings of the Canadian banks were affirmed. All relevant ratings for these banks continue to have negative outlooks, reflecting the expected introduction of an operational resolution regime in Canada.

“Today’s downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future. Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” said David Beattie, a Moody’s Senior Vice President.

Moody’s considers that weakening credit conditions in Canada — including an increase in private-sector debt to GDP to 185.0% as of the end of 2016, up from 179.3% for 2015 — present increasing risk to Canadian banks’ asset quality and profitability. This increase has been led by household debt, which is now at a record high of 167.3% of disposable income (as at Q4 2016) and accompanying house price appreciation. Despite macro-prudential measures put into place by Canadian policymakers in recent years — which have had some success in moderating the rate of housing price growth — house prices and consumer debt levels remain historically high. Business credit, the other component of private-sector debt, has also grown rapidly, at a 6.2% CAGR over the past 3 years. We do note that the Canadian banks maintain strong buffers in terms of capital and liquidity. However, the resilience of household balance sheets, and consequently bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness.

Specifically:

Toronto-Dominion Bank (TD, Aa2/Aa2 negative, a1); TD’s strong ratings are attributable to its very strong domestic retail franchise — which generates stable and recurring profitability and its business mix. This strength is due to leading market share positions in many personal & commercial financial services products, where TD typically has market shares in the high teens and holds first or second positions.

TD is the most retail oriented of its Canadian peers, with approximately 90% of earnings coming from retail (combined Canadian personal & commercial, wealth management and US personal & commercial, excluding corporate). While CM income has increased over recent quarters and capital allocated to the wholesale business is rising, we expect that reliance on this inherently volatile source of income will remain relatively modest.

Through acquisition and organic growth, TD has increased its exposure to unsecured Canadian consumer credit risk in recent years. In our view, however, the strength and stability of the earnings from TD’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings. The ratings of TD’s US affiliates benefit from support from the parent, and as such are also affected by this action.

TD’s preferred shares have been downgraded to Baa1(hyb). Issues affected are: TD.PF.A, TD.PF.C, TD.PF.D, TD.PF.E, TD.PF.F, TD.PF.G, TD.PF.H, TD.PR.S, TD.PR.T, TD.PR.Y, TD.PR.Z

BMO:

Bank of Montreal (BMO A1/A1 negative, a3); BMO is one of the six major banks in Canada which benefit from the protection of significant barriers to entry and the stability of a prudent regulatory environment. Although its Canadian retail market shares are towards the lower end of the Canadian peer group, BMO has double digit market shares across all significant retail financial services and products, providing scale and recurring earnings power in its home market. In our view, however, the strength and stability of the earnings from BMO’s Canadian personal and commercial (P&C) banking franchise remain the primary credit strength supporting its ratings. BMO has a strong and improving US regional banking presence through BMO Harris, which adds important diversification away from reliance on Canadian P&C earnings. However, BMO does not enjoy the same franchise strength and pricing power in the more competitive US market that it does in Canada. The ratings of BMO Harris and affiliates benefit from support from the parent, and as such are also affected by this action.

BMO’s preferred shares have been downgraded to Baa3(hyb). Issues affected are: BMO.PR.A, BMO.PR.B, BMO.PR.C, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.Q, BMO.PR.R, BMO.PR.S, BMO.PR.T, BMO.PR.W, BMO.PR.Y, BMO.PR.Z.

BNS:

Bank of Nova Scotia (BNS A1/A1 negative, a3); BNS is the most internationally active of the Canadian banks with approximately half of its earnings generated outside of Canada. BNS has taken significant measures to increase its profitability that signal a fundamental shift away from the bank’s traditionally low risk appetite. While the bank’s strategic actions are intended to enhance current profitability — in 2016, BNS reported domestic net interest margin lower than the six largest Canadian banks’ average- in our view, they increase the prospect of future incremental credit losses.

