PrefBlog

It has become easier (for some) to buy (some) foreign securities:

Offerings of securities in other jurisdictions are frequently extended to purchasers in Canada on a private placement basis. However, it is generally necessary to include with the foreign offering document a Canadian wrapper that contains disclosure required under the securities legislation of the various Canadian jurisdictions where the offering is made. Also, it may be necessary to obtain relief from certain Canadian securities regulators in order to permit specified disclosure contained in the foreign offering document, such as a listing representation, that is not permitted under local rules. Since most investors in such offerings are sophisticated institutional investors, the value of this additional disclosure and prohibition is questionable. Furthermore, the time and expense associated with preparing a Canadian wrapper has been cited as a significant deterrent to extending foreign offerings to Canadian purchasers.

The Ontario Securities Commission has (a) granted relief to a group of dealers and (b) proposed amendments to the applicable requirements in Ontario that would allow such offerings to be made available to sophisticated investors without a Canadian wrapper.

PROPOSED ONTARIO AMENDMENTS
The proposed amendments apply to the offering of “designated foreign securities”, which include:

• • securities offered primarily in a foreign jurisdiction
• • securities issued by an issuer that is
  • o created under the laws of a foreign jurisdiction
  • o not a reporting issuer in Canada, and
  • o has its head office or principal executive offices outside of Canada, or
• • securities that are issued or guaranteed by the government of a foreign jurisdiction.

…The proposed amendments are open for comment until July 24, 2013 and are available here.
The OSC decision document providing the above relief is available here.

Why is it that self-proclaimed “consumer advocates” are always the ones who oppose the flow of information?

U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.

White, who became SEC chairman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012.

Approving the regulation would allow White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation. At the same time, it could anger advocates for small investors and at least one Democratic commissioner.

“It would be a very bad sign — a cause for grave concern about the substance of the issue and process of how investor protection concerns are addressed,” Barbara Roper, director investor protection at the Washington-based Consumer Federation of America, said in a phone interview. Roper said she discussed the rule with White and other SEC officials on April 23.

It was an uneven day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets winning 23bp and DeemedRetractibles off 1bp. Volatility was minor. Volume was average.

Assiduous Reader JP sends in a clipping detailing the interesting defence to the fraud charges against S&P:

Now, lawyers defending the company against the Justice Department’s recent civil lawsuit say that statements about independence and objectivity are “puffery” and were never meant to be taken at face value by investors.
…
In its formal defense filed Monday, S&P pointed to two earlier court decisions where judges ruled that such statements by the firm were puffery and therefore can’t form the basis for a fraud claim.
…
“Even if it’s a viable legal argument, it’s a pretty unattractive argument for S&P to be putting forward since they’re basically in the business of charging clients for their reputation,” said Samuel Buell, a law professor at Duke University and a former federal prosecutor. “What they’re saying here is, ‘When we’re talking to investors about our own reputation, we’re engaging in meaningless puffery.’ ”

“That’s the whole point of the rating agencies, their seal of approval,” Mr. Buell said.

I disagree with Mr. Buell’s characterization of ‘the whole point of the rating agencies’. They don’t provide a “seal of approval” to anything – they provide an opinion on the credit-worthiness of the firm, or instrument. Since the issuers use this opinion to help sell their product, it can be fairly characterized as puffery, although not entirely meaningless.

The CRAs do not do anything a competent analyst cannot do – except, of course, for using material non-public information in the course of their work, a provision of Canadian and US securities laws I despise. Their value is: at least it’s a reasonably consistent opinion across companies; their 100-year track record is excellent (they are being blamed for the credit crisis – that’s like blaming the weatherman for Hurricane Sandy); and they serve as a public flash-point for concerns about creditworthiness that may spur action when times are tough.

It was an inconsequential day on the Canadian preferred share market, with PerpetualPremiums down 5bp, FixedResets off 4bp and DeemedRetractibles gaining 2bp. Volatility was low. Volume was on the high side of average.

The Globe was enthralled with the new Air Canada equipment financing:

Air Canada said on Wednesday it plans to acquire five new Boeing 777-300ER series aircraft with funds raised through offering two tranches of enhanced equipment trust certificates (EETCs) worth a total of
$606.3 million.

The EETC market has been one of the main sources of funding that U.S. carriers have used to fund aircraft purchases in the
last two decades.

This market has been off limits to airlines in Canada until late last year, when the Canadian government signed an accord that now allows domestic airlines to seek funding from this market, which offers lower interest rates than other forms of
aircraft financing.

My interest was further piqued by S&P’s rating announcement – which noted that the rating was “(sf)” – structured finance:

The pass-through certificates will be issued by pass-through trusts that will hold equipment notes issued by Loxley Aviation Ltd. Loxley Aviation is a newly formed company whose assets will consist of the aircraft to be financed, in part, with the proceeds of this offering and contract rights under its conditional sale agreements for the aircraft with Air Canada. We will assign final ratings after concluding a legal review of the documentation.

