Issue Comments

FFH.PR.I To Reset At 3.708%; Potential Conversion to FFH.PR.J

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series I (“Series I Shares”) (TSX:FFH.PR.I) for the five years commencing January 1, 2016 and ending December 31, 2020 . The fixed quarterly dividends on the Series I Shares during that period, if and when declared, will be paid at an annual rate of 3.708% (Cdn. $0.23175 per share per quarter).

Holders of Series I Shares have the right, at their option, exercisable not later than 5:00pm ( Toronto time) on December 16, 2015 , to convert all or part of their Series I Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series J (the “Series J Shares”), effective December 31, 2015 . The quarterly floating rate dividends on the Series J Shares will be paid at an annual rate, calculated for each quarter, of 2.85% over the annual yield on three month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the January 1, 2016 to March 30, 2016 dividend period for the Series J Shares will be 0.82587% (3.34936% on an annualized basis) and the dividend for such dividend period, if and when declared, will be Cdn. $0.20647 per share, payable on March 30, 2016 .

Holders of Series I Shares are not required to elect to convert all or any part of their Series I Shares into Series J Shares.

As provided in the share conditions of the Series I Shares, (i) if Fairfax determines that there would be fewer than 1,000,000 Series I Shares outstanding after December 31, 2015 , all remaining Series I Shares will be automatically converted into Series J Shares on a one-for-one basis effective December 31, 2015 ; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series J Shares outstanding after December 31, 2015 , no Series I Shares will be permitted to be converted into Series J Shares. There are currently 12,000,000 Series I Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series J Shares effective upon conversion. Listing of the Series J Shares is subject to Fairfax fulfilling all the listing requirements of the TSX and, upon approval, the Series J Shares will be listed on the TSX under the trading symbol “FFH.PR.J”.

The extension of FFH.PR.I is not a surprise, given that it’s trading at about 13.00.

FFH.PR.I commenced trading 2010-10-5 as a FixedReset, 5.00%+285, after being announced 2010-9-27. The issue was not only upsized shortly after the announcement, but the greenshoe was fully exercised.

The new rate of 3.708% is therefore a dividend reduction of about 26%.

As noted in the release, the deadline for notifying the company of a desire to convert to FFH.PR.J is 5:00 p.m. (EST) on December 16, 2015, (a Wednesday) but brokerages will normally have an internal deadline a day or two prior to that. If you miss the brokerage deadline, they’ll probably submit the request for you if you grovel, but if you miss the company deadline, that’s it.

At this point, market conditions are such that I expect FFH.PR.J to trade significantly below FFH.PR.I. FFH.PR.I closed today at a bid of 16.60 and the average implied 3-month bill rate of other junk issues is -0.48%. Assuming this relationship holds, the estimated trading price for the FFH.PR.J is 15.28, about 8% lower. Rather than convert and thereby get 1.00 shares of the FFH.PR.J, it seems likely (but by no means guaranteed!) that it will be better to execute trades in the marketplace after FFH.PR.J commences trading and thereby get (maybe!) 1.09 shares of the new FFH.PR.J.

So, I expect to recommend that holders of GWO.PR.N hang on to them, but I will make a formal recommendation on December 11, just in time for PrefLetter.

Issue Comments

GWO.PR.N To Reset To 2.176%

Great-West Lifeco has announced:

the dividend rates for its Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) and for its Non-Cumulative Floating Rate First Preferred Shares, Series O (the “Series O Shares”).

The annual fixed dividend rate for the five-year period commencing on December 31, 2015 and ending on December 30, 2020 applicable to any Series N Shares that remain outstanding on December 31, 2015 will be 2.176% per annum (or $0.136 per Series N Share per quarter), which rate is equal to the sum of the Government of Canada Yield (as defined in the Series N Share Conditions) on December 1, 2015 plus 1.30%.

The floating dividend rate for the period commencing on December 31, 2015 and ending on March 30, 2016 applicable to any Series O Shares issued on December 31, 2015 will be 1.742% per annum (or $0.108578 per Series O Share). The 1.742% annual rate is equal to the sum of the T-Bill Rate (as defined in the Series O Share Conditions) on December 1, 2015 plus 1.30%.

Beneficial owners of Series N Shares who wish to exercise their right to convert their Series N Shares into Series O Shares on a one-for-one basis should communicate as soon as possible with their brokers or other intermediaries through whom they hold their Series N Shares and ensure that they follow their instructions so as to meet the 5:00 p.m. (eastern time) December 16, 2015 deadline for exercising such right. The news release announcing such conversion right was issued on November 5, 2015 and can be viewed on Great-West Lifeco’s website.

The Series N Shares and the Series O Shares have not been and will not be registered under the United States Securities Act of 1933, as amended, or any state securities laws. The Series N Shares and the Series O Shares may not be offered, sold or delivered in the United States and this release does not constitute an offer to sell or a solicitation of an offer to buy any Series N Shares or Series O Shares within the United States.

The extension of GWO.PR.N was announced on November 6.

GWO.PR.N commenced trading 2010-11-23 as a FixedReset, 3.65%+130, after being announced 2010-11-15. The issue was met with disfavour and there was an inventory clearance sale closing 2010-12-3.

The new rate of 2.176% is therefore a dividend reduction of just over 40%. Ouch!

As noted in the release, the deadline for notifying the company of a desire to convert to the FloatingReset Series O is 5:00 p.m. (EST) on December 16, 2015, (a Wednesday) but brokerages will normally have an internal deadline a day or two prior to that. If you miss the brokerage deadline, they’ll probably submit the request for you if you grovel, but if you miss the company deadline, that’s it.

At this point, market conditions are such that I expect the FloatingReset to trade significantly below GWO.PR.N. GWO.PR.N closed today at a bid of 13.35 (!) and the average implied 3-month bill rate of other investment-grade issues is -0.58%. Assuming this relationship holds, the estimated trading price for the new FloatingReset is 11.82, about 11% lower. Rather than convert and thereby get 1.00 shares of the new FloatingReset, it seems likely (but by no means guaranteed!) that it will be better to execute trades in the marketplace after the new FloatingReset commences trading and thereby get (maybe!) 1.13 shares of the new FloatingReset

So, I expect to recommend that holders of GWO.PR.N hang on to them, but I will make a formal recommendation on December 11, just in time for PrefLetter.

Note that since the issue is issued by an insurance holding company and is not convertible into common at the option of the issuer, I consider it to have a “Deemed Maturity” 2025-1-31 (this date may change in the future). This is due to my belief that OSFI will eventually extend the Non-Viability Contingent Capital (NVCC) rules to insurers and insurance holding companies. There is a brief explanation of this on the PrefLetter website (under the heading “DeemedRetractibles”) and with more detailed argument and progress reports on international negotiations in every edition of PrefLetter.

I will note that the market does not share my views regarding future application of the NVCC rules insurers and insurance issues trade very similarly to perpetuals.

Market Action

December 1, 2015

Advanced students of economics, confidently exploring the most arcane niches of their field, will be fascinated to learn that after an extensive investigation, a US Senate committee has learned that private companies seek to maximize revenue:

The makers of a breakthrough drug for hepatitis C put profits before patients in pricing the $1,000 pill that cures the liver-wasting disease, U.S. Senate investigators said Tuesday.

A bipartisan report from the Senate Finance Committee concluded that California-based Gilead Sciences was focused on maximizing revenue even as the company’s own analysis showed a lower price would allow more patients to be treated.

Although the report focused on just one drug that has made headlines in the last few years, the lawmakers who led the investigation said their findings are a warning about what’s to come with other high-priced treatments for cancer, diabetes, Alzheimer’s and HIV.
…
“Gilead responsibly and thoughtfully priced Sovaldi and Harvoni,” said the company’s statement, noting that more than 600,000 patients have been treated worldwide since the introduction of Sovaldi two years ago.

But Wyden and Sen. Chuck Grassley, a Republican, said their 18-month investigation found that the high price tag significantly limited patient access and heaped huge costs on federal and state health care programs.
…
Other conclusions from the report:

— Gilead priced its first hepatitis C drug — Sovaldi — with an eye toward maximizing future returns from its follow-on medication, Harvoni.

— Gilead offered only meagre supplemental discounts to state Medicaid programs, and conditioned those on the states’ dropping any restrictions on patient access. The supplemental discounts of around 10 per cent would have been on top off other discounts that Medicaid programs get by law.

“The evidence shows the company pursued a calculated scheme for pricing and marketing its hepatitis C drug based on one primary goal – maximizing revenue – regardless of the human consequences,” said Wyden.

This startling conclusion will have the economics field abuzz for years – it’s revolutionary!