While BNS had strategically grown its credit card and auto finance portfolios – both of which are particularly prone to deterioration during an economic downturn and exhibit higher defaults and loss severities than mortgage portfolios — in recent years, growth in 2016 was flat. In addition, the bank has made a series of acquisitions away from its strong domestic franchise towards higher-growth but less stable international markets. BNS has aspirations to continue to grow its international earnings, which in Moody’s view adds to bondholder risk.

BNS’ preferreds have been downgraded to Baa3(hyb). Issues affected are: BNS.PR.A, BNS.PR.B, BNS.PR.C, BNS.PR.D, BNS.PR.E, BNS.PR.F, BNS.PR.G, BNS.PR.H, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.Y and BNS.PR.Z.

CM:

Canadian Imperial Bank of Commerce (CIBC A1/A1 negative, a3); CIBC is the most reliant of the Canadian banks on domestic P&C earnings, which generate approximately 65% of total earnings, excluding Corporate. In our view, however, the strength and stability of the earnings from CIBC’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings. CIBC has the second lowest proportionate exposure to unsecured and non-real estate secured consumer debt as a percentage of domestic consumer assets (roughly 11.5%), reflective of its very large book of insured mortgages.

CIBC is one of the six major banks in Canada that benefit from the protection of significant barriers to entry and the stability of a prudent regulatory environment. Although its Canadian retail market shares are mid-range relative to its Canadian peers, CIBC has solid double digit market shares across all significant retail financial services and products, providing scale and recurring earnings.

CM’s preferreds have been downgraded to Baa3(hyb). Affected issues are CM.PR.O, CM.PR.P and CM.PR.Q.

NA:

National Bank of Canada (NBC A1/A1 negative, baa1); NBC’s dominant position in commercial banking and strong second place share of market in retail banking in Québec are the primary credit strengths supporting its high ratings. The stability of the recurring earnings power of NBC’s regional retail franchise is, in Moody’s view, highly unlikely to be challenged. That being said, NBC’s asset base (CAD234 billion as of Q1 2017) and national deposit share (roughly 4%) are small relative to the other large Canadian banks whose branch systems are more national in scale. In our view, however, the strength and stability of the earnings from NBC’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings.

While each of the major Canadian banks enjoys the benefits of superior pricing power due to sustainable large market shares in many significant retail and commercial products and services, this is true for NBC only in the context of its regional market, the province of Québec. As such, the challenges in geographic diversification and earnings stability and the Québec credit concentrations offset partially the strength in local market share and sustainability. NBC is the Canadian bank most reliant upon inherently less stable capital markets earnings, which generated 38% of total earnings, excluding Corporate for 2016 (38% for 2015.)

NA’s preferreds have been downgraded to Ba1(hyb). Affected issues are NA.PR.A, NA.PR.Q, NA.PR.S, NA.PR.W and NA.PR.X

RY:

Royal Bank of Canada (RBC A1/A1 negative, a3 ); RBC’s ratings reflect its profile as a strong and diversified universal bank with sustainable leading market shares across many retail products and services in its home market. The stable earnings from RBC’s domestic Personal and Commercial franchise are a key credit strength. RBC has had very low earnings volatility, supported by the stabilizing effect of the recurring profitability of RBC’s solid domestic retail banking franchise.

However, over the past four years RBC has demonstrated rapid growth in its Capital Markets business, led by growth in its US corporate loan book and the repo and securities finance business. We believe that RBC’s US-focused Capital Markets growth strategy increases its exposure to risks that could more rapidly erode its creditworthiness in volatile or adverse market conditions, and is therefore negative for the credit. To date, this risk has been well managed and its performance has been very stable. Maintaining this performance through more volatile markets will be key to RBC’s longer term risk management track record. We do not expect that this business will continue on this growth trajectory, and, in fact, that capital committed to the Capital Markets business will be more constrained.

Management plans to substantially grow the earnings of its recently acquired, California-based private and commercial bank, City National Bank, (deposits Aa3 stable, a2) both organically and through targeted acquisitions. Growth in the City National business presents less credit risk than continued growth in the Capital Markets area, in our view.

