New Issues

Two New Split Corps!

There are two new split-share corporations in the distribution pipelines:

S Split Corp has been announced by Mulvihill. These will be backed by shares of BNS – the Bank of Nova Scotia. The news release says that DBRS has assigned a preliminary rating of Pfd-2(low) and that the final prospectus has been filed with SEDAR – but it’s not available there right now. They may have it on-line Monday. Mulvihill has an impressive distribution pipeline and all the usual suspects are in the underwriting syndicate for this one. Depending on the terms of the issue, I may be adding this one to the HIMIPref™ universe.

ML Split Corp has been announced by Quadravest. These will be backed by shares of Merrill Lynch. A Preliminary Prospectus is available – I will not be adding these to the HIMIPref™ universe as the company is not having the “Priority Equity Shares”, as they call the preferred-sort-of-equivalent components of the split, rated by any agency.

Data Changes

RY.PR.G Splatters onto Market

The new issue of Royal Bank 4.5% perpetuals announced April 17 settled today and met a very poor reception, trading in a range of 24.48-60 and closing at 24.49-50, 20×12.

I’m at a bit of a loss to understand this and can only speculate that the continuing BCE debacle has caused a little nervousness amongst retail, while institutional buyers may be filled up on Royal after their string of new issues:

RY Issues Tracked by HIMIPref™
Ticker Listing Date Shares
RY.PR.K 1998-4-27 12,000,000
RY.PR.W 2005-01-31 12,000,000
RY.PR.A 2006-04-04 12,000,000
RY.PR.B 2006-07-20 12,000,000
RY.PR.C 2006-11-01 8,000,000
RY.PR.D 2006-12-13 10,000,000
RY.PR.E 2007-01-19 10,000,000
RY.PR.F 2007-03-14 8,000,000
RY.PR.G 2007-04-26 10,000,000

RY.PR.K is retractible – all the others are perps. 

However, it might not matter a lot whether the market is fed up with the name or not! Examining the figures for Royal’s tier one capital limits, we see that they had room to issue preferred of $520-million on February 6 (after the issuances of RY.PR.C, RY.PR.D & RY.PR.E and redemption of RY.PR.O) and with the 18-million shares issued since then have used up $450-million of that. That leaves a mere $70-million in issuance room and they might not be willing to go to market for such a paltry amount.

Note I will admit that I am somewhat at a loss to reconcile their Preferred Share Tier One Capital of $1,345-million at year end with their list of issues outstanding. The figure of $1,345-million is referred to in the MD&A on page 66 of the Annual Report – this table contains no mention of any preferred shares in Tier Two Capital, which is where I would expect to find the retractible issue RY.PR.K. Note 18 on Page 130 of the Report shows $1,050-million perpetuals, and $298-million “Preferred Share Liabilities”, specifically including RY.PR.K (Series N). So I guess that, somehow or other, they were able to include RY.PR.K in Tier 1 Capital.

So, given that the RY.PR.O has been redeemed, their Tier One Capital preferred situation now looks like this:

Tier 1 Capital / Preferreds / Royal Bank
Item Value (million)
Outstanding, year-end 1,345
Redeemed (150)
Issuance 1,150
Current Total 2,345
Preferred Limit, as of Year-End 2006 2,415

All in all, they’re very close to their limit now, unless they boost their equity capital in other ways, like hiking ATM fees. But fear not! The RY.PR.K becomes redeemable at par 2007-08-24 (although not retractible by holders until 2008-8-24) and eliminating this issue with open up another $300-million of issuance room.