There will, of course, be the usual grousers who don’t like this idea; PrefBlog humbly suggests that they fund development of their own damn drugs:

A global coalition of charities and funding bodies has been formed to invest up to £30 million into restarting the development of promising drug candidates for neurodegenerative conditions such as dementia, motor neurone disease and Parkinson’s disease. The Neurodegeneration Medicines Acceleration Programme (Neuro-MAP), led by medical research charity MRC Technology, will identify promising drug projects that are no longer in development by the industry and help scientists to take them forward to the next stage, before returning them to pharmaceutical companies for further development into marketable treatments.
…
As a coalition of 9 charities and funders, Neuro-MAP will help ensure that the potential of fundamental early stage research into neurodegenerative disease is realised, taking promising drug candidates forward towards clinical testing. It will also look to repurpose existing drugs and compounds for other conditions, for example, the use of hypertension drugs for the treatment of vascular dementia. The programme protects both charities’ and pharma’s investment and allows charities to maximise their impact on patient’s quality of life.

Partners in the Neuro–MAP are: Alzheimer’s Association US, Alzheimer Research UK, Alzheimer’s Society UK, ALS Association, Michael J Fox Foundation, MND Association, MRC Technology, Northern Health Science Alliance and Parkinson’s UK.

Some pioneering cranks have been doing this for some time:

The Cystic Fibrosis (CF) Foundation has sold royalty rights to treatments developed with support from its ‘venture philantrophy’ model. Royalty pharma – which accumulates royalty payments from established drugs – paid $3.3 billion for royalties on Vertex pharmaceuticals’ Kalydeco (ivacaftor).

The venture philanthropy model, adopted in the late 1990s, sees the foundation provide upfront funding for pharmaceutical companies to help reduce the financial risk of developing drugs to treat CF. It gave a total of $150 million to Vertex to support the company’s CF drug development program.
…
The funding provided by the CF Foundation is exclusively for the use of specific, negotiated CF research projects with a biotech or pharmaceutical company. ‘We negotiate legal agreements with strict parameters to ensure that every dollar invested is in the best interest of advancing [our] mission,’ a foundation spokesperson explained. ‘Virtually every CF drug available to patients in the US was made possible because of Foundation support.’

In an exclusive interview, a PrefBlog spokesman stated “I don’t expect anything much to come of it in Canada. People aren’t too bright and would rather pay crackheads to sleep on the streets.”

I am happy to report that the Sprott Silver battle continues, with a press release yesterday from Sprott:

Desperate Attempt by the Spicers to Preserve Fees

Proposed Transaction Betrays the Principles of Physical Bullion Investing and Subjects Unitholders to Increased Risks, Including Risk of Significant Redemptions

Previous Bullion Fund to ETF Conversion by Purpose’s Predecessor Resulted in Immediate and Massive Redemptions

Purpose Investments Can Walk Away With no Penalty After April 30, 2016, and GTU and SBT’s Paid Financial Advisor Hasn’t Provided a Fairness Opinion on the Transaction

No Credible Reason to Believe That the Proposed ETF Conversions Can be Completed – the Transaction May be Nothing More Than a Defensive Tactic
…
John Wilson, CEO of Sprott Asset Management, said, “The Purpose Investments transaction is an illogical proposition for GTU and SBT unitholders who made the choice to invest in a security fully backed by physical bullion. Unitholders should feel betrayed by the Trustees. After suffering from significant underperformance, gross mismanagement and questionable side payments to the Trustees and other friends of the Spicer family, unitholders are now faced with a Spicer-negotiated transaction that protects their fees and hypocritically tries to promote liquidity, marketing support and enhanced asset scale. These qualities are just a few of the benefits that Sprott is offering GTU and SBT unitholders, but at a premium and with certainty. Most importantly, through the Sprott offers, unitholders do not lose the distinct investment quality of holding bullion directly.”

Silver Bullion Trust has fired back:

Bruce Heagle, Chair of the Special Committee of Independent Trustees, stated: “It is regrettable but not surprising that Sprott’s latest press commentary delivers alarmist criticism and confusion in order to forward their own agenda. Sprott is the desperate party in this debate – they are seeking to draw attention away from the obvious deficiencies of their offer relative to the proposed ETF conversion. Your Independent Trustees recommend that unitholders ignore Sprott’s fear-mongering accusations, as Sprott is seeking to prevent unitholders from considering a better alternative to their inadequate, self-serving offer, which has yet to garner sufficient unitholder support despite seven extensions. All of the pertinent information regarding the proposed ETF conversion and its benefits to unitholders relative to Sprott’s offer will be in the Information Circular, which will be sent to unitholders shortly. Upon review of the forthcoming Information Circular and the benefits of the ETF conversion, I am confident that you will reach the same conclusion as your Independent Trustees: that the proposed ETF conversion in partnership with Purpose Investments is clearly a superior alternative to Sprott’s deficient offer. We thank unitholders for their patience and continued support of Silver Bullion Trust.”

There were two issues of bank NVCC-compliant sub-debt today – one from BMO:

Bank of Montreal (TSX:BMO)(NYSE:BMO) today announced a domestic public offering of $1 billion of subordinated notes (Non-Viability Contingent Capital (NVCC)) (the “Notes”) through its Canadian Medium-Term Note Program. The net proceeds from this offering will be used for general corporate purposes.

The Notes bear interest at a fixed rate of 3.34 per cent per annum (paid semi-annually) until December 8, 2020, and at the three-month Bankers’ Acceptance Rate plus 2.18 per cent thereafter (paid quarterly) until their maturity on December 8, 2025. The expected closing date is December 8, 2015. BMO Capital Markets is acting as lead agent on the issue.

… and one from Scotia:

The Bank of Nova Scotia (“Scotiabank”) (TSX:BNS) (NYSE:BNS) today announced a Basel III-compliant offering of $750 million of 3.367% Subordinated Debentures due 2025 (the “Debentures”) pursuant to its June 27, 2014 base shelf prospectus.

The Debentures, to be sold through an agency syndicate led by Scotiabank Global Banking and Markets, are expected to be issued on December 8, 2015. Interest will be payable semi-annually from the date of issue until December 8, 2020 at 3.367% per annum. From December 8, 2020 to maturity on December 8, 2025, the Debentures will pay a quarterly coupon at a rate of the 90 day bankers’ acceptance plus 2.19%, beginning March 8, 2021.

The mechanics of NVCC-compliant sub-debt were discussed in the post Royal Bank Issues NVCC-Compliant Sub-Debt. It’s interesting to see that that issue, from July 2014, was issued at 3.04%, resetting ha-ha to BAs+108 after their pretend-maturity. That was at a time when:

[July, 2014] The Canada 10-year is trading at around 2.20%, the five year around 1.55% and three-month BAs a little above 1.20%.

Great-West Lifeco was supposed to have supposed to have advised bank-owned CDS of the reset rate on GWO.PR.N today, but neither the company, nor bank-owned CDS, nor regulatorally run SEDAR has any news for you, you disgusting retail scum. Phone your broker and ask this simple question if you can get through the voice-menu, and while you’re at it, be sure to ask if he has any new issues he can sell you; if not, mail him a cheque anyway. This will help build a stronger Canada.

It was another mixed, mostly negative day for the Canadian preferred share market, with PerpetualDiscounts off 12bp, FixedResets down 33bp and DeemedRetractibles gaining 5bp. The Performance Highlights table is dominated by losers. Volume continued to be extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_151201
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.85 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.12 cheap at its bid price of 12.31.

impVol_MFC_151201
Click for Big

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 23.92 to be 0.54 rich, while MFC.PR.G, resetting at +290bp on 2018-3-19, is bid at 22.13 to be 0.43 cheap.

impVol_BAM_151201
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.79 to be $1.25 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.65 and appears to be $0.72 rich.

impVol_FTS_151201
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.59, looks $0.77 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.66 and is $0.57 cheap.

pairs_FR_151201A
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.60%, with no outliers. There is one junk outlier below -1.50%.

