Bradford & Bingley is defaulting on its sub-debt:
— Bradford & Bingley Plc’s failure to pay interest on some of its subordinated bonds will trigger settlement of credit-default swaps linked to about $414 million of the nationalized mortgage lender’s debt.
Dealers and investors agreed today that the Bingley, England-based company’s decision not to pay interest on 125 million pounds ($202 million) of 6.625 percent subordinated bonds maturing 2023 was a “credit event,” the International Swaps and Derivatives Association said on its Web site.
The ruling will prompt an auction to settle credit swap contracts even though the U.K. government changed the terms of the bank’s nationalization in February, allowing it to miss coupon payments without that constituting a default. Bradford & Bingley said in May it didn’t intend to pay interest on the notes, which form part of the bank’s so-called lower Tier 2 capital.
This shows the authorities’ determination to make holders of capital paper suffer, a major factor in the DBRS revision of its rating methodology.
The more I think about the recent MLI Tier 1 Issue, the less I understand it. I have updated my discussion of the issue with some questions sent to MFC’s Investor Relations department.
S&P should be revising the TXPR index soon – but I still don’t see any announcement on their index news page. The last revision was announced 2009-1-9, while last summer’s revision was announced 2009-7-11 (which included the addition of a called issue, FAL.PR.H, which was later quietly dropped).
The Credit Crunch isn’t over yet, as evidenced by Fun ‘n’ Games regarding the pricing of senior debt of CIT, a TARP beneficiary. CIT has, for all intents and purposes, been locked out of the bond market for well over a year and has been downgraded to just above, or below, junk status by the ratings agencies (depending on which ones you listen to; Fitch has them at single B). They were able to issue a short-term TALF-eligible securitization in early June; 2Q09 results will be announced on July 23.
The Boston Fed has released another Policy Briefing (they’ve been busy this week!), this one regarding A Proposal to Help Distressed Homeowners: A Government Payment-Sharing Plan:
This public policy brief presents a proposal, originally posted on the website of the Federal Reserve Bank of Boston in January of this year, designed to help homeowners who are unable to afford mortgage payments on their principal residence because they have suffered a significant income disruption and because the balance owed on their mortgage exceeds the value of their home. These homeowners represent a subset of the population of distressed homeowners, but according to our research they face an elevated risk of default and are unlikely to be helped by current foreclosure-reduction programs. The plan is a government payment-sharing arrangement that works with the homeowner’s existing mortgage and provides a significant reduction in the homeowner’s monthly mortgage payment. The plan does not involve principal reduction. Two options are presented; both are designed to help people with negative equity and a significant income disruption, such as job loss. In one version, the assistance comes in the form of a government loan, which must be repaid when the borrower returns to financial health. The second version features government grants that do not have to be repaid. In either case, the homeowner must provide evidence of negative equity in the home and of job loss or other significant income disruption. The costs of the plan are moderate, and the benefits should help not only the participating homeowners but also the housing industry, the financial markets, and the economy more broadly.
Another strong day for preferreds, with FixedResets outperforming yet again. I’m finding the yields on those things increasingly difficult to believe! When will it end?
PerpetualDiscounts closed to yield 6.30%, equivalent to 8.82% interest at the standard equivalency factor of 1.4x. Long corporates now yield 6.4%, so the pre-tax interest-equivalent spread is now 242bp, tightening in a little from the 250bp they recorded June 30.
| 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 | -1.1047 % | 1,154.8 |
| FixedFloater | 7.06 % | 5.44 % | 37,286 | 16.41 | 1 | 0.2604 % | 2,136.3 |
| Floater | 3.30 % | 3.86 % | 76,735 | 17.75 | 3 | -1.1047 % | 1,442.7 |
| OpRet | 4.99 % | -3.46 % | 123,150 | 0.09 | 15 | 0.1074 % | 2,213.4 |
| SplitShare | 6.11 % | 5.30 % | 80,170 | 4.17 | 4 | 0.6606 % | 1,918.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1074 % | 2,024.0 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1619 % | 1,755.8 |
| Perpetual-Discount | 6.31 % | 6.30 % | 157,000 | 13.46 | 71 | 0.1619 % | 1,617.1 |
| FixedReset | 5.57 % | 4.32 % | 498,531 | 4.29 | 40 | 0.2948 % | 2,061.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.B | Floater | -2.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 10.25 Evaluated at bid price : 10.25 Bid-YTW : 3.86 % |
| BAM.PR.K | Floater | -1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 10.26 Evaluated at bid price : 10.26 Bid-YTW : 3.86 % |
| BAM.PR.J | OpRet | -1.23 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 21.61 Bid-YTW : 7.63 % |
| RY.PR.H | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 23.90 Evaluated at bid price : 24.10 Bid-YTW : 5.95 % |
| TD.PR.I | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.46 Bid-YTW : 4.07 % |
| GWO.PR.I | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 6.24 % |
| RY.PR.R | FixedReset | 1.35 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.87 Bid-YTW : 3.78 % |
| RY.PR.Y | FixedReset | 1.40 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 27.60 Bid-YTW : 4.24 % |
| BAM.PR.N | Perpetual-Discount | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 7.74 % |
| MFC.PR.B | Perpetual-Discount | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 18.89 Evaluated at bid price : 18.89 Bid-YTW : 6.23 % |
| CGI.PR.B | SplitShare | 1.78 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2014-03-14 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 3.99 % |
| BAM.PR.O | OpRet | 2.05 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 23.91 Bid-YTW : 6.33 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.O | FixedReset | 412,350 | RBC crossed 84,800 at 28.00, then three more blocks of 100,000 each at the same price. Nice tickets! YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-24 Maturity Price : 25.00 Evaluated at bid price : 27.96 Bid-YTW : 4.33 % |
| BNA.PR.D | SplitShare | 261,515 | New issue settled today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-07-09 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 7.30 % |
| BNS.PR.T | FixedReset | 150,965 | Desjardins crossed 100,000 at 27.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.80 Bid-YTW : 3.69 % |
| TD.PR.G | FixedReset | 123,110 | Desjardins crossed 15,700 at 27.61, then 84,300 at 27.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.65 Bid-YTW : 3.82 % |
| SLF.PR.A | Perpetual-Discount | 111,235 | Scotia crossed 50,000 at 17.90; TD crossed 48,100 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 17.87 Evaluated at bid price : 17.87 Bid-YTW : 6.71 % |
| BNS.PR.N | Perpetual-Discount | 66,890 | Scotia crossed 40,000 at 21.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-09 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 6.21 % |
| There were 47 other index-included issues trading in excess of 10,000 shares. | |||