There is a new data point for the collection of Seniority Spreads by Issuer! ELF came out with a new 30-year note (on June 17):
E-L Financial Corporation Limited (TSX :ELF) (TSX: ELF.PR.F) (TSX: ELF.PR.G) (TSX: ELF.PR.H) (the “Company”) announced today that it intends to issue in Canada, by way of private placement, $200 million principal amount of 4.000% senior unsecured notes due June 22, 2050 (the “Notes”).
The offering is expected to close June 22, 2020. The net proceeds of the issue will be used for general corporate purposes.
The Notes will mature on June 22, 2050 and will bear interest at an annual rate of 4.000% calculated and payable semi-annually in arrears on June 22 and December 22 of each year commencing December 22, 2020 and ending June 22, 2050. It is a condition of the closing of the offering that the Notes be assigned a rating of at least “A” by S&P Global Ratings.
The issue will be offered on an agency basis by a syndicate of dealers, co-led by Scotia Capital Inc. and CIBC World Markets Inc., and which includes BMO Nesbitt Burns Inc., National Bank Financial Inc., RBC Dominion Securities Inc. and TD Securities Inc.
ELF has three series of PerpetualDiscounts trading to yield about 5.85% as of the close June 17; equivalent to 7.60% interest, implying a Seniority Spread for this issuer of 360bp, significantly narrower than the overall average of 435bp reported June 17.
Assiduous Reader JD writes in and suggests that I write something about the PACE Savings and Credit Union preferred share scandal:
PACE Savings and Credit Union is launching an investigation into whether a subsidiary improperly sold risky investment products that lost up to 86 per cent of their value when the coronavirus pandemic upended financial markets.
The credit union, based north of Toronto, is trying to rebuild its battered reputation after allegations of fraud and self-dealing involving former top executives who have since been fired. A provincial regulator seized control of PACE in the fall of 2018 to protect its members and deposits, and has overhauled the management and board of directors.
…
The new issue became apparent when some clients received letters dated April 28, saying the value of preferred shares purchased through Pace Securities, which paid generous annual dividends of 5 per cent to 7 per cent annually, had fallen from $10 a piece to $1.62 and $1.44, respectively. Individual investments that were initially worth tens or hundreds of thousands of dollars each had been mostly wiped out, and any hope that they might recover was lost with the decision to shut down Pace Securities.
…
The preferred shares – which have characteristics of both stocks and bonds – were in two companies and sold through advisers at Pace Securities. One firm was Pace Financial Ltd., a subsidiary of the dealer, and the other was First Hamilton Holdings Inc. The CEO of Pace Securities, Joseph Thomson, was also CEO of First Hamilton, which lists former Ontario premier Ernie Eves as its chairman.
…
Pace Financial and First Hamilton both sold preferred shares to investors to raise funds, borrowed more against those funds, and invested in corporate debt to generate returns. As the pandemic crisis unfolded, and share prices plunged, the bank that had allowed Pace Financial and First Hamilton to borrow money to leverage investments through a margin account, Laurentian Bank Securities, pulled its support. That meant Pace Securities needed to raise alternate funds, but it wasn’t able to.
…
A 2018 offering memorandum describes First Hamilton’s preferred shares as “a risky investment” that is “suitable for investors … who can afford a total loss of their investment.” According to financial statements from February, 2019, obtained by The Globe, all of the bonds First Hamilton invested in were rated below investment grade. Of those, 71 per cent carried ratings that qualify them as “highly speculative,” and another 18 per cent were rated lower still.
…
Retired Toronto transit worker Elaine Gurney, 63, visited a PACE branch in Etobicoke, Ont., to reinvest $100,000 after a guaranteed investment certificate (GIC) expired. After being directed to speak with an adviser, she walked out with preferred shares in Pace Financial Ltd.