pairs_FF_151201
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 4.39 % 5.29 % 35,553 17.52 1 -0.6410 % 1,769.2
FixedFloater 6.29 % 5.53 % 29,440 16.85 1 -0.1323 % 3,101.9
Floater 4.26 % 4.31 % 84,461 16.71 3 -0.1200 % 1,854.5
OpRet 4.86 % 3.93 % 28,900 0.73 1 -0.2772 % 2,736.5
SplitShare 4.76 % 5.45 % 128,859 4.32 5 0.2219 % 3,221.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2219 % 2,513.3
Perpetual-Premium 5.75 % -2.12 % 89,722 0.09 6 -0.1241 % 2,528.9
Perpetual-Discount 5.56 % 5.63 % 93,562 14.44 33 -0.1153 % 2,575.6
FixedReset 5.04 % 4.68 % 225,378 15.09 76 -0.3315 % 2,037.0
Deemed-Retractible 5.16 % 4.74 % 123,395 5.36 33 0.0458 % 2,598.9
FloatingReset 2.65 % 3.74 % 64,767 5.73 10 -0.7126 % 2,180.6
Performance Highlights
Issue Index Change Notes
TRP.PR.C FixedReset -2.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 12.31
Evaluated at bid price : 12.31
Bid-YTW : 5.06 %
MFC.PR.N FixedReset -2.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.07
Bid-YTW : 6.40 %
MFC.PR.M FixedReset -2.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.20
Bid-YTW : 6.39 %
TRP.PR.E FixedReset -2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.66 %
MFC.PR.G FixedReset -2.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.13
Bid-YTW : 5.50 %
TRP.PR.F FloatingReset -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 13.62
Evaluated at bid price : 13.62
Bid-YTW : 4.34 %
RY.PR.H FixedReset -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.21
Evaluated at bid price : 18.21
Bid-YTW : 4.59 %
NA.PR.W FixedReset -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.03
Evaluated at bid price : 18.03
Bid-YTW : 4.66 %
NA.PR.S FixedReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.42
Evaluated at bid price : 18.42
Bid-YTW : 4.74 %
FTS.PR.K FixedReset -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.59
Evaluated at bid price : 18.59
Bid-YTW : 4.25 %
BIP.PR.A FixedReset -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 5.50 %
MFC.PR.I FixedReset -1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.48
Bid-YTW : 5.31 %
BNS.PR.C FloatingReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.72
Bid-YTW : 3.97 %
TRP.PR.H FloatingReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 10.67
Evaluated at bid price : 10.67
Bid-YTW : 4.04 %
PWF.PR.P FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 4.41 %
BAM.PR.T FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 16.18
Evaluated at bid price : 16.18
Bid-YTW : 5.27 %
HSE.PR.A FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 12.98
Evaluated at bid price : 12.98
Bid-YTW : 5.12 %
CM.PR.P FixedReset -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 17.76
Evaluated at bid price : 17.76
Bid-YTW : 4.70 %
IGM.PR.B Perpetual-Premium -1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.54
Bid-YTW : 5.53 %
CU.PR.C FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 4.33 %
HSE.PR.G FixedReset 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 21.36
Evaluated at bid price : 21.36
Bid-YTW : 5.25 %
HSE.PR.C FixedReset 2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 5.19 %
SLF.PR.G FixedReset 2.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.20
Bid-YTW : 8.55 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BNS.PR.R FixedReset 89,000 Nesbitt crossed 30,000 at 24.80; TD crossed 49,900 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 3.57 %
IFC.PR.A FixedReset 61,200 Desjardins crossed 50,000 at 16.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.50
Bid-YTW : 8.73 %
TRP.PR.D FixedReset 53,830 RBC crossed 25,000 at 18.58.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.71 %
TRP.PR.B FixedReset 52,226 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 11.70
Evaluated at bid price : 11.70
Bid-YTW : 4.68 %
FTS.PR.M FixedReset 32,436 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 4.54 %
TD.PF.B FixedReset 30,295 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 4.53 %
There were 64 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.E FixedReset Quote: 18.85 – 19.31
Spot Rate : 0.4600
Average : 0.2872

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.66 %
BNS.PR.C FloatingReset Quote: 22.72 – 23.13
Spot Rate : 0.4100
Average : 0.3019

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.72
Bid-YTW : 3.97 %
RY.PR.J FixedReset Quote: 20.30 – 20.59
Spot Rate : 0.2900
Average : 0.1837

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 4.52 %
GWO.PR.F Deemed-Retractible Quote: 25.37 – 25.67
Spot Rate : 0.3000
Average : 0.2000

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -17.11 %
TD.PF.F Perpetual-Discount Quote: 23.25 – 23.50
Spot Rate : 0.2500
Average : 0.1549

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-12-01
Maturity Price : 22.87
Evaluated at bid price : 23.25
Bid-YTW : 5.31 %
TD.PR.S FixedReset Quote: 24.33 – 24.66
Spot Rate : 0.3300
Average : 0.2355

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.33
Bid-YTW : 3.45 %
Issue Comments

CPX.PR.A To Reset At 3.06%; Optional Conversion to CPX.PR.B

Capital Power Corporation has announced:

that it has notified the registered shareholder of its Cumulative 5-Year Rate Reset Preference Shares, Series 1 (Series 1 Shares) (TSX: CPX.PR.A) of the Conversion Privilege and Dividend Rate Notice.

Beginning on December 1, 2015 and ending on December 16, 2015 holders of the Series 1 Shares will have the right to elect to convert any or all of their Series 1 Shares into an equal number of Cumulative Floating Rate Preference Shares, Series 2 (Series 2 Shares).

If Capital Power does not receive an Election Notice from a holder of Series 1 Shares during the time fixed therefor, then the Series 1 Shares shall be deemed not to have been converted (except in the case of an Automatic Conversion). Holders of the Series 1 Shares and the Series 2 Shares will have the opportunity to convert their shares again on December 31, 2020, and every five years thereafter as long as the shares remain outstanding.

Effective December 31, 2015, the Annual Fixed Dividend Rate for the Series 1 Shares was set for the next five year period at 3.06%. Effective December 31, 2015, the Floating Quarterly Dividend for the Series 2 Shares was set for the first Quarterly Floating Rate Period (being the period from and including December 31, 2015, to but excluding March 31, 2016) at 2.67%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 1 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 1 Shares is the Canadian Depository for Securities Limited (CDS). All rights of beneficial holders of Series 1 Shares must be exercised through CDS or the CDS participant through which the Series 1 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 1 Shares into Series 2 Shares is 3:00 p.m. (MST) / 5:00 p.m. (EST) on December 16, 2015. Any notices received after this deadline will not be valid. As such, holders of Series 1 Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

After December 16, 2015, (i) if Capital Power determines that there would remain outstanding on December 31, 2015, less than 1,000,000 Series 1 Shares, all remaining Series 1 Shares will be automatically converted into Series 2 Shares on a one-for one basis effective December 31, 2015; or (ii) if Capital Power determines that there would remain outstanding after December 31, 2015, less than 1,000,000 Series 2 Shares, no Series 1 Shares will be permitted to be converted into Series 2 Shares effective December 31, 2015. There are currently 5,000,000 Series 1 Shares outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series 2 Shares effective upon conversion. Listing of the Series 2 Shares is subject to the Capital Power fulfilling all the listing requirements of the TSX and upon approval, the Series 2 Shares will be listed on the TSX under the trading symbol CPX.PR.B.

CPX.PR.A is a FixedReset, originally 4.60%+217, that commenced trading 2010-12-16 after being announced 2010-12-1. Thus, we observe a 33% reduction of the dividend.

As noted in the release, the deadline for notifying the company of a desire to convert to the FloatingReset CPX.PR.B is 5:00 p.m. (EST) on December 16, 2015, (a Wednesday) but brokerages will normally have an internal deadline a day or two prior to that. If you miss the brokerage deadline, they’ll probably submit the request for you if you grovel, but if you miss the company deadline, that’s it.

At this point, market conditions are such that I expect CPX.PR.B to trade significantly below CPX.PR.A. CPX.PR.A closed today at 10.15 (!) and the average implied 3-month bill rate of other junk issues is -0.70%. Assuming this relationship holds, the estimated trading price for CPX.PR.B is 8.69, about 15% lower. Rather than convert and thereby get 1.00 shares of CPX.PR.B, it seems likely (but by no means guaranteed!) that it will be better to execute trades in the marketplace after CPX.PR.B commences trading and thereby get (maybe!) 1.16 shares of CPX.PR.B.

So, I expect to recommend that holders of CPX.PR.A hang on to them, but I will make a formal recommendation on December 11, just in time for PrefLetter.

New Issues

New Issue: BIP FixedReset, 5.50%+453M550 (Interest + ROC)

Brookfield Infrastructure has announced:

that it has agreed to issue 5,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 3 (“Series 3 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc. The Series 3 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000. Holders of the Series 3 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.50% annually for the initial period ending December 31, 2020. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.53%, and (ii) 5.50%. The Series 3 Preferred Units are redeemable on or after December 31, 2020.

Holders of the Series 3 Preferred Units will have the right, at their option, to reclassify their Series 3 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 4 (“Series 4 Preferred Units”), subject to certain conditions, on December 31, 2020 and on December 31 every 5 years thereafter. Holders of Series 4 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.53%.

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 3 Preferred Units which, if exercised, would increase the gross offering size to $175,000,000. The Series 3 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 3 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 3 Preferred Units is expected to close on or about December 8, 2015.

The sentence “The Series 3 Preferred Units are redeemable on or after December 31, 2020.” is, from what I’ve seen, poorly phrased. My understanding is that it is redeemable at par on every Exchange Date, in line with the accepted structure.