We base the preliminary ‘B'(sf) rating on the credit quality of Air Canada (B-/Stable/–); substantial collateral coverage by good-quality aircraft; and the legal and structural protections available to the pass-through certificates. The company will use proceeds of this offering and those of the 2013-1 class A and class B series to finance 2013 and 2014 deliveries of five Boeing B777-300ER aircraft to be acquired by Loxley Aviation and conditionally sold to Air Canada. Each aircraft’s equipment notes are cross-collateralized and cross-defaulted under the indentures, and cross-collateralized and cross-defaulted to the conditional sale agreements, which we believe increases the likelihood that Air Canada would cure any defaults and agree to perform its future obligations, including its payment obligations, under the conditional sale agreements in an insolvency-related event of the airline.

So, I wonder, what’s the deal with these things? How are they different from a normal mortgage bond, which is to say, debt secured by a physical asset?

Nothing on SEDAR.

A little digging and I learn that it’s a private placement:

The certificates are being offered and sold only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. The certificates have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and state securities laws. The certificates have not been and will not be qualified for sale to the public under applicable Canadian securities laws and, accordingly, any offer and sale of the certificates in Canada will be made on a basis that is exempt from the prospectus requirement of such securities laws.

Let us all thank the bureaucracy for protecting us from the debt markets!

It was another modestly good day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets winning 9bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume continued high.

PerpetualDiscounts now yield 4.84%, equivalent to 6.29% interest at the standard conversion factor of 1.3x. Long corporates now yield a little under 4.1%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, unchanged from April 17.

Well, that was interesting:

The S&P 500 was up about 1 percent at about 1,578 at 1:07 p.m. New York time today when a posting on the Associated Press Twitter account said there had been explosions at the White House and President Barack Obama had been injured. The benchmark gauge for American stocks erased almost the entire gain, falling as low as 1,563.03 by 1:10 p.m. The index recovered from the plunge within three minutes as the news service said its Twitter account had been hacked and there were no explosions. The S&P 500 ended the session up 1 percent at 1,578.78.

Who says Asian financial markets are backward? When yields are horribly low, the vendors raise commissions:

Borrowers in Asia have stepped up the use of rebates to get wealthy individual investors to buy their dollar-denominated bonds, underscoring weakness in the market as returns dwindle to an 18-month low.

At least 24 percent of the deals in the region last quarter provided a monetary incentive for private banks whose clients bought the offerings, more than double the same period of 2011, according to FIL Ltd., a global fund manager known as Fidelity Worldwide Investment that oversees $248.2 billion. While the practice is legal, it’s only common in Asia, lawyers say.
…
Billionaire Mukesh Ambani’s Reliance Industries Ltd. (RIL) sold 53 percent of its $800 million offering to private banks, according to a company statement on Jan. 29. The Mumbai-based issuer offered a 50 cent discount to private banks per $100 of bonds purchased, said a person with knowledge of the matter, who asked not to be identified without authorization to speak publicly.

Singapore-based CapitaLand Ltd. (CAPL) sold $400 million of 10- year bonds in September in part by offering a 25-cent rebate to private banks for every $100 of bonds they bought, said Arthur Lang, the group chief financial officer at Southeast Asia’s biggest property developer.

Maybe Canadian bond salesmen can learn from Asia:

“Since the beginning of the year, most institutional clients have been net buyers of credit,” said credit trader Julian Pope at Desjardins Securities. “What we’ve noticed in the past 10 to 12 trading sessions has been a reversal of that trend.” In a recent report, he referred to the trend as the possibility of an emerging “buyers strike.”

No doubt, deals are still selling. However, the word on Bay Street is that there are a lot more “full fills” for many new issues, which means institutional buyers are often getting the full amounts that they request. For a hot deal, they may only get a fraction of what they request because the order book is oversubscribed.

You can also see a cool down of sorts in the spreads for investment grade Canadian issuers over their government benchmarks, because these spreads are starting to widen. For now it amounts to just a few basis points on average, but even that has caught some people offside because the spreads only moved tighter for so long.

Because the trend is so nascent, the voracious appetites for new debt could very well roar back. But the current pause is at least forcing people to bonder if fixed-income supply truly has the legs to stay hot for another full year.

Toronto take note! Casinos in Macau are generating ancillary investment:

Casino companies in Macau, the world’s biggest gambling hub, will gain from expanding family entertainment as the city seeks to become China’s top leisure spot, said Templeton Emerging Markets Group’s Mark Mobius.

The Macau gaming industry is growing at a “fast rate,” said Mobius, the group’s executive chairman, after a visit to the Chinese city. Templeton will continue to hold and buy Macau gambling stocks, he said in an e-mail response to questions, declining to give specific recommendations.

So much for civil rights …:

A vote on Harper government legislation that would curb civil rights in the fight against terrorism is being delayed until Wednesday.
…
The bill would also allow authorities to imprison a Canadian for up to 12 months if the person refuses to testify in front of a judge at an investigative hearing.

The legislation would also make it a federal crime to leave or try to leave Canada for the purpose of committing terrorism or attending a terrorist training camp.

Replace “terrorism” with “the Opposition” in the first sentence and the story would be more accurate.

It was a modestly good day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets winning 8bp and DeemedRetractibles up 6bp. Volatility was average. Volume continued to be at high levels.