Interesting cat-fight in CRA-land:
Standard & Poor’s underestimated the risk of mortgage-backed securities it had planned to rate before the deal was postponed, according to competitor Fitch Ratings.
S&P’s preliminary rankings, which were pulled yesterday after the issuer said it would delay the sale, relied on optimistic home values, Fitch said today in a report. S&P said in a statement yesterday it had asked for more information from issuer Bayview Asset Management LLC after releasing the planned grades as the deal started to be marketed.
Based on the property-price estimates of realty brokers instead of the computer models relied on by S&P, Fitch said the loans exceed current home values by more than 45 percent. That would increase projections for defaults by about 20 percent and the size of losses after foreclosures by 30 percent, Fitch said in its statement.
The $184.9 million transaction, called Bayview Opportunity Master Fund IIIa Trust 2014-9RPL, would be the first sale since the financial crisis of publicly rated securities backed by once-delinquent mortgages, according to Fitch. Similar deals without credit grades have been completed as recently as July 2013, GlobalCapital reported April 28 on its website.
Ed Sweeney, a spokesman for S&P, declined to comment. S&P said in a statement yesterday that Bayview sought to delay the sale after the ratings company requested more information about property valuations and loss severities.
Supply and demand? Schmupply and Schmemand! The best way to lower long term interest rates is to change the rules:
In a world awash with U.S. government bonds, buyers of the longest-term Treasuries are facing a potential shortage of supply.
Excluding those held by the Federal Reserve, Treasuries due in 10 years or more account for just 5 percent of the $12.1 trillion market for U.S. debt. New rules designed to plug shortfalls at pension funds may now triple their purchases of longer-dated Treasuries, creating $300 billion in extra demand over the next two years that would equal almost half the $642 billion outstanding, Bank of Nova Scotia estimates.
Fewer available bonds, along with a lack of inflation and increased foreign buying, help to explain why longer-term Treasuries are surging this year even as the Fed pares its own bond purchases. The demand has pushed down yields on 30-year government debt by more than a half-percentage point to 3.37 percent, the most since 2000, data compiled by Bloomberg show.
…
Pensions that closed deficits are pouring into Treasuries and exiting stocks to reduce volatility after a provision in the Budget Act of 2013 raised the amount underfunded plans are required to pay in insurance premiums over the next two years. It also imposed stiffer fees on those with shortfalls.In the next 12 months alone, buying from private pensions will create $150 billion in demand for longer-maturity Treasuries, based on Bank of Nova Scotia’s estimates. That compares with the $40 billion in all maturities of U.S. government debt that the plans bought last year.
There’s a little good news out of CMHC:
The Canada Mortgage and Housing Agency said on Monday that it expects the amount of insurance in force to continue to decline in 2014 to $545-billion, down 2.2 per cent from $557-billion in 2013 and 3.9 per cent from a high of $567-billion in 2011, at the height of the post-recession housing expansion.
…
CMHC senior vice-president Steven Mennill said the decline was part of a normal repayment pattern and comes as the agency trims the value of new insurance it is prepared to write on the mortgages Canada’s lenders – mostly the nation’s biggest banks – offer to home buyers trying to get into the booming market.“One of the factors that is important in this is we have reduced the total amount of portfolio insurance that we are prepared to underwrite in any given year – the insurance provided to lenders on a post-facto basis for portfolio, low-ratio loans – from $11-billion to $9-billion, in 2014,” Mennill told reporters on a conference call.
It’s not much of a cut, but it’s a start.
One of the great tensions in regulation right now is the role of underwriters in IPOs. Are they there so they can get a good deal for their beloved clients? Or are they just thinking – When then ducks quack, feed them?:
Wall Street is in business to make money; when investors want to buy something (such as an initial public offering), that something is offered for sale. It doesn’t make any difference if Wall Street knows in its heart of hearts that that something (such as an IPO) is overpriced.
“When the ducks quack, feed them” is a Wall Street proverb cited in print from at least 1991. The adage became especially popular with internet IPOs in the 1990s.
I hadn’t heard that one before, but the principle should be obvious – but, of course, some don’t get it.
Along those lines, Barry Richoltz of Bloomberg argues for a Treasury Fifty:
4. The U.S. now funds long-term obligations with shorter-term financing. If we learned anything during the credit crisis, this is a recipe for disaster. Bringing the length of financing into closer alignment with our obligations simply is good financial stewardship.
5. The private sector is showing the way: Fixed-income investors have been lining up to purchase 30-year bonds from Bank of America, Apple, IBM, General Electric, Wal-Mart, Novartis, Pemex and others. Financial firms such as Morgan Stanley and JPMorgan Chase have been issuing perpetual notes with a fixed rate for 10 years, which then become Libor-plus bonds.