RY.PR.G & Comparatives
Data RY.PR.G BNS.PR.M BAM.PR.?
Price due to base-rate 22.47 22.49 23.29
Price due to short-term -0.21 -0.21 -0.21
Price due to long-term 1.29 1.29 1.27
Price to to Cumulative Dividends 0.00 0.00 0.00
Price due to Credit Spread (2) 0.00 0.00 -0.62
Price due to Liquidity 1.53 1.53 1.48
Price due to error -0.06 -0.06 0.08
Price due to Credit Spread (low) 0.00 0.00 -0.62
Curve Price (Taxable Curve) 25.02 25.04 24.68
Dividend Rate 1.125 1.125 1.1875
Quote 4/26 24.49-50 24.89-92 25.00 Issue
YTW (at bid, after tax) 3.66% 3.61% 3.79%
YTW Date Infinite Infinite 2016-8-30 / Infinite
Credit Rating (DBRS) Pfd-1 Pfd-1 Pfd-2(low)
YTW (Pre-Tax) 4.61% 4.55% 4.76%
YTW Modified Duration (Pre-Tax) 16.23 16.31 15.95
YTW Pseudo-Convexity (Pre-Tax) 1.15 -30.29 -55.80

It is not my habit to include such an incomparable comparable as the BAM new issue, but I just couldn’t resist! BAM has a boatload of preferreds outstanding, and if we can blame overall market tone and angst for today’s RY.PR.G debacle, then the May 9 BAM settlement could prove interesting in the extreme.

The securityCode for RY.PR.G is A45016, replacing the preIssue code of P87500. A reorgDataEntry has been processed.

Market Action

April 26, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.42% 4.42% 42,977 16.62 2 -0.1605% 991.7
Fixed-Floater 5.50% 4.55% 118,964 16.29 6 -0.3041% 931.2
Floater 4.56% -19.12% 57,071 0.13 4 +0.0884% 1,062.4
Op. Retract 4.73% 3.24% 84,582 2.38 17 -0.0507% 1,033.1
Split-Share 5.04% 4.33% 182,814 4.02 12 -0.0422% 1,044.2
Interest Bearing 6.48% 3.87% 61,798 2.27 5 +0.1972% 1,051.3
Perpetual-Premium 5.07% 4.48% 223,033 6.23 54 -0.1385% 1,053.1
Perpetual-Discount 4.57% 4.59% 935,745 16.23 12 -0.3302% 1,056.6
Major Price Changes
Issue Index Change Notes
BCE.PR.G FixedFloater -2.7335% Exchange/Reset date is 2011-05-1 (exchanges with BCE.PR.H); until then pays 4.35% of par. Another new low today, 21.01. Closed at 21.35-55, 10×2. The BCE.PR.H closed at 23.35-98, 50×3. Let’s see …BCE Pairs… say the “H” pay 6% (=100% of current prime), vs. the 4.35% on the “G”. Difference = 1.65% = $0.4125 p.a. Term to exchange is 4 years. I guess the market is betting that not only will the “H” pay 100% of prime until the exchange date, but that prime’s going to go up, too!
LBS.PR.A SplitShare -1.4178% Now with a pre-tax bid-YTW of 4.54% based on a bid of 10.43 and a hardMaturity 2013-11-29 at 10.00
Volume Highlights
Issue Index Volume Notes
RY.PR.G PerpetualDiscount 519,113 New issue settled today. Now with a pre-tax bid-YTW of 4.61% based on a bid of 24.49 and a limitMaturity.
BNS.PR.M PerpetualDiscount 169,125 Scotia crossed 101,600 at 24.87. Now with a pre-tax bid-YTW of 4.55% based on a bid of 24.89 and a limitMaturity.
BCE.PR.C FixedFloater 166,820 Exchange/Reset date is 2008-3-1 (Exchange with series ‘AD’, not issued). Until then, pay 5.54% of par.
PWF.PR.K PerpetualPremium 52,770 Scotia crossed 50,000 @ 25.88. Now with a pre-tax bid-YTW of 4.44% based on a bid of 25.85 and a call 2014-11-30 at 25.00
CM.PR.I PerpetualPremium 49,125 Now with a pre-tax bid-YTW of 4.62% based on a bid of 25.18 and a call 2016-3-1 at 25.00.

There were eighteen other $25-equivalent index-included issues trading over 10,000 shares today.

Regulatory Capital

HSBC Tier 1 Capital

HSBC has released its 2006 Annual Report, so I thought I’d take a look at their regulatory capital to see if any issues can be hoped for from that direction. I’ve discussed Tier 1 Capital before in a mini-series of posts: Part 1, Part 2 & Part 3.