Investors should be aware that the distributions are expected to be a mixture of ordinary income and return of capital for tax purposes; no Eligible Dividends are expected. The company expects a 50-50 split of the two types of income over the next five years, but of course there are no guarantees! I have been supplied with the following characterization of the past five years:

Past Composition of BIP Distributions
  2014 2013 2012 2011 2010
Total distribution $2.1378 $1.7883 $1.4988 $1.3198 $1.1277
Total taxable income $2.1035 $0.4131 $0.7939 $0.4825 $0.2368
Return of capital $0.0343 $1.3752 $0.7049 $0.8372 $0.8909
Income % 98.40% 23.10% 52.97% 36.56% 21.00%
Return of capital % 1.60% 76.90% 47.03% 63.44% 79.00%

Sure bounces around a lot, doesn’t it?

BIP.PR.A was bid at 20.40 today to yield 5.50% to perpetuity … so call these issues more-or-less even yield. This suggests that the new issue is grossly expensive, unless you place a high value on the “dividend floor” feature, which I don’t.

Market Action

November 30, 2015

I have a lot of sympathy for the central bankers of the world, as I’ve mentioned before: they cut policy yields to the bone, hoping thereby to get consumers spending and business investing, but all that happens is people drive up the value of real estate. It will take a long period of declines and stagnation before people look upon their houses merely as a place to live, and that hasn’t started happening yet!

To address this problem of what can credibly be argued is misdirected investment – into non-productive assets – politicians from all over have played God with their economies, micromanaging mortgage rules to ensure that only the right sort of people can get financing for real-estate. I deplore this, while at the same time agreeing that a problem is demonstrable.

I would prefer a broader-brush approach to bank capital, based on the precept that while change can be good or bad, rapid changes of emphasis in the economy are very often bad, evidence of bubbles rather than shifts in demand. For instance, mortgages as a share of Canadian bank assets increased from 30% to 40%, fueled by an enormous expansion of CMHC guarantees, and while I would not go so far as to say that is definitive proof of a bubble, I will say that it’s a big change and should be addressed in a cautious manner.

There are two approaches that can be taken: the first is to insist that for risk-management purposes, the loan-to-value ratio of a mortgage be calculated not according to the sale price or to the appraised value, but to an estimate of what this would have been five or ten years ago, adjusted for inflation. So, for instance, if we have a house that sold in 2014 for $567,000 and has a mortgage of $400,000, we would now currently say the LTV is 71%. I suggest that for regulatory risk purposes we use the 2009 price of $395,000, add on 10% to reflect plain vanilla inflation for a notional value of $435,000, and say OK, you’ve got to put up capital reflecting this notional LTV of 92%, which is a different kettle of fish altogether.

The second approach would simply say … 40% of your balance sheet is now mortgages, the average over the last ten years is 30%, the difference is 10% and 10% of that is 1%, so there’s a countercyclical capital surcharge of 1% that will be applied to your risk weighted assets. A solution would need to be more detailed, with meaningful categorizations of bank assets and threshold values for surcharges so that slow change is not discouraged, but that’s the general idea.

An Australian change of mortgage risk-weights last summer:

Under rules coming into force on July 1, 2016, the average risk weight on residential mortgage exposures will rise to at least 25 percent from about 16 percent, the Australian Prudential Regulation Authority said in a statement.
…
The regulator is forcing banks to shore up their capital after a government review last December recommended they should rank among the top 25 percent of lenders globally. The capital increase forms part of the regulators’ attempt to ensure the financial system can cope with any downturn in the housing market, where prices have climbed almost 30 percent in the past three years.

Australia & New Zealand Banking Group Ltd. Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and Macquarie Group Ltd. will be affected by the new rules, which equate to increasing minimum capital requirements by about 80 basis points, APRA said. The cost of holding more capital may force the lenders to raise their mortgage rates, according to Morningstar Inc. and Bell Potter Securities Ltd.

… and the change appears to have had some effect:

Sydney home prices fell the most in five years in November as a regulatory crackdown forces banks to tighten lending and increase mortgage rates.

Dwelling values in Australia’s largest city dropped 1.4 percent from a month earlier, data from property researcher CoreLogic Inc. showed on Tuesday. That was the biggest drop since December 2010 and the first decline since May. Prices across the nation’s capital cities declined 1.5 percent, with Melbourne leading with a 3.5 percent decrease.

“The fact that mortgage rates have risen independently of the cash rate has, in all likelihood, become a contributor to the slowdown in housing market conditions,” Tim Lawless, head of research at the firm, said in an e-mailed statement. “Tighter mortgage servicing criteria across the board and affordability constraints in the Sydney and Melbourne markets are also having an impact on market demand.”

The drop in home prices is yet another indicator of the cooling Sydney property market after mortgage rates close to five-decade lows and buying by foreigners sent prices up 44 percent in the past three years.

The regulator’s justification for the increase makes much more sense than the micro-economic arguments we’re hearing from Ottawa and the UK!

And in today’s drone news, Amazon has released videos and pictures about its developing Prime Air delivery service!

prime-air_02
Click for Big

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts up 30bp, FixedResets off 42bp and DeemedRetractibles gaining 14bp. FixedResets comprised all of the bad part of the Performance Highlights table. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_151130
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.30 to be $1.30 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.95 cheap at its bid price of 12.64.

impVol_MFC_151130
Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.60 to be 0.49 rich, while MFC.PR.J, resetting at +261bp on 2018-3-19, is bid at 21.00 to be 0.62 cheap.

impVol_BAM_151130
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.90 to be $1.16 cheap. BAM.PR.X, resetting at +180bp on 2017-6-30 is bid at 15.16 and appears to be $0.77 rich.

impVol_BAM_151130
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.89, looks $0.92 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.82 and is $0.58 cheap.

pairs_FR_151130
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.35%, with no outliers. There is one junk outlier below -1.50%.

