June 5, 2024

Another private debt fund bites the dust:

Private debt manager Next Edge Capital is gating its flagship credit fund after a surge in redemption requests, meaning clients are unable to get their money out and the portfolio will be wound down over the next two years.

The decision, announced last week, marks Next Edge’s second wind-down of a private debt fund. Since 2020, the Toronto-based asset manager has also been winding down the Next Edge RCM Private Yield Fund, whose credit adviser is R.C. Morris Capital Management Ltd. The fund reported a 25-per-cent loss in the month of March and an 18-per-cent loss in 2023, as it becomes more concentrated and subject to wider performance fluctuations.

Based in Vancouver, R.C. Morris is a private lender and has participated in a number of Canadian wealth management deals in recent years. The company lent money to Bridging Finance Inc., the private debt manager that was put in receivership in 2021, and it also backed Gary Ng’s acquisition spree of independent wealth management companies between 2018 and 2020, including PI Financial.

With so much uncertainty in the sector, a large number of Next Edge’s investors tried to cash out, and the Private Debt Fund dealt with redemption requests worth $145-million in 2023 – close to half of the fund’s $298-million in total assets under management – according to an investor memo sent last week.

Redemption requests have continued this year and currently sit at 20 per cent of total assets. Next Edge believes the best option is to wind down the portfolio and roll its investors into a different fund in the future. In doing so, management has capped the existing fund’s monthly payouts at a 6-per-cent annual yield – only 1-per-cent higher than some guaranteed investment certificates – and halted redemptions.

A quick search didn’t tell me anything about their investment in Bridging Finance or Gary Ng’s adventure … I was hoping to learn when these had been disposed of (at a loss, presumably) or written down.

The BoC cut the policy rate today as widely expected; GOC-5 was down a bit to 3.45%.

PerpetualDiscounts now yield 6.53%, equivalent to 8.49% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.13% on 2024-5-24 and since then the closing price of ZLC has changed from 14.88 to 15.15, an increase of 181bp in price, implying a decrease of yields of 15bp (BMO reports a duration of 12.35, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 4.98%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened substantially to 355bp from the 315bp reported May 29.

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 0.4132 % 2,320.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4132 % 4,450.4
Floater 10.37 % 10.71 % 59,940 8.89 1 0.4132 % 2,564.8
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0827 % 3,472.5
SplitShare 4.85 % 6.51 % 33,734 1.65 7 -0.0827 % 4,146.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0827 % 3,235.5
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.3992 % 2,709.2
Perpetual-Discount 6.35 % 6.53 % 56,840 13.10 28 0.3992 % 2,954.3
FixedReset Disc 5.20 % 7.41 % 115,440 12.30 49 -1.0282 % 2,567.1
Insurance Straight 6.30 % 6.41 % 60,285 13.37 20 0.0987 % 2,878.6
FloatingReset 9.46 % 9.88 % 34,377 9.73 3 -3.1866 % 2,737.7
FixedReset Prem 6.35 % 6.55 % 212,431 4.04 7 -0.1525 % 2,532.4
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -1.0282 % 2,624.1
FixedReset Ins Non 5.09 % 6.79 % 101,230 13.03 14 -1.0604 % 2,792.0
Performance Highlights
Issue Index Change Notes
NA.PR.W FixedReset Disc -26.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 16.20
Evaluated at bid price : 16.20
Bid-YTW : 9.03 %
SLF.PR.J FloatingReset -9.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 15.97
Evaluated at bid price : 15.97
Bid-YTW : 9.88 %
MFC.PR.M FixedReset Ins Non -7.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 7.61 %
TD.PF.J FixedReset Disc -7.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 22.23
Evaluated at bid price : 22.80
Bid-YTW : 6.87 %
CCS.PR.C Insurance Straight -5.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 6.78 %
IFC.PR.E Insurance Straight -2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 6.45 %
SLF.PR.G FixedReset Ins Non -2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 17.01
Evaluated at bid price : 17.01
Bid-YTW : 7.09 %
MFC.PR.F FixedReset Ins Non -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 7.08 %
BN.PR.R FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 16.17
Evaluated at bid price : 16.17
Bid-YTW : 8.64 %
PWF.PR.P FixedReset Disc -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 15.20
Evaluated at bid price : 15.20
Bid-YTW : 8.02 %
SLF.PR.C Insurance Straight -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.43
Evaluated at bid price : 18.43
Bid-YTW : 6.05 %
PWF.PR.T FixedReset Disc -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 21.51
Evaluated at bid price : 21.80
Bid-YTW : 6.85 %
IFC.PR.C FixedReset Ins Non -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 21.49
Evaluated at bid price : 21.85
Bid-YTW : 6.77 %
TD.PF.E FixedReset Disc -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 21.93
Evaluated at bid price : 22.50
Bid-YTW : 6.93 %
TD.PF.A FixedReset Disc -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 22.52
Evaluated at bid price : 23.50
Bid-YTW : 6.23 %
RY.PR.M FixedReset Disc -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 21.91
Evaluated at bid price : 22.46
Bid-YTW : 6.63 %
FTS.PR.H FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 15.07
Evaluated at bid price : 15.07
Bid-YTW : 8.09 %
IFC.PR.A FixedReset Ins Non -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 19.51
Evaluated at bid price : 19.51
Bid-YTW : 6.86 %
BN.PF.J FixedReset Disc -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 22.24
Evaluated at bid price : 22.77
Bid-YTW : 7.41 %
GWO.PR.I Insurance Straight 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 6.30 %
GWO.PR.G Insurance Straight 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 20.46
Evaluated at bid price : 20.46
Bid-YTW : 6.37 %
GWO.PR.H Insurance Straight 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 19.15
Evaluated at bid price : 19.15
Bid-YTW : 6.35 %
GWO.PR.M Insurance Straight 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 22.33
Evaluated at bid price : 22.60
Bid-YTW : 6.42 %
RY.PR.O Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 23.05
Evaluated at bid price : 23.30
Bid-YTW : 5.29 %
GWO.PR.T Insurance Straight 2.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 20.05
Evaluated at bid price : 20.05
Bid-YTW : 6.44 %
CU.PR.G Perpetual-Discount 3.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 17.82
Evaluated at bid price : 17.82
Bid-YTW : 6.37 %
MIC.PR.A Perpetual-Discount 3.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 19.81
Evaluated at bid price : 19.81
Bid-YTW : 6.97 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.D Insurance Straight 317,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 6.03 %
MFC.PR.C Insurance Straight 287,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 6.08 %
SLF.PR.E Insurance Straight 270,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.67
Evaluated at bid price : 18.67
Bid-YTW : 6.04 %
RY.PR.N Perpetual-Discount 203,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 23.07
Evaluated at bid price : 23.31
Bid-YTW : 5.29 %
CU.PR.I FixedReset Disc 201,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 23.07
Evaluated at bid price : 23.50
Bid-YTW : 7.51 %
BN.PR.T FixedReset Disc 137,314 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 8.53 %
TD.PF.I FixedReset Prem 110,986 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2027-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 6.31 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.W FixedReset Disc Quote: 16.20 – 22.30
Spot Rate : 6.1000
Average : 3.2960