IIROC’s finally gotten involved, scheduling a disciplinary hearing:
The discipline hearing concerns allegations that:
(a) Between June 2017 and June 2019, Mr. Thomson, the Ultimate Designated Person (the “UDP”) of PSC, failed to identify and address existing and potential material conflicts of interest in a fair, equitable and transparent manner, and consistent with the best interests of PSC’s clients, contrary to Dealer Member Rule 42;
(b) Between June 2017 and June 2019, Mr. Thomson failed to ensure that investments in two proprietary products, Pace Financial Ltd. and First Hamilton Holdings Inc., for which he was the portfolio manager, were made in accordance with the objectives set out in the applicable Offering Memorandum, contrary to Consolidated Rule 1400;
(c) Between June 2017 and June 2019, Mr. Thomson, as UDP, failed to supervise the activities of PSC to ensure compliance with IIROC requirements and failed to use due diligence to ensure that orders accepted and recommendations made were suitable for clients and within the bounds of good business practice, contrary to Dealer Member Rules 38.5(c), 1300.1(a), (o), (p), (q) and (s); and
(d) Between June 2017 and June 2019, Mr. McRae, as the Chief Compliance Officer failed to monitor and assess compliance by PSC with the Dealer Member Rules and failed to adequately supervise Mr. Thomson’s securities-related activities, contrary to Dealer Member Rule 38.7.
The whole thing stinks. PACE exploited the trust that customers will normally have in their credit unions – which, I venture to speculate, will normally be even greater than that held for banks – to provide referrals to their securities subsidiary. Nothing wrong with that, or at least not much; but I am firmly in favour of total separation of deposit-taking institutions from securities dealers; and, yes, Big Banks, that includes you.
But these horrible securities that were advised! Numbers are lacking in the story, as are details of the holdings of Pace Financial, but basically at least one of the ultimate investment companies was levered up to hell ‘n’ gone to buy … junk bonds. And, I will note that I take issue with the Globe’s characterization of the dividends paid on the preferreds:
preferred shares purchased through Pace Securities, which paid generous annual dividends of 5 per cent to 7 per cent annually
As of June 30, 2017, I reported a median YTW of 5.08% on PerpetualDiscounts and 5.28% on December 29, 2017. As of June 29, 2018 I reported a median YTW of 5.48% on PerpetualDiscounts and 5.88% on December 31, 2018. The June 28, 2019 figure was 5.62%, while December 31, 2019 came in at 5.37%. And these figures are for exchange-traded issues with prospectuses; rated investment-grade by DBRS and with a (modest) minimum liquidity.
Five to seven percent, with no further upside (since they are preferred shares, not actual equity) in what appears to be an extremely aggressive and undiversified hedge fund, sold to unsophisticated grannies who wanted a GIC … well, I don’t want to make (too many!) judgments in advance of the facts. But it stinks, it stinks to high heaven.
There is a very long, very angry thread on the Canadian High Interest Savings Forum about this mess. To my surprise, Financial Wisdom Forum has only a a single bewildered and unanswered query about the matter – which to me simply supports the idea that the investors were even less sophisticated than usual.
| 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 | -0.6854 % | 1,456.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.6854 % | 2,673.4 |
| Floater | 5.38 % | 5.61 % | 48,257 | 14.52 | 4 | -0.6854 % | 1,540.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3793 % | 3,452.5 |
| SplitShare | 4.87 % | 5.01 % | 66,464 | 3.85 | 7 | 0.3793 % | 4,123.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3793 % | 3,217.0 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2556 % | 3,035.2 |
| Perpetual-Discount | 5.56 % | 5.68 % | 76,683 | 14.37 | 35 | 0.2556 % | 3,255.5 |
| FixedReset Disc | 6.23 % | 5.13 % | 160,396 | 14.82 | 83 | 0.0124 % | 1,833.5 |
| Deemed-Retractible | 5.30 % | 5.34 % | 85,672 | 14.44 | 27 | 0.3007 % | 3,228.0 |
| FloatingReset | 4.86 % | 4.95 % | 48,498 | 15.61 | 3 | 0.0000 % | 1,790.8 |
| FixedReset Prem | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0124 % | 2,535.7 |
| FixedReset Bank Non | 1.98 % | 3.42 % | 127,339 | 1.58 | 2 | -0.3467 % | 2,785.0 |