pairs_FF_151130
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 4.37 % 5.25 % 35,717 17.57 1 -0.3831 % 1,780.6
FixedFloater 6.28 % 5.53 % 28,774 16.86 1 -0.5263 % 3,106.0
Floater 4.25 % 4.31 % 87,423 16.71 3 3.1889 % 1,856.8
OpRet 4.85 % 3.54 % 28,050 0.74 1 0.1190 % 2,744.1
SplitShare 4.77 % 5.64 % 128,712 4.32 5 -0.2645 % 3,214.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2645 % 2,507.7
Perpetual-Premium 5.74 % -5.60 % 89,084 0.09 6 0.2357 % 2,532.0
Perpetual-Discount 5.55 % 5.59 % 92,851 14.47 33 0.3031 % 2,578.5
FixedReset 5.02 % 4.66 % 224,971 14.99 76 -0.4183 % 2,043.8
Deemed-Retractible 5.14 % 5.14 % 122,615 5.36 33 0.1423 % 2,597.7
FloatingReset 2.63 % 3.61 % 65,192 5.73 10 0.4807 % 2,196.3
Performance Highlights
Issue Index Change Notes
FTS.PR.G FixedReset -2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 17.82
Evaluated at bid price : 17.82
Bid-YTW : 4.47 %
MFC.PR.J FixedReset -2.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 5.95 %
BAM.PF.B FixedReset -1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.97 %
TRP.PR.A FixedReset -1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 4.66 %
BAM.PR.R FixedReset -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 5.27 %
SLF.PR.G FixedReset -1.73 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.80
Bid-YTW : 8.89 %
RY.PR.M FixedReset -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 20.06
Evaluated at bid price : 20.06
Bid-YTW : 4.46 %
TRP.PR.D FixedReset -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 18.48
Evaluated at bid price : 18.48
Bid-YTW : 4.69 %
BAM.PF.F FixedReset -1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 20.34
Evaluated at bid price : 20.34
Bid-YTW : 4.92 %
HSE.PR.G FixedReset -1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.34 %
BMO.PR.S FixedReset -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 19.16
Evaluated at bid price : 19.16
Bid-YTW : 4.45 %
FTS.PR.K FixedReset -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 18.89
Evaluated at bid price : 18.89
Bid-YTW : 4.18 %
BNS.PR.D FloatingReset -1.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.62
Bid-YTW : 5.61 %
BAM.PR.T FixedReset -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 16.36
Evaluated at bid price : 16.36
Bid-YTW : 5.21 %
MFC.PR.K FixedReset -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.30
Bid-YTW : 6.74 %
TRP.PR.C FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 12.64
Evaluated at bid price : 12.64
Bid-YTW : 4.92 %
TRP.PR.B FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 11.66
Evaluated at bid price : 11.66
Bid-YTW : 4.69 %
CM.PR.P FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 17.95
Evaluated at bid price : 17.95
Bid-YTW : 4.65 %
NA.PR.Q FixedReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.75
Bid-YTW : 3.73 %
BNS.PR.Y FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.30
Bid-YTW : 5.52 %
TRP.PR.E FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 4.55 %
CU.PR.D Perpetual-Discount 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 21.81
Evaluated at bid price : 22.15
Bid-YTW : 5.55 %
CU.PR.E Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 21.70
Evaluated at bid price : 22.00
Bid-YTW : 5.59 %
TD.PR.T FloatingReset 1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 3.39 %
CU.PR.C FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 19.34
Evaluated at bid price : 19.34
Bid-YTW : 4.38 %
GWO.PR.N FixedReset 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.83
Bid-YTW : 9.82 %
MFC.PR.F FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.91
Bid-YTW : 8.98 %
PWF.PR.G Perpetual-Premium 1.27 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-30
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : -16.42 %
CU.PR.H Perpetual-Discount 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 23.62
Evaluated at bid price : 23.95
Bid-YTW : 5.50 %
TD.PR.Z FloatingReset 1.54 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.06
Bid-YTW : 3.50 %
SLF.PR.H FixedReset 1.67 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.25
Bid-YTW : 7.22 %
IAG.PR.A Deemed-Retractible 1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.80
Bid-YTW : 6.45 %
PWF.PR.T FixedReset 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 22.23
Evaluated at bid price : 22.70
Bid-YTW : 3.78 %
CU.PR.G Perpetual-Discount 1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 5.52 %
BAM.PR.B Floater 2.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 11.10
Evaluated at bid price : 11.10
Bid-YTW : 4.31 %
BAM.PR.C Floater 3.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 11.13
Evaluated at bid price : 11.13
Bid-YTW : 4.30 %
TRP.PR.H FloatingReset 3.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 10.80
Evaluated at bid price : 10.80
Bid-YTW : 3.99 %
BAM.PR.K Floater 3.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 11.10
Evaluated at bid price : 11.10
Bid-YTW : 4.31 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BNS.PR.C FloatingReset 126,134 TD crossed 125,000 at 23.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 3.75 %
IFC.PR.A FixedReset 62,719 Desjardins crossed 42,100 at 16.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.39
Bid-YTW : 8.82 %
BNS.PR.R FixedReset 59,151 TD crossed 50,000 at 24.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.73
Bid-YTW : 3.62 %
PWF.PR.P FixedReset 43,750 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 14.61
Evaluated at bid price : 14.61
Bid-YTW : 4.36 %
TRP.PR.F FloatingReset 37,975 RBC crossed 17,300 at 13.93.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 13.90
Evaluated at bid price : 13.90
Bid-YTW : 4.25 %
FTS.PR.K FixedReset 36,701 RBC crossed 17,800 at 19.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 18.89
Evaluated at bid price : 18.89
Bid-YTW : 4.18 %
There were 65 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.G FixedReset Quote: 21.00 – 21.79
Spot Rate : 0.7900
Average : 0.4778

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.34 %
TRP.PR.A FixedReset Quote: 15.75 – 16.39
Spot Rate : 0.6400
Average : 0.4307

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 4.66 %
MFC.PR.K FixedReset Quote: 19.30 – 19.84
Spot Rate : 0.5400
Average : 0.3452

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.30
Bid-YTW : 6.74 %
RY.PR.M FixedReset Quote: 20.06 – 20.51
Spot Rate : 0.4500
Average : 0.2849

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-30
Maturity Price : 20.06
Evaluated at bid price : 20.06
Bid-YTW : 4.46 %
MFC.PR.J FixedReset Quote: 21.00 – 21.50
Spot Rate : 0.5000
Average : 0.3371

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 5.95 %
BNS.PR.D FloatingReset Quote: 19.62 – 19.99
Spot Rate : 0.3700
Average : 0.2196

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.62
Bid-YTW : 5.61 %
Market Action

November 27, 2015

Nothing happened today.

It was a moderately good day for the Canadian preferred share market today [for a change!] with PerpetualDiscounts up 13bp, FixedResets gaining 12bp and DeemedRetractibles winning 32bp. The Performance Highlights table is dominated by winners. Volume was above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_151127
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.50 to be $1.27 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.97 cheap at its bid price of 12.80.

impVol_MFC_151127
Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.53 to be 0.36 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 22.69 to be 0.26 cheap.

impVol_BAM_151127
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.19 to be $1.01 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.75 and appears to be $0.68 rich.

impVol_FTS_151127
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 19.16, looks $1.04 expensive and resets 2019-3-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 19.83 and is $0.44 cheap.

pairs_FR_151127
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.60%, with no outliers. There is one junk outlier below -1.50%.

pairs_FF_151127
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 4.35 % 5.23 % 35,879 17.60 1 -2.1250 % 1,787.5
FixedFloater 6.25 % 5.49 % 28,692 16.91 1 0.5291 % 3,122.4
Floater 4.39 % 4.44 % 85,919 16.47 3 0.7486 % 1,799.4
OpRet 4.86 % 3.66 % 29,102 0.75 1 0.0000 % 2,740.8
SplitShare 4.75 % 5.54 % 129,339 4.33 5 0.0246 % 3,222.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0246 % 2,514.3
Perpetual-Premium 5.75 % -0.73 % 85,226 0.09 6 0.6657 % 2,526.1
Perpetual-Discount 5.57 % 5.63 % 90,847 14.44 33 0.1278 % 2,570.7
FixedReset 5.00 % 4.60 % 226,817 15.09 76 0.1177 % 2,052.4
Deemed-Retractible 5.14 % 5.16 % 120,161 5.37 33 0.3239 % 2,594.0
FloatingReset 2.60 % 3.74 % 65,226 5.74 10 0.2718 % 2,185.8
Performance Highlights
Issue Index Change Notes
TRP.PR.H FloatingReset -5.35 % Quite real, as the price collapsed shortly before 3:30pm, while the issue traded 19,675 in a range of 10.30-10. 6,200 shares changed hands at 10.40, while another 1,000 traded at 10.41. VWAP was 10.69 and the closing quote was 10.44-79, 10×4.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 10.44
Evaluated at bid price : 10.44
Bid-YTW : 4.06 %
FTS.PR.M FixedReset -4.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.83
Evaluated at bid price : 19.83
Bid-YTW : 4.51 %
MFC.PR.F FixedReset -2.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.73
Bid-YTW : 9.14 %
BAM.PR.E Ratchet -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 25.00
Evaluated at bid price : 15.66
Bid-YTW : 5.23 %
TD.PF.D FixedReset -2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 20.47
Evaluated at bid price : 20.47
Bid-YTW : 4.55 %
CM.PR.Q FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 20.81
Evaluated at bid price : 20.81
Bid-YTW : 4.48 %
FTS.PR.K FixedReset 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.16
Evaluated at bid price : 19.16
Bid-YTW : 4.13 %
TRP.PR.D FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 18.79
Evaluated at bid price : 18.79
Bid-YTW : 4.62 %
PWF.PR.P FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 14.72
Evaluated at bid price : 14.72
Bid-YTW : 4.34 %
MFC.PR.J FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.54
Bid-YTW : 5.61 %
TD.PR.T FloatingReset 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 3.54 %
MFC.PR.C Deemed-Retractible 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.98
Bid-YTW : 6.89 %
FTS.PR.H FixedReset 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 14.33
Evaluated at bid price : 14.33
Bid-YTW : 4.22 %
MFC.PR.H FixedReset 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.87
Bid-YTW : 4.74 %
TD.PR.S FixedReset 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 3.29 %
MFC.PR.B Deemed-Retractible 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.46
Bid-YTW : 6.74 %
BNS.PR.D FloatingReset 1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.90
Bid-YTW : 5.32 %
VNR.PR.A FixedReset 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.57
Evaluated at bid price : 19.57
Bid-YTW : 4.93 %
BAM.PF.B FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.22
Evaluated at bid price : 19.22
Bid-YTW : 4.88 %
HSE.PR.G FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 21.35
Evaluated at bid price : 21.35
Bid-YTW : 5.26 %
BAM.PR.B Floater 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 10.82
Evaluated at bid price : 10.82
Bid-YTW : 4.42 %
BAM.PR.R FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 16.19
Evaluated at bid price : 16.19
Bid-YTW : 5.19 %
BAM.PF.A FixedReset 1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 20.32
Evaluated at bid price : 20.32
Bid-YTW : 4.93 %
BAM.PR.C Floater 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 10.78
Evaluated at bid price : 10.78
Bid-YTW : 4.44 %
TRP.PR.F FloatingReset 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 14.01
Evaluated at bid price : 14.01
Bid-YTW : 4.16 %
MFC.PR.M FixedReset 2.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.63
Bid-YTW : 6.10 %
MFC.PR.N FixedReset 2.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.53
Bid-YTW : 6.09 %
IGM.PR.B Perpetual-Premium 2.68 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-31
Maturity Price : 25.75
Evaluated at bid price : 26.01
Bid-YTW : -0.73 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BMO.PR.K Deemed-Retractible 178,236 Desjardins crossed 50,000 at 25.65; Scotia crossed 52,000 at the same price; and TD crossed 75,000 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-27
Maturity Price : 25.25
Evaluated at bid price : 25.61
Bid-YTW : -11.37 %
TD.PR.T FloatingReset 108,500 TD crossed 107,0000 at 22.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 3.54 %
MFC.PR.F FixedReset 60,859 RBC crossed 50,000 at 15.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.73
Bid-YTW : 9.14 %
RY.PR.Z FixedReset 58,162 TD crossed 30,000 at 18.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 4.46 %
RY.PR.B Deemed-Retractible 57,950 RBC crossed 50,000 at 24.96.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.73 %
PWF.PR.F Perpetual-Discount 53,400 Nesbitt crossed 45,900 at 23.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 22.95
Evaluated at bid price : 23.22
Bid-YTW : 5.71 %
There were 43 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.T FloatingReset Quote: 22.85 – 23.47
Spot Rate : 0.6200
Average : 0.3866