RY’s preferreds have been downgraded to Baa3(hyb). Affected issues are RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G, RY.PR.H, RY.PR.I, RY.PR.J, RY.PR.K, RY.PR.L, RY.PR.M, RY.PR.N, RY.PR.O, RY.PR.P, RY.PR.Q, RY.PR.R, RY.PR.W and RY.PR.Z.

Market Action

May 10, 2017

Sorry, technical problems continue. I will update when I can.

Update, 2017-5-13:

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.8419 % 2,174.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.8419 % 3,990.5
Floater 3.51 % 3.66 % 48,786 18.14 4 0.8419 % 2,299.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0860 % 3,029.3
SplitShare 4.70 % 4.41 % 64,813 1.59 5 -0.0860 % 3,617.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0860 % 2,822.6
Perpetual-Premium 5.30 % -5.07 % 73,573 0.09 22 0.2167 % 2,790.8
Perpetual-Discount 5.08 % 5.05 % 104,084 15.32 14 0.3450 % 3,013.0
FixedReset 4.43 % 4.00 % 215,347 6.55 94 0.0455 % 2,335.4
Deemed-Retractible 4.98 % 4.85 % 134,580 2.65 30 -0.0163 % 2,891.7
FloatingReset 2.46 % 2.93 % 47,650 4.47 10 0.0651 % 2,538.0
Performance Highlights
Issue Index Change Notes
CU.PR.I FixedReset -1.38 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 2.74 %
BAM.PR.C Floater 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 13.03
Evaluated at bid price : 13.03
Bid-YTW : 3.66 %
MFC.PR.F FixedReset 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.59
Bid-YTW : 9.29 %
MFC.PR.M FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.75
Bid-YTW : 5.79 %
MFC.PR.K FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 6.22 %
BAM.PR.M Perpetual-Discount 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 22.82
Evaluated at bid price : 23.10
Bid-YTW : 5.19 %
BAM.PF.D Perpetual-Discount 1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 23.48
Evaluated at bid price : 23.94
Bid-YTW : 5.16 %
PWF.PR.A Floater 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 14.92
Evaluated at bid price : 14.92
Bid-YTW : 3.16 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Z FixedReset 150,414 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 4.83 %
MFC.PR.R FixedReset 48,970 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 4.17 %
NA.PR.W FixedReset 40,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 21.16
Evaluated at bid price : 21.16
Bid-YTW : 3.97 %
POW.PR.D Perpetual-Discount 38,610 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 24.67
Evaluated at bid price : 24.93
Bid-YTW : 5.05 %
VNR.PR.A FixedReset 30,460 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 21.36
Evaluated at bid price : 21.64
Bid-YTW : 4.45 %
RY.PR.B Deemed-Retractible 24,917 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-09
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : -17.45 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.H FixedReset Quote: 26.17 – 26.60
Spot Rate : 0.4300
Average : 0.3258

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 3.79 %

EIT.PR.A SplitShare Quote: 25.51 – 25.80
Spot Rate : 0.2900
Average : 0.1904

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.61 %

BAM.PR.X FixedReset Quote: 16.65 – 16.99
Spot Rate : 0.3400
Average : 0.2405

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 4.27 %

POW.PR.D Perpetual-Discount Quote: 24.93 – 25.21
Spot Rate : 0.2800
Average : 0.1809

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-10
Maturity Price : 24.67
Evaluated at bid price : 24.93
Bid-YTW : 5.05 %

BNS.PR.Q FixedReset Quote: 24.89 – 25.16
Spot Rate : 0.2700
Average : 0.1787

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.89
Bid-YTW : 3.09 %

MFC.PR.B Deemed-Retractible Quote: 23.60 – 23.83
Spot Rate : 0.2300
Average : 0.1516

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 5.69 %

Issue Comments

REI.PR.C To Be Redeemed

RioCan Real Estate Investment Trust has announced:

that it will exercise its right to redeem all of its 5,980,000 outstanding Cumulative Rate Reset Preferred Trust Units, Series C (the “Series C Units”) on June 30, 2017 at the cash redemption price of $25.00 per Series C Unit, for total redemption proceeds of $149.5 million.