| FixedReset Ins Non | 6.49 % | 5.18 % | 123,948 | 14.91 | 22 | -1.2148 % | 1,845.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.N | FixedReset Ins Non | -18.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 6.21 % |
| PWF.PR.P | FixedReset Disc | -6.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 9.27 Evaluated at bid price : 9.27 Bid-YTW : 5.44 % |
| IAF.PR.G | FixedReset Ins Non | -4.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 15.31 Evaluated at bid price : 15.31 Bid-YTW : 5.39 % |
| TD.PF.L | FixedReset Disc | -4.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 5.06 % |
| IFC.PR.A | FixedReset Ins Non | -3.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 11.11 Evaluated at bid price : 11.11 Bid-YTW : 5.18 % |
| BAM.PR.Z | FixedReset Disc | -3.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.95 Evaluated at bid price : 14.95 Bid-YTW : 5.98 % |
| RY.PR.M | FixedReset Disc | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 15.61 Evaluated at bid price : 15.61 Bid-YTW : 4.85 % |
| IFC.PR.C | FixedReset Ins Non | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.21 Evaluated at bid price : 14.21 Bid-YTW : 5.39 % |
| BAM.PR.K | Floater | -1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 7.49 Evaluated at bid price : 7.49 Bid-YTW : 5.74 % |
| SLF.PR.H | FixedReset Ins Non | -1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 12.50 Evaluated at bid price : 12.50 Bid-YTW : 5.14 % |
| MFC.PR.H | FixedReset Ins Non | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 5.23 % |
| TD.PF.H | FixedReset Disc | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 22.82 Evaluated at bid price : 23.27 Bid-YTW : 4.90 % |
| CU.PR.C | FixedReset Disc | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 4.85 % |
| MFC.PR.G | FixedReset Ins Non | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 16.25 Evaluated at bid price : 16.25 Bid-YTW : 5.14 % |
| BAM.PR.T | FixedReset Disc | -1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 12.20 Evaluated at bid price : 12.20 Bid-YTW : 5.71 % |
| SLF.PR.I | FixedReset Ins Non | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 15.50 Evaluated at bid price : 15.50 Bid-YTW : 5.13 % |
| HSE.PR.A | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 6.45 Evaluated at bid price : 6.45 Bid-YTW : 8.28 % |
| MFC.PR.F | FixedReset Ins Non | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 9.20 Evaluated at bid price : 9.20 Bid-YTW : 4.92 % |
| BAM.PR.C | Floater | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 7.55 Evaluated at bid price : 7.55 Bid-YTW : 5.69 % |
| POW.PR.G | Perpetual-Discount | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 24.31 Evaluated at bid price : 24.55 Bid-YTW : 5.80 % |
| BAM.PF.F | FixedReset Disc | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 5.59 % |
| TRP.PR.A | FixedReset Disc | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 11.65 Evaluated at bid price : 11.65 Bid-YTW : 5.64 % |
| EIT.PR.B | SplitShare | 1.31 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2025-03-14 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 5.01 % |
| CM.PR.Y | FixedReset Disc | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 5.05 % |
| BAM.PF.A | FixedReset Disc | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 5.57 % |
| ELF.PR.G | Perpetual-Discount | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 21.41 Evaluated at bid price : 21.41 Bid-YTW : 5.65 % |
| BAM.PF.B | FixedReset Disc | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.56 Evaluated at bid price : 14.56 Bid-YTW : 5.76 % |
| BNS.PR.H | FixedReset Disc | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 23.60 Evaluated at bid price : 23.99 Bid-YTW : 4.83 % |
| BAM.PR.R | FixedReset Disc | 1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 12.07 Evaluated at bid price : 12.07 Bid-YTW : 5.59 % |
| IAF.PR.B | Deemed-Retractible | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 21.28 Evaluated at bid price : 21.55 Bid-YTW : 5.34 % |
| PWF.PR.T | FixedReset Disc | 2.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.95 Evaluated at bid price : 14.95 Bid-YTW : 5.22 % |
| TRP.PR.C | FixedReset Disc | 2.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 8.65 Evaluated at bid price : 8.65 Bid-YTW : 5.65 % |
| MFC.PR.J | FixedReset Ins Non | 3.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 16.20 Evaluated at bid price : 16.20 Bid-YTW : 5.05 % |