I’m pleased to see that a milestone has been reached on solar-powered fuel production:
Several notable research organizations from academia through to industry (ETH Zürich, Bauhaus Luftfahrt, Deutsches Zentrum für Luft- und Raumfahrt (DLR), ARTTIC and Shell Global Solutions) have explored a thermochemical pathway driven by concentrated solar energy. A new solar reactor technology has been pioneered to produce liquid hydrocarbon fuels suitable for more sustainable transportation.
“Increasing environmental and supply security issues are leading the aviation sector to seek alternative fuels which can be used interchangeably with today’s jet fuel, so-called drop-in solutions”, states Dr. Andreas Sizmann, the project coordinator at Bauhaus Luftfahrt. “With this first-ever proof-of-concept for ‘solar’ kerosene, the SOLAR-JET project has made a major step towards truly sustainable fuels with virtually unlimited feedstocks in the future.
The SOLAR-JET project demonstrated an innovative process technology using concentrated sunlight to convert carbon dioxide and water to a so-called synthesis gas (syngas). This is accomplished by means of a redox cycle with metal-oxide based materials at high temperatures. The syngas, a mixture of hydrogen and carbon monoxide, is finally converted into kerosene by using commercial Fischer-Tropsch technology.
I’m a bit surprised that it’s thermochemical / catalytic instead of bio-engineering / enzymatic, but hey – a step forward is a step forward!
Atlantic Power Preferred Equity preferreds (AZP.PR.A and AZP.PR.B) have had a little zip in them since Friday noon, due to a report that they have hired advisors:
- Atlantic Power (AT) spiked to a 9.5% gain this afternoon after SparkSpread reported the power producer has hired advisers to explore a potential merger or sale.
- Atlantic Power reportedly tapped Goldman Sachs and Greenhill to help it consider whether a sale or merger makes sense and can be negotiated.
Today the company commented:
Atlantic Power Corporation (TSX: ATP; NYSE: AT) (the “Company” or “Atlantic Power”) owns and operates a diverse fleet of power generation assets in the United States and Canada. As previously disclosed, the Company continues to focus on how to best position itself to maximize value for its shareholders. In that framework, the Company is considering the relative merits of additional debt reduction, investment in accretive growth opportunities (both internal and external), and other allocation of its available cash. Consistent with the objective of acting in the best interests of the Company, its shareholders and its other stakeholders, the Company, as also previously disclosed, is committed to evaluating a broad range of potential options. These potential options include further selected asset sales or joint ventures to raise additional capital for growth or potential debt reduction, the acquisition of assets, including in exchange for shares, the dividend level, as well as broader strategic options, including a sale or merger of the Company. The Company has engaged Goldman, Sachs & Co. and Greenhill & Co., LLC to assist the Company in its evaluation of these potential options. No assurance can be given as to how the evaluation of any such potential options may evolve. The Company does not intend to comment further on its evaluation of potential options until it otherwise deems further disclosure is appropriate or required.
Well … any of these potential options will almost certainly improve the credit quality of the preferreds, currently rated Pfd-5(high), Trend Negative by DBRS.
Innergex Renewable Energy Inc., pwoud issuer of INE.PR.A and INE.PR.C, has been confirmed at Pfd-4(high) [Stable] by DBRS:
Innergex’s financial risk profile remains weak and is reflective of a B rating range. While Innergex’s EBITDA and operating cash flow continued to increase due to sustained organic growth, DBRS remains concerned about Innergex’s aggressive financing strategy for its development pipeline, combined with the Company’s high dividend payout. As the Company continued to pursue its growth plans, the Company’s deconsolidated leverage increased to 30.5% as of December 31, 2013, from 24.5% as of December 31, 2010. Furthermore, consolidated leverage increased to 68.3% as of December 31, 2013 (from 56.7% as of December 31, 2010), and could exceed 70% over the next several years, further pressuring the balance sheet. Should the Company’s financial profile deteriorate further, this could result in negative rating action.