The regular quarterly distribution of $0.29375 per Series C Unit for the quarter ending June 30, 2017 (the “Final Distribution”) will be payable to holders of the Series C Units of record on June 30, 2017. Payment of the redemption proceeds and the Final Distribution will be made to CDS & Co., as sole registered holder, on or prior to June 30, 2017. Payment to beneficial holders will be made through the facilities of CDS & Co. on or about July 4, 2017 in respect of the redemption proceeds and July 6, 2017 in respect of the Final Distribution, respectively.

From and after June 30, 2017, the Series C Units will cease to be entitled to distributions and the only remaining rights of holders of such units will be to receive payment of the cash redemption price.

Beneficial holders who are not directly the registered holder of Series C Units should contact the financial institution, broker or other intermediary through which they hold these units to confirm how they will receive their redemption proceeds. Instructions with respect to receipt of the redemption amount will be set out in the redemption notice to be mailed to the registered holder of the Series C Units shortly. Inquiries should be directed to our Registrar and Transfer Agent, CST Trust Company, at 1-800-387-0825 (or in Toronto 416-682-3860).

REI.PR.C is an interest-bearing FixedReset, 4.70%+318, that commenced trading 2011-11-30 after being announced 2011-11-17. It has been a member of the Scraps subindex throughout its existence due to credit concerns.

The spread is very low for a redeemed issue, particularly since it is paying interest rather than dividends, but the company’s intent to redeem has been clear since the shocking redemption of REI.PR.A, which boosted the price of that share by 50%+ on announcement day. While the CFO made a case that the funding was not cost-effective in current conditions (even when having to redeem at par) no case was ever made as to why a tender offering and Normal Course Issuer Bid was ever pursued.

Market Action

May 2, 2017

Technology is having its effect! The relative price of services is rising, but the price of ‘stuff’ is falling:

But another form of progress has led to what some economists call the “Walmart effect”: falling prices for a huge array of manufactured goods.

Since the 1980s, for instance, the real price of a midrange color television has plummeted about tenfold, and televisions today are crisper, bigger, lighter and often Internet-connected. Similarly, the effective price of clothing, bicycles, small appliances, processed foods — virtually anything produced in a factory — has followed a downward trajectory. The result is that Americans can buy much more stuff at bargain prices.

Many crucial services, though, remain out of reach for poor families. The costs of a college education and health care have soared.

priceofstuff
Click for Big
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.0936 % 2,153.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.0936 % 3,951.2
Floater 3.54 % 3.66 % 47,795 18.14 4 -0.0936 % 2,277.1
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0313 % 3,024.3
SplitShare 4.70 % 4.34 % 71,515 1.61 5 -0.0313 % 3,611.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0313 % 2,818.0
Perpetual-Premium 5.32 % -0.63 % 73,804 0.09 22 -0.1669 % 2,780.1
Perpetual-Discount 5.06 % 5.10 % 105,359 15.31 14 0.0746 % 3,010.7
FixedReset 4.44 % 4.05 % 228,724 6.56 94 -0.3091 % 2,333.1
Deemed-Retractible 5.00 % 4.88 % 142,542 3.50 31 -0.0328 % 2,890.8
FloatingReset 2.52 % 3.07 % 52,023 4.49 10 -0.0885 % 2,528.9
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -2.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.77
Bid-YTW : 8.05 %
SLF.PR.G FixedReset -1.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.10
Bid-YTW : 8.88 %
BAM.PF.G FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 22.44
Evaluated at bid price : 23.03
Bid-YTW : 4.33 %
RY.PR.M FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 21.99
Evaluated at bid price : 22.39
Bid-YTW : 4.05 %
BAM.PR.X FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.34 %
PWF.PR.P FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 4.02 %
TRP.PR.K FixedReset -1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 4.24 %
PWF.PR.E Perpetual-Premium -1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -10.77 %
TRP.PR.A FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 19.13
Evaluated at bid price : 19.13
Bid-YTW : 3.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.A FixedReset 183,365 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 21.34
Evaluated at bid price : 21.65
Bid-YTW : 3.88 %
BMO.PR.L Deemed-Retractible 150,150 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.86 %
PWF.PR.P FixedReset 79,601 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 4.02 %
PWF.PR.K Perpetual-Discount 67,018 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 24.12
Evaluated at bid price : 24.37
Bid-YTW : 5.10 %
BMO.PR.M FixedReset 56,800 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 3.11 %
BNS.PR.H FixedReset 43,520 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.37
Bid-YTW : 3.62 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.M FixedReset Quote: 21.52 – 21.94
Spot Rate : 0.4200
Average : 0.2654

