The BoC stood pat:
In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy’s production potential. Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions. Business investment remains solid. There are tentative signs of slowing in household spending, although the household debt burden continues to rise. Canadian exports are projected to remain below their pre-recession peak until the beginning of 2014, reflecting the dynamics of foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
Core inflation has been softer than expected in recent months but, with the economy operating near its production potential, it is expected to return, along with total CPI inflation, to 2 per cent over the course of the next 12 months.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.
Transalta bought a power plant and issued equity:
TransAlta Corporation (TransAlta) (TSX: TA; NYSE: TAC) announced today that its wholly owned subsidiary has entered into an agreement with Fortescue Metals Group Ltd. (Fortescue) (ASX: FMG) to acquire its 125 megawatt (MW) dual-fuel Solomon power station for U.S. $318 million.
In connection with the acquisition, TransAlta also announced today that it has entered into an agreement with a syndicate of underwriters, led by CIBC and RBC Capital Markets as bookrunners, under which the underwriters have agreed to purchase from TransAlta and sell to the public 19,250,000 Common Shares. The purchase price of Cdn $14.30 per Common Share will result in gross proceeds to TransAlta of approximately Cdn $275 million.
DBRS calls it credit-neutral:
Overall, DBRS views this transaction as credit neutral.
(1) BUSINESS RISK PROFILE – Negative
Based on its preliminary review, DBRS views the proposed acquisition as negative with respect to TAC’s business risk profile. Although the PPA reduces earnings and cash flow volatility, the PPA is with a weaker counterparty. FMG Solomon operates in a cyclical industry and is significantly exposed to pricing volatility and geographic and product concentration risk. However, given the relative size of the Project’s incremental cash flow to TAC’s cash flow from operations (approximately 5% of fiscal 2011 cash flow from operations), the proposed acquisition is viewed as non-material to TAC’s overall business risk profile.(2) FINANCIAL RISK PROFILE – Positive
Based on DBRS’s review of the proposed acquisition and financing strategy, pro forma the proposed acquisition and equity offering (i.e., post-acquisition), DBRS estimates an improvement in TAC’s key credit metrics. DBRS expects the Company to fund the majority of the proposed acquisition with common equity, which will improve the Company’s capital structure going forward. The proposed acquisition is also expected to generate annual incremental cash flow of approximately $40 million for TAC under a stable PPA framework. Pro forma post-acquisition (including TAC’s preferred shares issuance on August 10, 2012; see the related DBRS press release on August 10, 2012), DBRS estimates that the debt-to-capital ratio will be approximately 54% and that the interest coverage and cash flow-to-debt ratios will improve modestly.
The equity guys seem less impressed:
Following the news, TransAlta’s stock skidded 57 cents or 3.9 per cent to $14.11 (Canadian) on the Toronto Stock Exchange – the lowest closing price since March, 2000.
TransAlta’s dividend yield is now 8.2 per cent – a level some analysts view as unsustainable without an uptick in power prices.
TLM was confirmed at Pfd-3(high) by DBRS:
DBRS has today confirmed the ratings of the Unsecured Debentures & Medium-Term Notes and Cumulative Redeemable Preferred Shares for Talisman Energy Inc. (Talisman or the Company) at BBB (high) and Pfd-3 (high), respectively, both with Stable trends. The confirmation reflects the Company’s reasonable reserve and production growth profile and geographically diverse operations, but also considers the Company’s high level of exposure to North American natural gas and high capital expenditure relative to cash flow.
…
DBRS anticipates that Talisman will be free cash flow negative for 2012 (approximately $1.4 billion) due to aggressive capital spending ($3.6 billion) and continued weak North American gas pricing. This is expected to be funded, in part, by asset sales (approximately $2.5 billion to date). DBRS anticipates that future cash flow deficits will be funded with asset sales as well as debt issuances.
It was a negative day overall for the Canadian preferred share market, with PerpetualPremiums flat, FixedResets losing 11bp and DeemedRetractibles off 1bp. Volatility was low. Volume continued very low.
PerpetualDiscounts – all three of them – now yield 4.95%, equivalent to 6.44% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, unchanged from August 29.
| 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 | 0.6167 % | 2,412.1 |
| FixedFloater | 4.44 % | 3.80 % | 33,804 | 17.70 | 1 | 0.0000 % | 3,586.2 |
| Floater | 3.02 % | 3.06 % | 56,102 | 19.50 | 3 | 0.6167 % | 2,604.4 |
| OpRet | 4.62 % | 3.13 % | 32,013 | 0.77 | 4 | 0.2102 % | 2,554.0 |
| SplitShare | 5.48 % | 4.95 % | 75,425 | 4.62 | 3 | 0.1467 % | 2,801.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2102 % | 2,335.4 |
| Perpetual-Premium | 5.29 % | 3.35 % | 90,537 | 0.36 | 28 | 0.0000 % | 2,278.7 |
| Perpetual-Discount | 4.91 % | 4.95 % | 100,155 | 15.48 | 3 | 0.6519 % | 2,547.5 |
| FixedReset | 4.98 % | 2.99 % | 169,220 | 4.09 | 70 | -0.1076 % | 2,425.5 |
| Deemed-Retractible | 4.95 % | 3.48 % | 124,168 | 1.87 | 46 | -0.0110 % | 2,368.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| VNR.PR.A | FixedReset | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-05 Maturity Price : 23.36 Evaluated at bid price : 25.68 Bid-YTW : 3.98 % |
| ELF.PR.G | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-05 Maturity Price : 23.58 Evaluated at bid price : 23.86 Bid-YTW : 5.03 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| PWF.PR.F | Perpetual-Premium | 75,710 | Nesbitt crossed 73,200 at 25.43. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-05 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -7.68 % |
| ENB.PR.N | FixedReset | 69,230 | Desjardins bought 16,000 from TD at 25.23. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-05 Maturity Price : 23.15 Evaluated at bid price : 25.16 Bid-YTW : 3.85 % |
| MFC.PR.A | OpRet | 63,381 | Desjardins sold 57,500 to anonymous at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-06-19 Maturity Price : 25.50 Evaluated at bid price : 25.64 Bid-YTW : 3.15 % |
| TD.PR.E | FixedReset | 57,336 | RBC crossed 33,400 at 26.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.62 Bid-YTW : 2.59 % |
| ENB.PR.H | FixedReset | 34,132 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-09-05 Maturity Price : 23.10 Evaluated at bid price : 24.98 Bid-YTW : 3.46 % |
| CU.PR.E | Perpetual-Premium | 24,440 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.95 Bid-YTW : 4.42 % |
| There were 13 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.F | Perpetual-Premium | Quote: 25.40 – 25.94 Spot Rate : 0.5400 Average : 0.3641 YTW SCENARIO |
| RY.PR.C | Deemed-Retractible | Quote: 25.76 – 26.20 Spot Rate : 0.4400 Average : 0.2652 YTW SCENARIO |
| GWO.PR.F | Deemed-Retractible | Quote: 25.36 – 25.67 Spot Rate : 0.3100 Average : 0.2125 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.03 – 26.25 Spot Rate : 0.2200 Average : 0.1348 YTW SCENARIO |
| BMO.PR.H | Deemed-Retractible | Quote: 25.61 – 25.80 Spot Rate : 0.1900 Average : 0.1139 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 24.91 – 25.20 Spot Rate : 0.2900 Average : 0.2155 YTW SCENARIO |
[…] PerpetualDiscounts (all three of them!) now yield 4.92%, equivalent to 6.40% interest at the standard equivalency factor of 1.3x. Update Long Corporates now yield about 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 200bp, sharply tighter than the 215bp reported September 5. […]