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 16.20
Evaluated at bid price : 16.20
Bid-YTW : 9.03 %

GWO.PR.S Insurance Straight Quote: 20.46 – 22.48
Spot Rate : 2.0200
Average : 1.1713

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 20.46
Evaluated at bid price : 20.46
Bid-YTW : 6.43 %

TD.PF.J FixedReset Disc Quote: 22.80 – 24.57
Spot Rate : 1.7700
Average : 1.0018

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 22.23
Evaluated at bid price : 22.80
Bid-YTW : 6.87 %

CCS.PR.C Insurance Straight Quote: 18.50 – 20.30
Spot Rate : 1.8000
Average : 1.1769

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 6.78 %

SLF.PR.J FloatingReset Quote: 15.97 – 17.50
Spot Rate : 1.5300
Average : 0.9194

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 15.97
Evaluated at bid price : 15.97
Bid-YTW : 9.88 %

MFC.PR.M FixedReset Ins Non Quote: 19.56 – 22.11
Spot Rate : 2.5500
Average : 1.9578

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2054-06-05
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 7.61 %

7 Responses to “June 5, 2024”

  1. fsabbagh says:

    Not a great day for preferreds. Hope we don’t give back our gains from October over the next 6 months as BOC keep lowering rates.

  2. Yomgui says:

    I believe you overreact.

    One rough day after a solid rally doesn’t mean we are heading sharply down again… unless for some reasons spreads widen dramatically.
    Possible that there was some profit taking.

    Yields were pretty flat in Canada today and the same thing for stocks.

  3. Nestor says:

    i think you need to get out of the pref market fsabbagh, you can’t seem to handle the volatility. just a few posts ago, you wanted to take your pref allocation to 30% from 10%. isn’t this what you want? a pullback to buy more at better prices? if prices drop to october levels, isn’t that what you want? another chance to buy ?

  4. stusclues says:

    “you can’t seem to handle the volatility”

    Indeed. Ironically, while so many try to avoid it, volatility harvesting (or selling liquidity or …) is a solid way to increase our returns.

  5. alex3 says:

    Stuclues, how do you harvest volatility in prefs?

  6. stusclues says:

    “how do you harvest volatility in prefs?”

    James has provided a sound theoretical basis for this with his Implied Volatility Theory. There are other ways also but IVT is so embedded in his writings on this blog that you should start there.

  7. […] PerpetualDiscounts now yield 6.58%, equivalent to 8.55% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.18% on 2024-5-31 and since then the closing price of ZLC has changed from 14.73 to 15.10, an increase of 251bp in price, implying a decrease of yields of 20bp (BMO reports a duration of 12.31, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 4.98%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at the 355bp reported June 5. […]

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