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.52
Bid-YTW : 5.95 %

RY.PR.A Deemed-Retractible Quote: 25.22 – 25.53
Spot Rate : 0.3100
Average : 0.1749

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : -9.26 %

BAM.PR.X FixedReset Quote: 16.55 – 17.03
Spot Rate : 0.4800
Average : 0.3699

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.34 %

MFC.PR.J FixedReset Quote: 22.71 – 23.02
Spot Rate : 0.3100
Average : 0.2078

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.71
Bid-YTW : 5.24 %

TRP.PR.B FixedReset Quote: 14.26 – 14.63
Spot Rate : 0.3700
Average : 0.2758

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-02
Maturity Price : 14.26
Evaluated at bid price : 14.26
Bid-YTW : 4.06 %

PWF.PR.E Perpetual-Premium Quote: 25.35 – 25.65
Spot Rate : 0.3000
Average : 0.2066

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -10.77 %

Market Action

May 1, 2017

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3004 % 2,155.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3004 % 3,955.0
Floater 3.54 % 3.65 % 47,544 18.17 4 0.3004 % 2,279.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1174 % 3,025.3
SplitShare 4.70 % 4.39 % 72,259 1.62 5 -0.1174 % 3,612.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1174 % 2,818.8
Perpetual-Premium 5.31 % -4.24 % 73,898 0.09 22 0.1244 % 2,784.8
Perpetual-Discount 5.07 % 5.12 % 104,723 15.30 14 0.2093 % 3,008.5
FixedReset 4.42 % 4.00 % 229,561 6.57 94 -0.0977 % 2,340.3
Deemed-Retractible 5.00 % 4.86 % 144,054 2.68 31 0.0787 % 2,891.8
FloatingReset 2.51 % 3.07 % 51,279 4.49 10 -0.1721 % 2,531.1
Performance Highlights
Issue Index Change Notes
BMO.PR.T FixedReset -1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.94 %
POW.PR.D Perpetual-Discount -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 24.23
Evaluated at bid price : 24.52
Bid-YTW : 5.13 %
BMO.PR.S FixedReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.45
Evaluated at bid price : 21.80
Bid-YTW : 3.91 %
BMO.PR.Y FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 22.53
Evaluated at bid price : 23.22
Bid-YTW : 4.00 %
SLF.PR.H FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.20
Bid-YTW : 6.97 %
SLF.PR.G FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.42
Bid-YTW : 8.58 %
HSE.PR.C FixedReset 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 22.72
Evaluated at bid price : 23.41
Bid-YTW : 4.50 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.R FixedReset 63,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 3.33 %
BMO.PR.C FixedReset 48,780 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 4.03 %
RY.PR.Q FixedReset 48,136 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 27.08
Bid-YTW : 3.22 %
BMO.PR.L Deemed-Retractible 23,294 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.79 %
BMO.PR.T FixedReset 19,110 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.94 %
RY.PR.Z FixedReset 15,050 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.46
Evaluated at bid price : 21.81
Bid-YTW : 3.78 %
There were 10 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.H FixedReset Quote: 26.10 – 26.44
Spot Rate : 0.3400
Average : 0.2067