HSBC Tier One Capital  

(From December 31, 2006 Financial Statements)
Total Tier 1 Capital (millions) 3,283
Common Shareholders’ Equity 76.7%
Preferred Shares 10.7%
Innovative Tier 1 Capital Instruments 12.2%
Non-controlling interests in subsidiaries 0.9%
Goodwill -0.5%

So if they wished, they could issue addition non-cumulative perpetuals to a total of 2.1% of capital, or $69-million worth, and have them all included in Tier 1 Capital – unfortunately, such a small issue scarcely seems worthwhile.

And, unfortunately, not only do their two outstanding issues (HSB.PR.C & HSB.PR.D) pay a dividend that’s not a lot more than market rates, but they’re not redeemable until 2010, either.

So … probably not much issuance from that quarter! Unless, of course, Canada’s banking laws triumphantly enter the 19th century, and HSBC developes an appetite for one of the big five!

Issue Comments

CL.PR.B : YTW Returns to Positive Territory!

Readers will remember that I have been fascinated by CL.PR.B and its negative yield-to-worst for some time. Apart from very particular portfolio-management factors, there hasn’t seemed to be much rationale for holding it, other than a hope that it would continue to pay an annual dividend of 1.5625 forever.

The chance of this has never seemed too large to me, given that CL (Canada Life) is part of the GWO (Great-West) group of companies which is in turn controlled by PWF (Power Financial) … a conglomerate that has something of a reputation for knowing how many beans make five.

Even four months after I expected them to be redeemed, I am still a little confused, since paying 1.5625 on a perp when new perps are paying 1.125 – and I can’t see a GWO issue having to pay more that 1.30, no matter how sick the Street is of seeing the name – doesn’t make a lot of sense to me. However, as I have mentioned numerous times, the purchase of Putnam still needs to be financed and maybe they’re just delaying a little until they’ve got all that stuff squared away.

Today, however, the bid broke down and while the trading range was 26.31-42 (on volume of 1,950 shares), the closing quotation was 26.09-40, 5×25. So, in celebration, I’ve uploaded a few graphs:

The recent decline in price of CL.PR.B (and consequent increase in yieldToWorst) has had a salutary effect on the calculated mean-average-YTW of the PerpetualPremium index, which now has no members with a negative Yield-to-Worst and consequently a more meaningful mean. Problems with computing the mean – even less meaningful when negatives are included than it is with all positive numbers – has led me to use the median for the official HIMI Preferred Indices … and don’t worry, guys, I’m having scheduling problems at the moment, but will return to those computations in the near future. Unless a piano falls on my head.