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 3.54 %
FTS.PR.M FixedReset Quote: 19.83 – 20.29
Spot Rate : 0.4600
Average : 0.3079

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.83
Evaluated at bid price : 19.83
Bid-YTW : 4.51 %
PWF.PR.P FixedReset Quote: 14.72 – 15.19
Spot Rate : 0.4700
Average : 0.3294

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 14.72
Evaluated at bid price : 14.72
Bid-YTW : 4.34 %
VNR.PR.A FixedReset Quote: 19.57 – 20.00
Spot Rate : 0.4300
Average : 0.2948

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 19.57
Evaluated at bid price : 19.57
Bid-YTW : 4.93 %
PWF.PR.T FixedReset Quote: 22.28 – 22.80
Spot Rate : 0.5200
Average : 0.3899

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-27
Maturity Price : 21.94
Evaluated at bid price : 22.28
Bid-YTW : 3.87 %
MFC.PR.F FixedReset Quote: 14.73 – 15.15
Spot Rate : 0.4200
Average : 0.2950

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.73
Bid-YTW : 9.14 %
Market Action

November 26, 2015

I will be very disappointed if this is the end of the Silver-Sprott battle:

Today, Silver Bullion Trust (TSX:SBT.UN) (C$) (TSX:SBT.U) (US$) (“SBT”) entered into a new definitive agreement with Purpose Investments Inc. (“Purpose”), regarding the conversion of SBT into a silver bullion exchange-traded fund (“ETF”) managed by Purpose and Silver Administrators Limited. The proposed ETF conversion, which is subject to unitholder approval, has the unanimous support of your Independent Trustees and represents an exciting opportunity for SBT unitholders.

Purpose has current assets under management of over $1.4 billion across 17 funds and is one of Canada’s most experienced ETF managers, with significant experience in managing and marketing bullion funds. Purpose’s predecessor company, Claymore Investments, which was acquired by BlackRock in 2012, managed the Claymore Silver Bullion Trust, which was successfully converted into an ETF in 2012. For further information on Purpose, we encourage unitholders to visit their website at www.purposeinvest.com.

Andrew Jackson, of Carleton University and the Broadbent Institute, is making much more sense now that he no longer works for the Canadian Labour Congress! He’s written a piece for the Globe titled Global slump should be addressed by this monetary taboo, which includes a paen to micromanagement:

As Adair Turner shows in his new book, Between Debt and the Devil, private-sector debt soared as a share of GDP in most advanced economies after the 1980s, fuelling unproductive, debt-financed household consumption, housing bubbles and wasteful financial speculation.
…
Adair Turner, former chief regulator of British banks, argues that we need to reign in the growth of unproductive private debt by imposing tighter controls on banks through much higher capital requirements and by imposing limits on borrowing, such as maximum loan-to-value mortgage rules. Banks should, he argues, be pushed to support real business investment as opposed to highly leveraged financial speculation and household consumption.

Mr. Jackson’s egalitarian impulses were, no doubt, responsible for his refusal to use Lord Turner’s honorific!

The Grauniad’s review provides more detail:

When capitalism works, debt channels money into factories, machinery and know how. There will be bumps along the road, but the economy will grow. In the run up to 2007, however, the made-up money was not going into anything productive, but rather inflating the price of pre-existing homes. Indeed, Turner locates the roots of the crisis in the mismatch between a limited supply of urban land, and the limitless potential to finance rising demand for it. For individual banks, it can make sense to lend for unrealistically costly houses, since mortgaged families will sacrifice everything else to keep up payments and avoid ending up on the streets. For the economy as a whole, however, concentrating debt in property is a disaster, draining resources from worthwhile investment and wagering collective prosperity on a one-way bet. Worse, while debt-fuelled bursts of real activity will push up inflation, when all the money is in property that warning light never flashes. We’re all left exposed: unsafe as houses.
…
To kick our addiction to debt, Turner argues, we can and should restrain the banks, for example by forcing them to hold more reserves. We can and should also devise new ways to privilege productive investment over property speculation. Turner, who became chair of the Financial Services Authority days after Lehman Bros toppled, puts great emphasis on explaining how regulators could do all this practically, a dimension that gives the book extra importance, albeit at the occasional expense of readability. Every so often you yearn for him to say “posh houses”, rather than “locationally desirable real estate”.

The Independent offers some criticism:

Turner is admirably fearless. He goes where his fundamental analysis tells him to go. But is his underlying thesis right? A weakness of the book is that Turner doesn’t fully engage with the counter evidence. For instance, there are signs that small firms in the UK have been turned down for loans by their banks, or at least discouraged from seeking credit – an indication that lack of credit supply is part of the problem. Demand for mortgages in th UK seems to have bounced back, despite still elevated household debt to income ratios here in Britain.

There are also other plausible explanations, beyond excessive debt, for the weak recoveries across the world, not least the thesis of secular stagnation. Perhaps the incubus squatting on the chest of our economies is not a debt overhang, as Turner asserts, but slow growth brought on by demographic trends. Or maybe its dunderheaded fiscal austerity imposed by governments that’s primarily to blame.

Lord Turner’s previous notable production was highlighted on PrefBlog when UK FSA Publishes Turner Report on Bank Regulation with more commentary in HM Treasury Responds to Turner Report. It looks like it could be a decent book … I might buy it!

Oh, and speaking of houses:

Properties in Canadian cities don’t command New York prices but Canada is definitely rising in the ranks, Mr. Henry says.

Juwai.com crunched its latest numbers for The Globe and found that, within Canada, Chinese buyers of sumptuous properties have shifted their preference toward Toronto and away from Vancouver.

The average price for property viewed by Chinese property hunters in Toronto has increased over the past two years as the average price in Vancouver has declined, according to Juwai.com. The two cities have switched roles, with Toronto now attracting a higher-priced buyer mix than Vancouver.

In five of the past six months, Juwai.com’s users have searched for a higher average price in Toronto than in Vancouver.

In October, for example, the average search price in Toronto was $1,963,278, compared with $1,268,194 in Vancouver. In October of 2014, the average search price in Toronto was $1,582,300 and, in Vancouver, $1,840,999.

Brompton’s Life & Banc Split Corp., proud issuer of LBS.PR.A, was confirmed at Pfd-3(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the rating on the Preferred Shares issued by Life & Banc Split Corp. (the Company) at Pfd-3 (low). In October 2006, the Company raised gross proceeds of $300 million by issuing 12 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Since then, the Company has completed several additional treasury offerings. The final redemption date for both classes of shares issued was originally November 29, 2013, but was extended to November 29, 2018.
…
The performance of the Portfolio has experienced some volatility over the past year, with the downside protection fluctuating between 41.8% and 52.0% from November 2014 to November 2015. As of November 19, 2015, the downside protection available to the Preferred Shares is approximately 45.4% and the dividend coverage ratio is about 1.1 times. The Pfd-3 (low) rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by the asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

It was yet another mixed, mostly negative, bad-for-FixedResets day for the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets down 23bp and DeemedRetractibles gaining 2bp. The Performance Highlights table is lengthy. Volume was very high.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard conversion factor of 1.3x. Long Corporates now yield 4.33%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, a widening from the 290bp reported November 4.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_151126
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.38 to be $1.23 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.89 cheap at its bid price of 12.85.

impVol_MFC_151126
Click for Big

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 19.74 to be 0.33 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 20.20 to be 0.20 cheap.

impVol_BAM_151126
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.95 to be $1.14 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.58 and appears to be $0.63 rich.

