May 6, 2013

PrefBlog’s “There’s One Born Every Minute” Department has uncovered some exciting news:

In about a week, a structured product offering, the Manulife Floating Rate Senior Loan Fund, will close.

On Manulife’s deal, holders are slated to receive 6.75%.

It will try and achieve that 6.75% yield by investing in a broadly diversified portfolio consisting mostly of senior floating rate loans. Those loans will be at a spread above LIBOR. The sub-advisor is also allowed to invest up to 20% of the total in short duration debt securities.

Given that the talk is that retail investors have committed almost $150-million to the offering, what does the success of Manulife’s deal mean?

From the prospectus – to which I am unable to link, given CDS’ abuse of its regulatory monopoly – we learn how they’re going to make that “6.75%”:


Click for Big

The following helpful table is also provided:

Characteristics Indicative Portfolio
Average Credit Quality B+/B
Average Maturity (years) 4.87
Average Yield to Maturity 6.50%
Option Adjusted Duration (years) 0.74

Regretably, the term “Option Adjusted Duration” is not defined in the prospectus; I presume that the fact that this is much lower than the Average Maturity indicates at least qualitatively that a huge proportion of the portfolio is trading at or above its current call price. It is equally regrettable that they do not report the Option Adjusted Yield for the Indicative Portfolio. What a pity. I wonder why not.

So let’s see … they’re plan to pay 6.75% p.a., after paying new issue commission a little in excess of 5% and issue expenses of somewhere between 0.3% and 1.5% (depending on how much gets sold); and after paying Management & Service Fees totaling 1.5% p.a.; and after paying expenses, estimated at between 8bp and 100bp p.a. (depending on how much gets sold). And they’re planning to do this with a low-quality portfolio of floating rate issues which could substantially called away in the next year or so, and is now yielding 6.50%.

Nice work if you can get it.

It was another good day for the Canadian preferred share market, with FixedResets continuing their recent pattern of being decoupled from the returns of other preferred share classes: PerpetualPremiums and DeemedRetractibles were up 5bp, while FixedResets won 27bp. Volatility was low. Volume was on the low side of average, but dominated by FixedResets.

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 -0.1138 % 2,617.6
FixedFloater 3.93 % 3.16 % 33,366 18.78 1 0.2490 % 4,178.4
Floater 2.66 % 2.87 % 82,301 20.05 4 -0.1138 % 2,826.3
OpRet 4.80 % -0.38 % 60,481 0.15 5 0.0927 % 2,612.9
SplitShare 4.79 % 4.13 % 108,184 4.08 5 0.0235 % 2,965.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0927 % 2,389.2
Perpetual-Premium 5.19 % 2.19 % 86,486 0.44 31 0.0530 % 2,385.1
Perpetual-Discount 4.84 % 4.86 % 179,679 15.66 4 -0.0911 % 2,688.6
FixedReset 4.86 % 2.64 % 242,012 3.53 81 0.2653 % 2,521.4
Deemed-Retractible 4.87 % 3.34 % 134,911 0.64 44 0.0494 % 2,460.9
Performance Highlights
Issue Index Change Notes
MFC.PR.J FixedReset 1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 2.76 %
CIU.PR.C FixedReset 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-05-06
Maturity Price : 23.52
Evaluated at bid price : 25.45
Bid-YTW : 2.55 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.H FixedReset 51,080 Scotia crossed blocks of 17,300 and 25,000, both at 26.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.76
Bid-YTW : 2.84 %
BNS.PR.T FixedReset 42,544 RBC crossed 30,100 at 25.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.91
Bid-YTW : 2.53 %
BNS.PR.N Deemed-Retractible 40,499 RBC crossed 35,400 at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-05
Maturity Price : 26.00
Evaluated at bid price : 26.25
Bid-YTW : -5.53 %
IFC.PR.C FixedReset 36,970 TD crossed 22,600 at 26.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 26.76
Bid-YTW : 2.18 %
ENB.PR.F FixedReset 35,850 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 3.36 %
ENB.PR.D FixedReset 34,594 TD bought 10,000 from RBC at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-01
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 3.26 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ENB.PR.D FixedReset Quote: 26.01 – 27.01
Spot Rate : 1.0000
Average : 0.5581

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-01
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 3.26 %

BAM.PR.G FixedFloater Quote: 24.16 – 24.97
Spot Rate : 0.8100
Average : 0.5795

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-05-06
Maturity Price : 23.02
Evaluated at bid price : 24.16
Bid-YTW : 3.16 %

PWF.PR.M FixedReset Quote: 25.53 – 26.00
Spot Rate : 0.4700
Average : 0.2972

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 3.21 %

RY.PR.I FixedReset Quote: 25.45 – 25.72
Spot Rate : 0.2700
Average : 0.1840

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 2.41 %

MFC.PR.E FixedReset Quote: 26.28 – 26.52
Spot Rate : 0.2400
Average : 0.1607

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.28
Bid-YTW : 2.34 %

GWO.PR.G Deemed-Retractible Quote: 25.66 – 25.87
Spot Rate : 0.2100
Average : 0.1328

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-05
Maturity Price : 25.25
Evaluated at bid price : 25.66
Bid-YTW : -8.00 %

Leave a Reply

You must be logged in to post a comment.