Market Action

April 25, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.38% 4.39% 40,923 16.62 2 -1.7378% 993.3
Fixed-Floater 5.48% 4.52% 113,399 16.34 6 -0.1914% 934.1
Floater 4.56% -18.20% 57,269 0.13 4 +0.0294% 1,061.5
Op. Retract 4.73% 3.20% 84,971 2.19 17 -0.0594% 1,033.6
Split-Share 5.03% 4.31% 185,491 4.02 12 -0.1573% 1,044.7
Interest Bearing 6.49% 4.33% 61,954 1.92 5 +0.2139% 1,049.3
Perpetual-Premium 5.06% 4.48% 224,795 6.32 54 -0.0600% 1,054.5
Perpetual-Discount 4.56% 4.58% 781,328 16.25 11 -0.0581% 1,060.0
Major Price Changes
Issue Index Change Notes
BCE.PR.T Scraps (would be FixedFloater, but there are volume concerns) -5.8065% Exchange/Reset date is 2011-11-1 (exchanges with BCE.PR.S); until then pays 4.502% of par.
BCE.PR.H Ratchet -2.0417% Exchange/Reset date is 2011-05-01 (exchange with BCE.PR.G).
BCE.PR.S Ratchet -1.4397% Exchange/Reset date is 2011-11-1 (exchange with BCE.PR.T).
BCE.PR.I FixedFloater -1.3636% Exchange/Reset date is 2011-08-01 (exchange with series ‘AJ’, not currently issued). Until then, pay 4.65% of par.
FTN.PR.A SplitShare -1.0628% More fallout from the denial of term extension? Now with a pre-tax bid-YTW of 3.86% based on a bid of 10.24 and a hardMaturity.
BCE.PR.R FixedFloater +1.3236% Even a dead-cat will bounce if it falls far enough! There hasn’t been a good performance from a BCE issue since they went on credit watch negative, but I think it’s too early to start looking for a recovery in these things. Exchange/Reset date is 2010-12-1 (with BCE.PR.S); until then they pay 4.540% of par
Volume Highlights
Issue Index Volume Notes
PWF.PR.I PerpetualPremium 205,465 TD crossed 203,800 at 26.25. Leftovers from yesterday! Now with a pre-tax bid-YTW of 4.92% based on a bid of 26.20 and a call 2010-5-30 at 25.50.
BPO.PR.H Scraps (would be OpRet, but there are credit concerns) 168,102 Scotia crossed 163,700 at 27.35. Now with a pre-tax bid-YTW of 4.51% based on a bid of 27.26 and a call 2012-1-30 at 26.00
BAM.PR.I OpRet 158,150 Scotia crossed 157,000 at 27.25. Now with a pre-tax bid-YTW of 3.23% based on a bid of 27.03 and a call 2009-7-30 at 25.75.
CM.PR.H PerpetualPremium 137,162 Now with a pre-tax bid-YTW of 4.33% based on a bid of 25.74 and a call 2014-4-29 at 25.00
CCS.PR.A Sometimes considered a Floater, but not right now since the floor rate exceeds the calculated floating rate. Not considered PerpetualPremium, either, because of credit AND volume concerns. And they’re not very cooperative, either! 101,970 Scotia crossed 100,000 at 25.20. Now with a pre-tax bid-YTW of 5.52% based on a bid of 25.10 and a limitMaturity.
CM.PR.R OpRet 92,800 Scotia crossed 91,400 at 26.30 for delayed delivery. Next ex-date is estimated as 6/26, so it’s probably not a dividend capture game. Now with a pre-tax bid-YTW of 3.34% based on a bid of 26.15 and a call 2008-5-30 at 25.75
SLF.PR.D PerpetualDiscount 68,960 Now with a pre-tax bid-YTW of 4.57% based on a bid of 24.50 and a limitMaturity

There were twenty-six other $25-equivalent index-included issues trading over 10,000 shares today.

