June 25, 2018

I indulged myself on February 26, complaining about sales competition from Mortgage Investment Corporations:

I have a great personal interest in this matter, as every now and then a prospective client sneers at the pathetic yield offered by preferred shares and condescendingly informs me that he can get 8%, no problem, from a mortgage investment corporation. I don’t think these guys know about risk … but then, they don’t have to! Every one I’ve ever talked to is smart enough that he’ll get out before problems become apparent to the hoi polloi.

So I’m following the Fortress receivership with great interest:

Syndicated mortgage loans for real estate projects developed by Fortress Real Developments Inc. are “under considerable stress,” and lenders could face “significant losses,” according to a new report from a court-appointed receiver.

In its first update since it was appointed in April, FAAN Mortgage Administrators Inc. said some of the largest loans provided for Fortress projects are at risk because senior mortgage lenders are moving to foreclose on the properties.

FAAN said it needs more time and money to do more appraisals of the projects to find the best potential outcomes for the syndicated lenders, whose loans often rank in third place or lower to those of other lenders.

FAAN’s update also said about 35 per cent of the money raised from syndicated lenders was used to pay “development consultant fees,” about half going to the brokers who raised the funds from individual investors, and the other half paid to BDMC in its capacity as the borrowers’ broker and to Fortress.

It’s hard to make money when 35% of your investment pays up-front brokerage fees!

FAAN is communicating well, with links to relevant material prominently displayed on the index page of their website. There are a few juicy bits in the Report of the Receiver:

Moreover, many Investors agreed to terms that permit repayment “waterfalls” that, at least in some instances, appear to permit owners of the real estate (including the borrowers and owners of the borrowers) to recover some of the amounts they invested in the developments in priority to the amounts loaned by the Investors.

The Trustee has been advised that many of the projects need further funding to permit developments to continue and that such funding is only available if the security interests granted to BDMC are further postponed and subordinated to new financing.

Professional fees appear to be $150,000 monthly, according to Paragraph 53 of the report. Oh, it’s a great business!

Manulife is exiting the fixed annuities business:

Toronto-based Manulife Financial Corp.‘s decision to discontinue external sales of individual fixed annuities will mean there are fewer options in an already limited annuities marketplace for clients who are seeking a guaranteed income stream during retirement.

Manulife became one of the largest providers of annuities in Canada following its acquisition of Montreal-based Standard Life Assurance Co. of Canada in 2015, the latter of which offered a “full spectrum of products,” according to Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont.

Manulife’s exit from the annuities business leaves a big gap. In fact, Geller says, there are “fewer and fewer” insurers offering annuities.

In 2011, Manulife’s U.S. subsidiary, Boston-based John Hancock Financial, discontinued several annuities lines because of low interest rates and volatile equities markets. That year, Manulife’s income statement took a hit of $900 million triggered by John Hancock’s annuities-related losses.

Then, in 2013, Toronto-based Sun Life Financial Inc. sold its U.S. annuities business following earlier losses for reasons similar to those suffered by John Hancock, which forced Sun Life to beef up its reserves.

Although Manulife is exiting this space, other big insurers, such as Toronto-based Canada Life Assurance Co., Winnipeg-based Great-West Life Assurance Co. and Sun Life, continue to offer fixed annuities in Canada.

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 -0.2650 % 2,978.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.2650 % 5,465.3
Floater 3.38 % 3.59 % 71,832 18.31 4 -0.2650 % 3,149.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1911 % 3,167.6
SplitShare 4.64 % 4.65 % 66,363 4.97 5 -0.1911 % 3,782.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1911 % 2,951.5
Perpetual-Premium 5.63 % -7.38 % 62,235 0.09 9 0.0000 % 2,888.8
Perpetual-Discount 5.37 % 5.54 % 62,408 14.59 26 0.0393 % 2,971.9
FixedReset 4.32 % 4.58 % 149,951 5.69 106 -0.1667 % 2,534.5
Deemed-Retractible 5.16 % 5.67 % 69,669 5.53 27 0.2717 % 2,957.7
FloatingReset 3.06 % 3.72 % 33,388 3.42 9 -0.0698 % 2,796.3
Performance Highlights
Issue Index Change Notes
MFC.PR.O FixedReset -1.37 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.37 %
TD.PF.D FixedReset -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 23.29
Evaluated at bid price : 24.34
Bid-YTW : 4.72 %
BAM.PR.R FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 20.26
Evaluated at bid price : 20.26
Bid-YTW : 5.01 %
EIT.PR.B SplitShare -1.12 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2025-03-14
Maturity Price : 25.00
Evaluated at bid price : 24.68
Bid-YTW : 5.08 %
MFC.PR.F FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.67
Bid-YTW : 7.79 %
MFC.PR.K FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.30
Bid-YTW : 6.23 %
SLF.PR.D Deemed-Retractible 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.21
Bid-YTW : 7.42 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.A FixedReset 111,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 22.75
Evaluated at bid price : 23.20
Bid-YTW : 4.52 %
BAM.PF.F FixedReset 90,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 23.84
Evaluated at bid price : 24.27
Bid-YTW : 4.93 %
RY.PR.H FixedReset 54,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 23.04
Evaluated at bid price : 23.55
Bid-YTW : 4.46 %
TD.PF.I FixedReset 42,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 4.74 %
SLF.PR.I FixedReset 41,300 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 4.83 %
NA.PR.E FixedReset 38,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 22.71
Evaluated at bid price : 23.83
Bid-YTW : 4.76 %
There were 14 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.B Floater Quote: 16.75 – 17.50
Spot Rate : 0.7500
Average : 0.4816

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 3.60 %

PVS.PR.D SplitShare Quote: 25.22 – 25.70
Spot Rate : 0.4800
Average : 0.2865

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 4.30 %

BAM.PF.E FixedReset Quote: 23.00 – 23.69
Spot Rate : 0.6900
Average : 0.5333

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 22.64
Evaluated at bid price : 23.00
Bid-YTW : 4.88 %

EIT.PR.B SplitShare Quote: 24.68 – 25.01
Spot Rate : 0.3300
Average : 0.2004

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2025-03-14
Maturity Price : 25.00
Evaluated at bid price : 24.68
Bid-YTW : 5.08 %

MFC.PR.O FixedReset Quote: 25.90 – 26.22
Spot Rate : 0.3200
Average : 0.1937

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.37 %

TRP.PR.D FixedReset Quote: 22.54 – 23.06
Spot Rate : 0.5200
Average : 0.4010

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-25
Maturity Price : 21.97
Evaluated at bid price : 22.54
Bid-YTW : 4.82 %

Leave a Reply

You must be logged in to post a comment.