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.85 %

BAM.PF.I FixedReset Quote: 26.10 – 26.48
Spot Rate : 0.3800
Average : 0.2481

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.92 %

BAM.PR.Z FixedReset Quote: 22.50 – 22.90
Spot Rate : 0.4000
Average : 0.2988

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.95
Evaluated at bid price : 22.50
Bid-YTW : 4.48 %

POW.PR.D Perpetual-Discount Quote: 24.52 – 24.80
Spot Rate : 0.2800
Average : 0.1937

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 24.23
Evaluated at bid price : 24.52
Bid-YTW : 5.13 %

BAM.PF.B FixedReset Quote: 21.79 – 22.08
Spot Rate : 0.2900
Average : 0.2135

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-05-01
Maturity Price : 21.45
Evaluated at bid price : 21.79
Bid-YTW : 4.29 %

EIT.PR.A SplitShare Quote: 25.60 – 25.80
Spot Rate : 0.2000
Average : 0.1363

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 4.52 %

Issue Comments

PPL Offers to Assume VSN Preferreds on Takeover

Pembina Pipelines and Veresen have announced:

they have entered into an arrangement agreement to create one of the largest energy infrastructure companies in Canada with a pro-forma enterprise value of approximately $33 billion (the “Transaction”).

Under the terms of the arrangement agreement, Pembina is offering to acquire all the issued and outstanding shares of Veresen by way of a plan of arrangement under the Business Corporations Act (Alberta). The Transaction is valued at approximately $9.7 billion including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares.

Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of approximately 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion. Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share.

Furthermore, Veresen will be seeking approval of holders of outstanding Veresen preferred shares to effect the exchange of such shares for Pembina preferred shares with the same terms and conditions as the outstanding Veresen preferred shares. For such exchange to occur at closing of the Transaction, approval of at least 662/3 percent of holders of Veresen’s preferred shares is required, voting as one class, represented in person or by proxy at a special meeting of Veresen preferred shareholders to be called to consider the Transaction. Closing of the Transaction is not conditional on the approval of the holders of Veresen’s preferred shares.

The cash consideration associated with the Transaction will be initially funded through the company’s $2.5 billion unsecured credit facility. Subsequently, Pembina expects to refinance this with a combination of internally generated cash flows and the issuance of Medium Term Notes and preferred shares.

In addition, a special meeting of the holders of preferred shares of Veresen will be called to approve the Transaction. If the holders of Veresen preferred shares, voting together as a single class, approve the Transaction, each preferred share of Veresen would be exchanged, on a one for one basis, for a new preferred share of Pembina having the same terms and conditions as the Veresen preferred shares. Completion of the Transaction is not conditional upon the approval of the Transaction by holders of Veresen’s preferred shares.

If the holders of Veresen’s preferred shares do not approve the Transaction, voting as a single class but separate from common shares, the Veresen preferred shares will remain outstanding following completion of the Transaction.

DBRS immediately gave its blessing to the transaction:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Pembina Pipeline Corporation (Pembina or the Company) at BBB and the Company’s Preferred Shares at Pfd-3. All trends remain Stable. The confirmations follow Pembina’s announcement that it has entered into an agreement to acquire Veresen Inc. (Veresen) for $9.7 billion, including the assumption of Veresen’s debt (the Acquisition or the Transaction). The confirmations reflect DBRS’s expectation that the Acquisition would not have a material impact on the Company’s current credit profile. On March 3, 2017, DBRS confirmed all of Pembina’s ratings with Stable trends reflecting its solid financial performance in 2016 and the continued improvement of its business risk profile. Veresen was rated BBB by DBRS. However, On August 4, 2016, DBRS placed the ratings of Veresen Under Review with Negative Implications pending the completion of the sales of its power generation assets.

With respect to the potential impact of the Acquisition on Pembina’s financial risk profile, DBRS has reviewed Pembina’s financing plan and performed a pro forma analysis and is of the view that the Acquisition would modestly weaken Pembina’s credit metrics in the near term but would not have a material impact over the medium term.