impVol_FTS_151126
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.97, looks $0.77 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.20 and is $0.48 cheap.

pairs_FR_151126
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.60%, with no outliers. There is one junk outlier below -1.50%.

pairs_FF_151126
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 4.26 % 5.10 % 34,483 17.75 1 1.0220 % 1,826.3
FixedFloater 6.28 % 5.52 % 28,694 16.87 1 0.1324 % 3,106.0
Floater 4.42 % 4.49 % 84,863 16.37 3 -2.1965 % 1,786.0
OpRet 4.86 % 3.65 % 30,197 0.75 1 0.0000 % 2,740.8
SplitShare 4.76 % 5.53 % 131,161 4.33 5 0.0678 % 3,221.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0678 % 2,513.7
Perpetual-Premium 5.79 % 0.28 % 84,366 0.08 6 -0.0264 % 2,509.4
Perpetual-Discount 5.58 % 5.64 % 90,814 14.44 33 -0.0213 % 2,567.5
FixedReset 5.01 % 4.62 % 223,982 14.98 76 -0.2294 % 2,050.0
Deemed-Retractible 5.16 % 5.28 % 119,479 5.37 33 0.0150 % 2,585.6
FloatingReset 2.61 % 3.84 % 60,715 5.74 10 -0.2072 % 2,179.8
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -3.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 10.60
Evaluated at bid price : 10.60
Bid-YTW : 4.51 %
BAM.PR.B Floater -3.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 10.66
Evaluated at bid price : 10.66
Bid-YTW : 4.49 %
TD.PF.D FixedReset -2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 4.46 %
BMO.PR.W FixedReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 18.15
Evaluated at bid price : 18.15
Bid-YTW : 4.55 %
CU.PR.G Perpetual-Discount -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.04
Evaluated at bid price : 20.04
Bid-YTW : 5.65 %
BAM.PF.E FixedReset -2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 4.97 %
CU.PR.C FixedReset -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.42 %
TRP.PR.F FloatingReset -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 13.75
Evaluated at bid price : 13.75
Bid-YTW : 4.24 %
BAM.PF.G FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.58
Evaluated at bid price : 20.58
Bid-YTW : 4.88 %
HSE.PR.G FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 21.04
Evaluated at bid price : 21.04
Bid-YTW : 5.33 %
FTS.PR.M FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 4.31 %
HSE.PR.E FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.69
Evaluated at bid price : 20.69
Bid-YTW : 5.44 %
IFC.PR.A FixedReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.33
Bid-YTW : 8.87 %
RY.PR.M FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 4.41 %
TD.PF.A FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.52 %
VNR.PR.A FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 5.00 %
BMO.PR.M FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.36
Bid-YTW : 3.43 %
BAM.PR.E Ratchet 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 25.00
Evaluated at bid price : 16.00
Bid-YTW : 5.10 %
W.PR.J Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 23.82
Evaluated at bid price : 24.07
Bid-YTW : 5.89 %
TRP.PR.D FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 4.67 %
GWO.PR.S Deemed-Retractible 1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 5.56 %
GWO.PR.Q Deemed-Retractible 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 6.17 %
BIP.PR.A FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 5.39 %
PWF.PR.T FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 21.99
Evaluated at bid price : 22.35
Bid-YTW : 3.86 %
BMO.PR.R FloatingReset 1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 3.43 %
MFC.PR.K FixedReset 1.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.60
Bid-YTW : 6.54 %
TRP.PR.A FixedReset 3.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.59 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BNS.PR.R FixedReset 127,501 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 3.57 %
GWO.PR.M Deemed-Retractible 115,545 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : 5.52 %
RY.PR.I FixedReset 110,855 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 3.71 %
MFC.PR.L FixedReset 107,700 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.74
Bid-YTW : 6.52 %
IFC.PR.A FixedReset 101,049 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.33
Bid-YTW : 8.87 %
BNS.PR.Q FixedReset 95,910 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.38
Bid-YTW : 3.63 %
There were 53 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.G Perpetual-Discount Quote: 20.04 – 20.62
Spot Rate : 0.5800
Average : 0.3990

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 20.04
Evaluated at bid price : 20.04
Bid-YTW : 5.65 %
MFC.PR.J FixedReset Quote: 21.32 – 21.74
Spot Rate : 0.4200
Average : 0.2664

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.32
Bid-YTW : 5.75 %
W.PR.H Perpetual-Discount Quote: 23.80 – 24.25
Spot Rate : 0.4500
Average : 0.3164

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 23.53
Evaluated at bid price : 23.80
Bid-YTW : 5.85 %
GWO.PR.L Deemed-Retractible Quote: 25.08 – 25.44
Spot Rate : 0.3600
Average : 0.2358

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 5.77 %
SLF.PR.J FloatingReset Quote: 13.35 – 13.70
Spot Rate : 0.3500
Average : 0.2413

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.35
Bid-YTW : 9.54 %
TRP.PR.H FloatingReset Quote: 11.03 – 11.35
Spot Rate : 0.3200
Average : 0.2198

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-26
Maturity Price : 11.03
Evaluated at bid price : 11.03
Bid-YTW : 3.84 %
Market Action

November 25, 2015

The UK government is bringing micromanagement of the economy to new levels:

Buy-to-let landlords have been hit by the second major tax hike in less than a year, as Chancellor George Osborne took action against the “growing crisis of home ownership” in Britain.

Property investors will be hit by a 3pc rise in stamp duty from 1 April 2016, and the surcharge will also apply to people buying second homes. It means the tax bill on a buy-to-let property costing £250,000 will jump from £2,500 to £8,800.
…
Mr Osborne also announced a London Help to Buy initiative, which will allow more young people to get on the housing ladder in the capital, where the average house price for a first-time buyer is now an eye-watering £385,000. The scheme will offer buyers with a 5pc deposit a loan of up to 40pc of the value of a new build home, interest-free for five years.

It was another mixed, mostly negative day for the Canadian preferred share market, with PerpetualDiscounts off 12bp, FixedResets down 44bp and DeemedRetractibles gaining 20bp. The Performance Highlights table is mostly negative, but still showing a lot of churn. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_151125
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.22 to be $1.19 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.87 cheap at its bid price of 12.80.

impVol_MFC_151125
Click for Big

Most expensive is MFC.PR.I, resetting at +286bp on 2017-9-19, bid at 22.67 to be 0.23 rich, while MFC.PR.K resetting at +222bp on 2018-9-19, is bid at 19.25 to be 0.42 cheap.

impVol_BAM_151125
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.04 to be $1.16 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.91 and appears to be $0.89 rich.

impVol_FTS_151125
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.85, looks $0.65 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.16 and is $0.65 cheap.

pairs_FR_151125
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.35%, with one outlier above +0.50%. There is one junk outlier below -1.50%.