| GWO.PR.N | FixedReset Ins Non | 3.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 9.63 Evaluated at bid price : 9.63 Bid-YTW : 4.39 % |
| BAM.PF.G | FixedReset Disc | 7.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 14.18 Evaluated at bid price : 14.18 Bid-YTW : 5.69 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.Q | FixedReset Ins Non | 87,902 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 16.36 Evaluated at bid price : 16.36 Bid-YTW : 4.95 % |
| SLF.PR.D | Deemed-Retractible | 79,480 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 21.33 Evaluated at bid price : 21.33 Bid-YTW : 5.24 % |
| RY.PR.E | Deemed-Retractible | 67,602 | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-07-18 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : -8.98 % |
| SLF.PR.A | Deemed-Retractible | 59,347 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 22.36 Evaluated at bid price : 22.63 Bid-YTW : 5.25 % |
| GWO.PR.Q | Deemed-Retractible | 40,502 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 22.49 Evaluated at bid price : 22.75 Bid-YTW : 5.67 % |
| BAM.PR.X | FixedReset Disc | 40,002 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-06-18 Maturity Price : 10.01 Evaluated at bid price : 10.01 Bid-YTW : 5.61 % |
| There were 15 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.N | FixedReset Ins Non | Quote: 12.00 – 14.89 Spot Rate : 2.8900 Average : 1.7035 YTW SCENARIO |
| TD.PF.L | FixedReset Disc | Quote: 20.00 – 21.10 Spot Rate : 1.1000 Average : 0.7442 YTW SCENARIO |
| HSE.PR.G | FixedReset Disc | Quote: 11.02 – 11.91 Spot Rate : 0.8900 Average : 0.5972 YTW SCENARIO |
| BAM.PR.Z | FixedReset Disc | Quote: 14.95 – 15.70 Spot Rate : 0.7500 Average : 0.5125 YTW SCENARIO |
| BIP.PR.E | FixedReset Disc | Quote: 19.80 – 20.44 Spot Rate : 0.6400 Average : 0.4551 YTW SCENARIO |
| BAM.PR.X | FixedReset Disc | Quote: 10.01 – 10.74 Spot Rate : 0.7300 Average : 0.5780 YTW SCENARIO |
Thank you for the post on EL Financial. This brings up interesting questions on the use of the funds as after selling Dominion of Canada in 2013 EL has primarily become like a closed ended investment vehicle with Empire Life it’s only operating company and something like $5 billion or more in cashable securities. In other words EL does not need the money. The markets have recovered so I don’t think they need to invest in more public securities, they have $300 million in preferreds which could be bought out. Or do they take either of their closed ended funds private? Or maybe Algoma Central which they partially control and is largely illiquid? They already did a substantial issuer bid for ALC a few years back at $14.75 which was woefully unsubscribed and now the shares are under $10. We will see. I also noticed Dundee Preciuos Metals closed above $8 today which means their warrants are in the money and if investors exercise them Dundee stands to receive $100 million more or more in cash for the DPM shares they still own so the preferreds should get another boost as the likelihood of a buyout has increased.
Should be more or less….
I am the old Granny.I went to renew a GIC and now find out I bought 100000.00 dollars worth of Pace Financial shares which IIROC does not have anything to do with.I saved that money for my kids-one disabled and then disabled again while riding his bike-hit and run.
I did not find the rate that much more than what I was getting previously 3.35%.And the bonus of 2%,no one ever told me what that was about.
Anyways-thanks for covering.
They preyed on the low hanging fruit.And in a Credit Union.
Elaine, welcome to the board! I just wish it was in happier circumstances.
As you may have seen in my posts from June 18, June 19 and June 22, I consider these securities appalling. There was no attempt made to make them desirable to an informed investor; their only possible market was people who didn’t know what they were doing and had blind trust in their advisors.
What you guys need most of all is a securities lawyer, but if you need to hear from the investment analytical side, I am willing to provide (for free!) short, informal opinions on the investment merits of these shares should you have any questions, although I might need you to provide additional documents such as offering memoranda and financial statements. Should it come to a lawsuit, I am confident that an Ontario court will accept me as an expert witness; but for that I’ll have to charge because it’s a lot of work!