Market Action

April 24, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.29% 4.29% 39,724 16.79 2 -0.6360% 1,010.9
Fixed-Floater 5.47% 4.51% 110,622 16.45 6 -0.5810% 935.9
Floater 4.56% -17.95% 56,394 0.13 4 -0.0584% 1,061.1
Op. Retract 4.73% 3.20% 84,266 2.19 17 +0.0757% 1,034.2
Split-Share 5.03% 4.23% 186,199 4.02 12 -0.0459% 1,046.3
Interest Bearing 6.51% 5.28% 62,138 2.26 5 -0.0300% 1,047.0
Perpetual-Premium 5.06% 4.30% 224,281 5.88 54 -0.0939% 1,055.2
Perpetual-Discount 4.55% 4.84% 791,811 16.25 11 -0.0473% 1,060.7
Major Price Changes
Issue Index Change Notes
BCE.PR.G FixedFloater -2.6655% Exchange/Reset date is 2011-05-01 (exchange to BCE.PR.H); until then, they pay 4.35% of par. They closed at 21.91-44, 3×4. The BCE.PR.H closed at 24.00-40, 1×3.
FTN.PR.A SplitShare -1.4286% The hoped-for term extension was denied. Now with a pre-tax bid-YTW of 3.15% based on a bid of 10.35 and a hardMaturity 2008-12-01 at 10.00
CU.PR.B PerpetualPremium -1.1426% Perhaps due to competition from the new issue. Now with a pre-tax bid-YTW of 3.78%, based on a bid of 26.82 and a call 2008-07-01 at $26.00. If they last until their call 2012-7-1 at $25.00, they will have yielded 4.63% – about the same as the 4.60% new issue, but with risk of lower yields if it’s called earlier.
BCE.PR.H RatchetRate -1.0309% Exchange/Reset date is 2011-05-01 (exchange with BCE.PR.G).
IAG.PR.A PerpetualPremium -1.0000% Now with a pre-tax bid-YTW of 4.68% based on a bid of 24.75 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
BNS.PR.L PerpetualDiscount 123,300 National crossed 100,000 at 24.91; Scotia crossed 16,000 at the same price. Now with a pre-tax bid-YTW of 4.53% based on a bid of 24.90 and a limitMaturity.
PWF.PR.I PerpetualPremium 102,650 TD crossed 40,000 at 26.16, then 51,000 at 26.25. Now with a pre-tax bid-YTW of 4.92% based on a call 2009-5-30 at 25.75 (or 2010-5-30 at 25.50). Great-West will release the 1st quarter results on May 3; there may be some clues at that time as to how the group intends to finance the Putnam Purchase.
POW.PR.D PerpetualPremium 69,690 TD crossed 50,700 at 26.32. Now with a pre-tax bid-YTW of 4.43% based on a bid of 25.98 and a call 2014-11-30 at 25.00.
PWF.PR.K PerpetualPremium 67,862 Now with a pre-tax bid-YTW of 4.44% based on a bid of 25.83 and a call 2014-11-30 at 25.00.
PWF.PR.L PerpetualPremium 55,500 Nesbitt crossed 40,000 at 26.15, Scotia crossed 11,500 at 26.12. Now with a pre-tax bid-YTW of 4.49% based on a bid of 26.11 and a call 2015-11-30 at 25.00.

There were thirty-six other $25-equivalent index-included issues trading over 10,000 shares today.

Data Changes

FFN.PR.A : Term Extension Approved

Shareholders in Financial 15 Split Corp. II have approved the term extension to Dec. 1, 2014:

Shareholders were asked to consider a special resolution to amend the articles of the Company to extend the termination date for the Class A Shares and the Preferred Shares to December 1, 2014.

Preferred Shareholders voted 98.5% in favour of the resolution and Class A Shareholders voted 93.8% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2014 was approved at the meeting held earlier today.

PrefInfo.com and the HIMIPref™ database will be updated with the new scheduled redemption date shortly.

Update: Updates have been completed. A reorgDataEntry has been processed in HIMIPref™ with the reorgType REORG_TERMCHANGE changing from the old securityCode A45260 to the new securityCode A45261 … and of course, all the other permanentDatabase tables changed as required to describe the new instrument.

Issue Comments

FTN.PR.A : Term Extension Denied

Well! It looks like the capital unit-holders of Financial 15 Split Corp. have balked at the proposed term extension of the fund, not wishing to finance their margin at the rate of 5.25% in dividends:

Preferred Shareholders as a class voted 98.9 % in favour of the resolution, however the vote from Class A shareholders did not exceed the minimum required 66 2/3% of the votes cast in favour, and therefore the resolution was not approved at the meeting held earlier today.

Management will continue to consider if any further appropriate action should be taken on this matter.

This is interesting … I suspect that we haven’t seen the last of this issue … but as things stand now, the FTN.PR.A continue to have a redemption date of December 1, 2008.

Data Changes

DFN.PR.A : Term Extension Approved

The Special Resolution to extend the term of DFN.PR.A to December 1, 2014 has been approved:

Preferred Shareholders voted 99.5% in favour of the resolution and Class A Shareholders voted 97.6% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2014 was approved at the meeting held earlier today.

PrefInfo.com and HIMIPref™ will be updated to reflect the new information shortly.

Update: Updates have been completed. A reorgDataEntry has been processed in HIMIPref™ with the reorgType REORG_TERMCHANGE changing from the old securityCode A43060 to the new securityCode A43061 … and of course, all the other permanentDatabase tables changed as required to describe the new instrument.