It was a superb day (again! But they were a long time coming!) for the Canadian preferred share market, with PerpetualDiscounts winning 35bp, FixedResets gaining 13bp and DeemedRetractibles up 30bp. A lengthy list of winners – dominated, strangely enough, by FixedResets – was marred by only one loser. Volume was average.
| 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 | 0.2745 % | 2,410.2 |
| FixedFloater | 4.62 % | 3.86 % | 30,458 | 17.75 | 1 | -0.0972 % | 3,714.2 |
| Floater | 3.03 % | 3.17 % | 53,215 | 19.27 | 4 | 0.2745 % | 2,602.3 |
| OpRet | 4.35 % | -2.30 % | 33,359 | 0.16 | 2 | 0.0773 % | 2,702.0 |
| SplitShare | 4.79 % | 4.38 % | 63,496 | 4.19 | 5 | -0.0396 % | 3,096.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0773 % | 2,470.7 |
| Perpetual-Premium | 5.52 % | -6.83 % | 98,240 | 0.09 | 15 | 0.1726 % | 2,398.8 |
| Perpetual-Discount | 5.29 % | 5.29 % | 119,463 | 14.93 | 21 | 0.3483 % | 2,541.5 |
| FixedReset | 4.50 % | 3.39 % | 212,676 | 4.14 | 75 | 0.1275 % | 2,567.1 |
| Deemed-Retractible | 4.97 % | -3.83 % | 139,024 | 0.14 | 42 | 0.3048 % | 2,527.7 |
| FloatingReset | 2.67 % | 2.31 % | 193,812 | 4.07 | 6 | 0.0857 % | 2,497.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.H | FixedReset | -1.46 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.03 % |
| PWF.PR.A | Floater | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 2.66 % |
| TRP.PR.A | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.73 Evaluated at bid price : 24.36 Bid-YTW : 3.67 % |
| SLF.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 : 23.95 Bid-YTW : 5.41 % |
| BAM.PR.T | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.49 Evaluated at bid price : 25.29 Bid-YTW : 3.90 % |
| POW.PR.B | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 24.64 Evaluated at bid price : 24.89 Bid-YTW : 5.42 % |
| BMO.PR.M | FixedReset | 1.14 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 2.57 % |
| MFC.PR.C | Deemed-Retractible | 1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.83 Bid-YTW : 5.69 % |
| CU.PR.D | Perpetual-Discount | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 24.29 Evaluated at bid price : 24.70 Bid-YTW : 5.02 % |
| ENB.PR.Y | FixedReset | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.08 Evaluated at bid price : 24.81 Bid-YTW : 3.98 % |
| GWO.PR.P | Deemed-Retractible | 1.30 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 25.70 Bid-YTW : 5.12 % |
| GWO.PR.N | FixedReset | 1.31 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 3.91 % |
| W.PR.J | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-04 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 1.05 % |
| SLF.PR.A | Deemed-Retractible | 1.49 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 5.43 % |
| FTS.PR.H | FixedReset | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.66 Evaluated at bid price : 22.08 Bid-YTW : 3.59 % |
| MFC.PR.F | FixedReset | 1.70 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 3.85 % |
| TRP.PR.C | FixedReset | 1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 22.82 Evaluated at bid price : 23.20 Bid-YTW : 3.52 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| FTS.PR.H | FixedReset | 116,368 | RBC bought three blocks form ITG Canada Corp (who?); two of 10,000 each and one of 13,700, all at 22.00; then crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 21.66 Evaluated at bid price : 22.08 Bid-YTW : 3.59 % |
| BMO.PR.S | FixedReset | 100,001 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 3.46 % |
| BNS.PR.Z | FixedReset | 73,857 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.71 Bid-YTW : 3.35 % |
| POW.PR.D | Perpetual-Discount | 62,285 | Scotia crossed blocks of 24,000 and 30,000, both at 23.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-05 Maturity Price : 23.50 Evaluated at bid price : 23.80 Bid-YTW : 5.29 % |
| BMO.PR.R | FloatingReset | 59,454 | Nesbitt crossed 53,000 at 25.12. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 2.30 % |
| SLF.PR.I | FixedReset | 53,105 | RBC crossed 50,000 at 26.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 2.35 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PR.Y | FixedReset | Quote: 25.54 – 25.95 Spot Rate : 0.4100 Average : 0.2355 YTW SCENARIO |
| TRP.PR.B | FixedReset | Quote: 21.00 – 21.30 Spot Rate : 0.3000 Average : 0.1871 YTW SCENARIO |
| CU.PR.C | FixedReset | Quote: 26.22 – 26.69 Spot Rate : 0.4700 Average : 0.3905 YTW SCENARIO |
| BAM.PR.X | FixedReset | Quote: 22.07 – 22.31 Spot Rate : 0.2400 Average : 0.1712 YTW SCENARIO |
| BNA.PR.C | SplitShare | Quote: 25.15 – 25.32 Spot Rate : 0.1700 Average : 0.1069 YTW SCENARIO |
| SLF.PR.H | FixedReset | Quote: 25.60 – 25.77 Spot Rate : 0.1700 Average : 0.1081 YTW SCENARIO |