March 10, 2014

Canada’s central planners are flexing their muscles:

Ottawa is forcing Canada’s two main railway companies to double the amount of grain they ship in a week to try to unclog a transport bottleneck that has left piles of grain sitting in bins across the Prairies.

Transport Minister Lisa Raitt said cabinet has passed an order-in-council that gives Canadian National and Canadian Pacific a month to start moving a minimum of one million tonnes of grain in 11,000 cars each week.

I wonder what goods won’t get moved because of pandering to farmers. I wonder what the price of transport would be in a free market.

Let’s hope this becomes a trend:

JPMorgan Chase & Co. (JPM), Deutsche Bank AG, UBS AG (UBSN) and Depfa Bank Plc won a bid to overturn a conviction for overseeing fraud by their bankers in the sale of derivatives to the city of Milan.

An appeals court in Milan cleared the banks and individuals at the firms because “the alleged crimes didn’t take place,” Judge Luigi Martino said as he read out the verdict today.

There’s no shortage of government debt to buy:

The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.

The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product.

Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.

On March 7 I mentioned some competition in American health-care. Here’s some abuse of the system:

Allegations that pre-scheduled cath-lab patients showed up at the ER may signal efforts to get unwarranted payments from health insurers or federal coverage programs for patients who wouldn’t be covered otherwise, said James Sheehan, chief of the charities unit for the New York state attorney general’s office. Sheehan, a former inspector general of the state’s Medicaid system, was speaking generally, not specifically about Mount Sinai.

In emergency situations, patients cannot be turned away just because they can’t pay for care, according to federal and New York state laws. New York’s Medicaid system spends about $500 million a year on emergency procedures for uninsured patients.

After Andy Jagoda, Mount Sinai’s emergency-department chief, heard in 2012 that cardiologists were sending patients through the emergency ward with previously scheduled cath-lab appointments, he indicated that he had brought the matter up with the hospital’s administration and would do so again. Mount Sinai declined to make Jagoda available for an interview.

On average, doctors who have financial ties to the hospital — such as arrangements to provide Mount Sinai cardiologists with office space for a fee — tend to make more referrals, based on data from 2010. In that year, seven doctors or practices that had such business dealings with Mount Sinai referred 301 patients to the cath lab on average — 15 times the average referrals made by all 546 doctors who sent patients to the lab that year, according to hospital documents.

New York’s rates are driven by a “surplus” of cath labs seeking patients, a competition that spurs usage of hospitals’ facilities and doctors’ expertise that’s unrelated to patients’ needs and distorts the market for heart procedures, Marmur said. “The pendulum is way out of whack,” he said. “It drives up the cost of health care for everyone.”

I claim this sort of highly suspicious nonsense is inevitable whenever the consumer of a service doesn’t have to pay for it.

Some charming little box-tickers are whimpering about bond covenants:

…major players such as Canso Investment Counsel and Manulife Financial Corp. came together roughly two years ago to create the Canadian Bond Investors’ Association.

After working with lawyers to draft a working paper, the industry group is now advocating for four fundamental changes to debt covenants. The improvements include new standardized language around a “change of control,” or a switch in company ownership. At the moment, companies can have multiple bonds that each come with different rules on how they will be treated in this situation.

For instance, Safeway Inc., the giant U.S. grocery chain that is now the target of a $9-billion (U.S.) leveraged buyout, has a number of bonds outstanding, and each has different change-of-control provisions. Some bondholders are allowed to sell their bonds back to the acquirer, Cerberus, for full value, while others cannot.

I can tell you as a fact that when such a thing occurs, it is a total surprise to most owners, as they read the term-sheets and prospectuses for the very first time. By and large, the Canadian bond market is oblivious to anything that’s not included in the Bloomberg summary.

To address this inequity, bond investors want issuers to be required to enhance their coupon payments by a preset amount – it could be 100 or 200 basis points – in similar situations in the future, but only if a company loses its investment grade rating.

Yes, it will be a better world, as soon as there are more rules, more red tape, more regulators and more lawyers. It never occurs to any of these clowns that they have a choice regarding what to buy; if big enough, they can even approach issuers themselves with a proposal for a private placement.