DBRS later added:

DBRS Limited (DBRS) today notes that Veresen Inc. (Veresen or the Company; BBB, Under Review with Negative Implications) and Pembina Pipeline Corporation (Pembina; rated BBB, Stable trend) have announced that they have agreed to combine to create one of the largest energy infrastructure companies in Canada (the Transaction). Under the Transaction, valued at approximately $9.7 billion, including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares, Pembina has offered to acquire all the issued and outstanding shares of Veresen. The Transaction is subject to approval by Veresen’s common shareholders, as well as regulatory approvals, and is expected to close late in the third quarter or early Q4 2017.

DBRS placed Veresen’s ratings Under Review with Negative Implications following the Company’s announcement that it would sell its power generation business. Please refer to the DBRS press releases “DBRS Places Veresen Inc.’s Ratings Under Review with Negative Implications,” dated August 4, 2016, and “DBRS Comments on Veresen’s Sale of Power Business,” dated February 21, 2017. Today’s announcement does not have an immediate impact on the credit profile of Veresen as the Transaction is expected to close later this year. Consequently, DBRS is maintaining the Under Review with Negative Implications status on Veresen’s ratings. DBRS will review the Under Review with Negative Implications status after the sale of Veresen’s remaining power assets has closed in Q2 2017 and as more details become available with respect to the Transaction.

Veresen preferred shares immediately leapt upwards, although early gains did not hold, as illustrated by this chart of the day’s trading in VSN.PR.A:

vsnpra_170501
Click for Big

VSN.PR.E saw very heavy trading (368,192 shares) but simply rose to a modest premium over par and stayed there.

The price movement left the PPL and VSN preferreds trading as equivalents:

impvol_ppl_170501
Click for Big

The results of this Implied Volatility analysis are a little puzzling. The near-par price for an issue with a spread of 427bp (VSN.PR.E) does not seem unreasonable in light of last week’s issuance of BPO FixedReset 4.85%+374M485 and EFN FixedReset 5.75%+464M575, but the Implied Volatility of 39% is ludicrously high; much higher than can be expected even assuming a huge market appetite for low-spread issues (in anticipation of GOC-5 yields). Thus, I would expect the higher-spread issues to outperform the lower spread issues over the next … period. (Predictions are one thing – predictions with a time frame are quite another!).

Affected issues are VSN.PR.A, VSN.PR.C and VSN.PR.E.

Outstanding PPL issues are PPL.PR.A, PPL.PR.C, PPL.PR.E, PPL.PR.G, PPL.PR.I, PPL.PR.K and PPL.PR.M.

Miscellaneous News

Toronto Rock Lacrosse: Instant Playoff Ticket Contest!

I have one pair of Toronto Rock Lacrosse playoff tickets to give away!

The Toronto Rock won their last regular season game:

The Toronto Rock (9-9) defeated the Buffalo Bandits (6-12) by a score of 19-15 and got the help they needed on Saturday night as the Vancouver Stealth defeated the New England Black Wolves in OT, meaning the Rock will now host the Black Wolves on Saturday, May 6 at 7pm at Air Canada Centre.

So I have an excellent pair of tickets for Saturday’s East Division Semi-Final at Air Canada Centre on Saturday, May 6 at 7 p.m. If you want them, entry deadline is 4pm, Monday May 1, which will allow me to post the tickets to the lucky winner in time for the 5pm pick-up time at my local post office box. Simply eMail me with your address if you want the tickets … preference will be given to clients and those who will be taking a kid who plays lacrosse to the game, but anybody can win. Determining the winner is not a mechanical scoring process, but it’s not completely random either! Let me know if I may announce your name if you win.

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

There will be more tickets next year!

MAPF

MAPF Portfolio Composition: April, 2017

Turnover picked up in April, to about 7%.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading.