pairs_FF_151125
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 4.29 % 5.16 % 32,687 17.62 1 -0.6250 % 1,807.8
FixedFloater 6.29 % 5.53 % 27,994 16.86 1 -2.2654 % 3,101.9
Floater 4.32 % 4.34 % 84,528 16.67 3 -1.7386 % 1,826.1
OpRet 4.86 % 3.63 % 31,441 0.75 1 0.2783 % 2,740.8
SplitShare 4.76 % 5.43 % 132,884 4.34 5 0.1479 % 3,219.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1479 % 2,512.0
Perpetual-Premium 5.79 % 0.57 % 85,153 0.08 6 0.0198 % 2,510.0
Perpetual-Discount 5.58 % 5.63 % 89,426 14.44 33 -0.1223 % 2,568.0
FixedReset 4.99 % 4.66 % 222,822 15.12 76 -0.4367 % 2,054.7
Deemed-Retractible 5.16 % 5.06 % 119,774 5.38 33 0.2018 % 2,585.3
FloatingReset 2.60 % 3.75 % 60,630 5.74 10 -0.0358 % 2,184.4
Performance Highlights
Issue Index Change Notes
TRP.PR.C FixedReset -3.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 12.80
Evaluated at bid price : 12.80
Bid-YTW : 4.88 %
CM.PR.P FixedReset -2.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.19
Evaluated at bid price : 18.19
Bid-YTW : 4.59 %
BAM.PR.K Floater -2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 10.72
Evaluated at bid price : 10.72
Bid-YTW : 4.46 %
CM.PR.O FixedReset -2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 4.55 %
BAM.PR.R FixedReset -2.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.24 %
BAM.PR.G FixedFloater -2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 25.00
Evaluated at bid price : 15.10
Bid-YTW : 5.53 %
BMO.PR.T FixedReset -2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 4.49 %
TRP.PR.G FixedReset -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 4.76 %
BAM.PR.N Perpetual-Discount -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.17
Evaluated at bid price : 20.17
Bid-YTW : 6.00 %
BAM.PF.B FixedReset -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.88
Evaluated at bid price : 18.88
Bid-YTW : 4.97 %
BAM.PF.C Perpetual-Discount -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.36
Evaluated at bid price : 20.36
Bid-YTW : 6.07 %
BAM.PR.B Floater -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 11.03
Evaluated at bid price : 11.03
Bid-YTW : 4.34 %
HSE.PR.G FixedReset -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 21.37
Evaluated at bid price : 21.37
Bid-YTW : 5.25 %
BAM.PR.T FixedReset -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 16.60
Evaluated at bid price : 16.60
Bid-YTW : 5.14 %
TD.PF.B FixedReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.47 %
BAM.PR.X FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 4.89 %
TD.PF.C FixedReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 4.51 %
BAM.PF.A FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 19.98
Evaluated at bid price : 19.98
Bid-YTW : 5.01 %
BAM.PR.M Perpetual-Discount -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.20
Evaluated at bid price : 20.20
Bid-YTW : 5.99 %
SLF.PR.J FloatingReset -1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.40
Bid-YTW : 9.49 %
FTS.PR.M FixedReset -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.96
Evaluated at bid price : 20.96
Bid-YTW : 4.26 %
TRP.PR.D FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.72 %
BAM.PF.D Perpetual-Discount -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.74
Evaluated at bid price : 20.74
Bid-YTW : 6.02 %
CU.PR.F Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 5.63 %
VNR.PR.A FixedReset -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.94 %
TD.PF.A FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.47 %
FTS.PR.K FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.20 %
RY.PR.Z FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.68
Evaluated at bid price : 18.68
Bid-YTW : 4.44 %
TRP.PR.B FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 12.01
Evaluated at bid price : 12.01
Bid-YTW : 4.64 %
TRP.PR.F FloatingReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 14.14
Evaluated at bid price : 14.14
Bid-YTW : 4.18 %
BMO.PR.Y FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 21.26
Evaluated at bid price : 21.26
Bid-YTW : 4.35 %
GWO.PR.Q Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.21
Bid-YTW : 6.34 %
NA.PR.Q FixedReset 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.54 %
MFC.PR.L FixedReset 1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.56
Bid-YTW : 6.64 %
GWO.PR.N FixedReset 1.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.69
Bid-YTW : 9.95 %
FTS.PR.H FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 14.19
Evaluated at bid price : 14.19
Bid-YTW : 4.26 %
Volume Highlights
Issue Index Shares
Traded		 Notes
RY.PR.L FixedReset 113,750 Nesbitt crossed two blocks of 50,000 each, both at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 3.86 %
RY.PR.Z FixedReset 54,447 Nesbitt crossed 13,800 at 18.73.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.68
Evaluated at bid price : 18.68
Bid-YTW : 4.44 %
TRP.PR.D FixedReset 45,287 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.72 %
RY.PR.H FixedReset 43,956 Nesbitt crossed 13,00 at 18.81.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.74
Evaluated at bid price : 18.74
Bid-YTW : 4.47 %
BAM.PR.X FixedReset 42,814 Scotia crossed 20,000 at 15.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 4.89 %
FTS.PR.K FixedReset 40,570 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.20 %
There were 61 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.E FixedReset Quote: 19.22 – 19.70
Spot Rate : 0.4800
Average : 0.2951

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 19.22
Evaluated at bid price : 19.22
Bid-YTW : 4.58 %
MFC.PR.K FixedReset Quote: 19.25 – 19.81
Spot Rate : 0.5600
Average : 0.4089

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.25
Bid-YTW : 6.78 %
TRP.PR.G FixedReset Quote: 20.41 – 20.84
Spot Rate : 0.4300
Average : 0.3062

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 4.76 %
BAM.PR.E Ratchet Quote: 15.90 – 16.63
Spot Rate : 0.7300
Average : 0.6087

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 25.00
Evaluated at bid price : 15.90
Bid-YTW : 5.16 %
BMO.PR.R FloatingReset Quote: 22.64 – 23.00
Spot Rate : 0.3600
Average : 0.2615

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.64
Bid-YTW : 3.75 %
CU.PR.D Perpetual-Discount Quote: 21.95 – 22.29
Spot Rate : 0.3400
Average : 0.2444

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 21.67
Evaluated at bid price : 21.95
Bid-YTW : 5.60 %
Issue Comments

BEP.PR.G Soft On Decent Volume

Brookfield Renewable Energy Partners L.P. has announced:

the completion of its previously announced issue of Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 7 (the “Series 7 Preferred Units”). The offering was underwritten by a syndicate led by TD Securities Inc., CIBC, RBC Capital Markets and Scotiabank.

Brookfield Renewable issued 7,000,000 Series 7 Preferred Units at a price of $25.00 per unit, for total gross proceeds of $175,000,000.

The Series 7 Preferred Units will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BEP.PR.G.

BEP.PR.G is Preferred Units FixedReset 5.50%+447M550, announced November 17. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns. Note that the distribution will be a mixture of dividends, income and return of capital for tax purposes; calculating the after-tax return is complex and will require numerous assumptions!

The issue is rated Pfd-3(high) by DBRS:

DBRS Limited (DBRS) has today finalized its provisional rating of Pfd-3 (high) with a Stable trend on Brookfield Renewable Energy Partners L.P.’s (BREP) issuance of Class A Preferred Limited Partnership Units, Series 7 (Preferred LP Units).
…
DBRS notes that the Preferred LP Units will rank on parity with every other series of Class A Preferred Limited Partnership Units and will be fully and unconditionally guaranteed by BREP’s key holding subsidiaries (the Guarantors). The Preferred LP Units will rank pari passu at the Guarantor level with the outstanding Preference Shares (rated Pfd-3 (high) by DBRS) of Brookfield Renewable Power Preferred Equity Inc., which are also guaranteed by BREP.

The issue traded 339,999 shares (consolidated exchanges) in a range of 24.60-94 today before closing at 24.70-75, 57×28. Vital statistics are:

BEP.PR.G FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-11-25
Maturity Price : 23.05
Evaluated at bid price : 24.70
Bid-YTW : 5.52 %

According to the prospectus:

Management anticipates the 5 year average per unit Canadian dividend, ordinary income and return of capital will be 50%, 25%, and 25%, respectively, for the period between 2015 and 2020; however, no assurance can be provided this will occur.

This is the same estimate as was used for the coercive BRF.PR.E exchange offer, so we can recycle some analysis!

According to Ernst & Young, marginal tax rates for an Ontario resident with taxable income of $150,000 p.a. were 46.41% on income, 23.20% on capital gains and 29.52% on eligible dividends. Since the Return of Capital on the new units will eventually be taxed as a capital gain but only when the gain or loss is crystallized, let’s apply a 25% discount to the capital gain marginal rate to reflect the time value of the money; hence, we will assume that the Return of Capital is subject to tax at a rate of 23.20% * 75% = 17.4%:

Taxation of distributions
  BEP.PR.G
Distribution
Type		 Pre Tax Amount Tax Net
Eligible
Dividend		 0.6875 0.20295 0.48455
Ordinary
Income		 0.34375 0.1595 0.18425
Return
of
Capital		 0.34375 0.0598 0.28395
Total 1.375 0.42225 0.95275

So if we accept the given figures as a good enough guess – the after-tax income per share will be 0.95275, equivalent to a dividend of 1.352, a rate of slightly over 5.40%, which is in agreement with the figure Louisprefs supplied as the Scotia estimate in the comments to the announcement post. However, note that there are no guarantees offered by the company! If it should come to pass that 100% of the distributions are ordinary income, then tax at 46.41% will come to 0.6381 and the net after-tax amount will be 0.7369, which is 23% less than the estimate above. So there’s a certain amount of tax-risk here, depending on the nature of the company’s distributions.

Update, 2015-11-26: S&P has rated the issue P-3(high). On November 4 they degraded the outlook on BREP to stable from positive:

Standard & Poor’s Ratings Services today said it revised its outlook on Brookfield Renewable Energy Partners L.P. (BREP) to stable from positive. At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

The outlook revision reflects our view of the company’s ability to generate strong remittable cash flows from its holdings and its increased level of holding company (holdco) recourse debt. The company has articulated a policy of maintaining relatively low levels of leverage at the holdco level with leverage at the holdco used opportunistically for acquisitions with equity as market conditions allow. However, during the course of the year, the company has made a number of acquisitions that, although partially funded with new equity issuance, maintained a higher level of debt at the holdco. This has resulted in lower credit metrics. “Although the metrics are still comfortably within the range for the rating, we believe that the increased debt will remain at the holdco level for the foreseeable future,” said Standard & Poor’s credit analyst Stephen Goltz.