TransAlta Corp., proud issuer of , was confirmed at Pfd-3(stable) by DBRS:

TAC’s key credit metrics are currently in the BB (high) range, which provides the Company with very limited financial flexibility. However, key credit metrics are expected to improve following the 38% decrease in dividend payouts and the reduction of debt with the proceeds from the sale of non-core assets (see the DBRS press release dated February 20, 2014). In addition, the Company is expected to generate a free cash flow surplus in 2014, which is expected to further improve its leverage modestly. The Stable trend reflects DBRS’s expectation that TAC will improve its key credit metrics to the BBB (low) range, including leverage to near or below 50% by the end of 2014. DBRS also expects TAC to continue to fund any significant unforeseen costs, cash shortfalls and/or acquisitions in a prudent manner to prevent any further deterioration of key credit metrics. Any delay in reducing leverage, or further weakness of other key credit metrics, could result in a negative rating action.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 12bp, FixedResets gaining 3bp and DeemedRetractibles up 8bp. Volatility was minimal. Volume was below average.

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

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.2424 % 2,411.0
FixedFloater 4.59 % 3.86 % 27,214 17.67 1 0.0968 % 3,696.0
Floater 3.00 % 3.15 % 54,685 19.28 4 -0.2424 % 2,603.2
OpRet 4.64 % -0.03 % 82,381 0.23 3 -0.0129 % 2,682.1
SplitShare 4.83 % 4.50 % 56,235 4.34 5 0.1120 % 3,064.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0129 % 2,452.5
Perpetual-Premium 5.63 % -0.45 % 92,953 0.08 11 0.0322 % 2,351.0
Perpetual-Discount 5.48 % 5.56 % 134,211 14.39 26 0.1156 % 2,421.4
FixedReset 4.71 % 3.53 % 230,411 6.78 77 0.0311 % 2,503.7
Deemed-Retractible 5.07 % 2.31 % 164,520 0.21 42 0.0782 % 2,462.7
FloatingReset 2.59 % 2.61 % 196,040 7.11 5 -0.1125 % 2,438.4
Performance Highlights
Issue Index Change Notes
TRP.PR.A FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 22.54
Evaluated at bid price : 23.12
Bid-YTW : 3.82 %
Volume Highlights
Issue Index Shares
IAG.PR.F Deemed-Retractible 211,190 Scotia crossed 208,000 at 25.40. Nice ticket!
Maturity Type : Call
Maturity Date : 2018-03-31
Maturity Price : 25.25
Evaluated at bid price : 25.37
Bid-YTW : 5.65 %
SLF.PR.A Deemed-Retractible 54,455 Scotia crossed 40,000 at 22.74.
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.59
Bid-YTW : 5.96 %
TRP.PR.E FixedReset 53,258 TD bought 10,000 from Scotia at 25.05.
Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 23.13
Evaluated at bid price : 25.02
Bid-YTW : 3.96 %
ENB.PR.J FixedReset 49,418 Scotia crossed 10,100 at 25.00.
Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 23.16
Evaluated at bid price : 25.00
Bid-YTW : 4.14 %
MFC.PR.L FixedReset 45,235 Recent new issue.
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.34
Bid-YTW : 4.18 %
ENB.PR.P FixedReset 43,966 RBC crossed 22,100 at 24.19.
Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 22.82
Evaluated at bid price : 24.09
Bid-YTW : 4.18 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.B FixedReset Quote: 20.11 – 20.40
Spot Rate : 0.2900
Average : 0.2033

Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 3.69 %

MFC.PR.C Deemed-Retractible Quote: 21.58 – 21.83
Spot Rate : 0.2500
Average : 0.1732

Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.58
Bid-YTW : 6.27 %

FTS.PR.G FixedReset Quote: 24.25 – 24.48
Spot Rate : 0.2300
Average : 0.1576

Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 22.92
Evaluated at bid price : 24.25
Bid-YTW : 3.82 %

PWF.PR.L Perpetual-Discount Quote: 23.64 – 23.95
Spot Rate : 0.3100
Average : 0.2408

Maturity Type : Limit Maturity
Maturity Date : 2044-03-10
Maturity Price : 23.18
Evaluated at bid price : 23.64
Bid-YTW : 5.44 %

ENB.PR.A Perpetual-Premium Quote: 25.30 – 25.50
Spot Rate : 0.2000
Average : 0.1377

Maturity Type : Call
Maturity Date : 2014-04-09
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -7.26 %

BNS.PR.B FloatingReset Quote: 24.70 – 24.84
Spot Rate : 0.1400
Average : 0.0880

Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 2.68 %

Leave a Reply

You must be logged in to post a comment.