To make this more clear, it used to be that there were 70-odd Straight Perpetuals and I was more or less indifferent as to which ones I owned (subject, of course, to issuer concentration concerns and other risk management factors). Thus, if any one of these 70 were to go down in price by – say – $0.25, I would quite often have something in inventory that I’d be willing to swap for it. The segmentation means that I am no longer indifferent; in addition to checking the valuation of a potential buy to other Straights, I also have to check its peer group. This cuts down on the potential for trading.

And, of course, the same segmentation has the same effect on trading opportunities between FixedReset issues.

There is no real hope that this situation will be corrected in the near-term. OSFI has indicated that the long-promised “Draft Definition of Capital” for insurers will not be issued “for public consultation in late 2012 or early 2013”, as they fear that it might encourage speculation in the marketplace. It is not clear why OSFI is so afraid of informed speculation, since the constant speculation in the marketplace is currently less informed than it would be with a little bit of regulatory clarity. While the framework has been updated, the modifications focus on the amount of capital required, not the required characteristics of that capital. However, OSFI has recently indicated that it would support a mechanism similar to the NVCC rule for banks, so we may see some developments as the IAIS deliberations regarding insurance capital continue.

As a result of this delay, I have extended the Deemed Maturity date for insurers and insurance holding companies by three years (to 2025-1-31), in the expectation that when OSFI finally does provide clarity, they will allow the same degree of lead-in time for these companies as they did for banks. This had a major effect on the durations of preferred shares subject to the change but, fortunately, not much on their calculated yields as most of these issues were either trading near par when the change was made or were trading at sufficient premium that a par call was expected on economic grounds. However, with the declines in the market over the past nine months, the expected capital gain on redemption of the insurance-issued DeemedRetractibles has become an important component of the calculated yield.

Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another few years in the near future.

Sectoral distribution of the MAPF portfolio on April 28 was as follows:

MAPF Sectoral Analysis 2017-4-28
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 2.1% 4.42% 5.81
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 9.3% 5.02% 15.38
Fixed-Reset 68.6% 6.54% 9.47
Deemed-Retractible 1.2% 6.01% 6.40
FloatingReset 8.2% 8.90% 6.85
Scraps (Various) 10.2% 5.78% 14.65
Cash +0.4% 0.00% 0.00
Total 100% 6.43% 10.18
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-3 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue.

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 1.02% and a constant 3-Month Bill rate of 0.55%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2017-4-28
DBRS Rating Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 35.0%
Pfd-2 32.8%
Pfd-2(low) 21.7%
Pfd-3(high) 0.9%
Pfd-3 4.9%
Pfd-3(low) 3.7%
Pfd-4(high) 0%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0.7%
Pfd-5 0.0%
Cash +0.4%
Totals will not add precisely due to rounding.
The fund holds a position in AZP.PR.C, which is rated P-5(high) by S&P and is unrated by DBRS; it is included in the Pfd-5(high) total.
A position held in INE.PR.A is not rated by DBRS, but has been included as “Pfd-3” in the above table on the basis of its S&P rating of P-3.
A position held in BIP.PR.A is not rated by DBRS, but has been included as “Pfd-2(low)” in the above table on the basis of its S&P rating of P-2(low).

Liquidity Distribution is:

MAPF Liquidity Analysis 2017-4-28
Average Daily Trading Weighting
<$50,000 3.5%
$50,000 – $100,000 32.0%
$100,000 – $200,000 41.4%
$200,000 – $300,000 7.6%
>$300,000 15.0%
Cash +0.4%
Totals will not add precisely due to rounding.

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) (and other funds) as of August 31, 2012, and published in the October (mainly methodology), November (most funds), and December (ZPR) 2012, PrefLetter. While direct comparisons are difficult due to the introduction of the DeemedRetractible class of preferred share (see above) it is fair to say:

  • MAPF credit quality is better
  • MAPF liquidity is a bit lower
  • MAPF Yield is higher
  • Weightings
    • MAPF is less exposed to Straight Perpetuals (including DeemedRetractibles)
    • MAPF is less exposed to Operating Retractibles
    • MAPF is usually, but not currently, more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF is overweighted in FixedResets