Market Action

TCA.PR.X and TCA.PR.Y Credit Review : Developing Implications

Transcanada Pipelines did a deal!

TransCanada Corporation (TransCanada) today announced plans to significantly expand its continental natural gas pipeline and storage operations by acquiring ANR Pipeline Company and ANR Storage Company (collectively, ANR) and an additional 3.55 per cent interest in Great Lakes Gas Transmission Limited Partnership (Great Lakes) from El Paso Corporation. The total purchase price is US$3.4 billion, subject to certain closing adjustments, and includes US$457 million of assumed debt.

… 

TransCanada intends to fund the acquisition in a manner consistent with maintaining its strong financial position and TransCanada PipeLines Limited’s ‘A’ credit ratings recognizing the solid strategic fit and business fundamentals of the acquired assets. In addition to the assumption of existing debt, the acquisition will be financed with components of incremental debt as well as a significant amount of new equity. TransCanada expects the transaction to be accretive to earnings and cash flow in the first full year of ownership. Pending regulatory approvals, the acquisition is expected to close in the first quarter of 2007.

We will see what they have in mind! DBRS has reacted:

Dominion Bond Rating Service (DBRS) has today placed the following ratings of TransCanada PipeLines Limited (TCPL or the Company) Under Review with Developing Implications”: First Mortgage Bonds, Unsecured Debentures & Notes, Preferred Securities (COPrS) and Preferred Shares – cumulative. Concurrently, DBRS has confirmed TCPL’s Commercial Paper rating at R-1 (low) with a Stable trend.

 

Market Action

December 21, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.14% 4.16% 36,631 17.12 1 +0.3626% 1,028.6
Fixed-Floater 4.78% 3.70% 98,254 8.37 7 +0.1069% 1,036.0
Floater 4.49% -19.12% 62,973 0.34 5 -0.2412% 1,039.4
Op. Retract 4.64% 0.83% 85,845 1.99 17 +0.0792% 1,032.6
Split-Share 5.05% 1.59% 247,470 2.52 9 +0.2801% 1,045.2
Interest Bearing 6.95% 6.06% 83,034 2.34 7 +0.1688% 1,027.9
Perpetual-Premium 5.00% 3.57% 284,961 4.21 52 +0.0139% 1,055.0
Perpetual-Discount 4.53% 4.50% 879,559 11.75 6 -0.0598% 1,060.6
Major Price Changes
Issue Index Change Notes
TOC.PR.B Floater -1.6026% Nesbitt was on the sell side for every trade, starting in the morning at 25.77 and ending with a cross of 12,400 at 25.50.
FFN.PR.A SplitShare -1.1278% Now with a pre-tax bid-YTW of 3.48% based on a price of $10.52 and a hardMaturity 2009-12-01 at 10.00
BSD.PR.A InterestBearing +1.0989% Now with a pre-tax bid-YTW of 5.88% (as interest!) based on a bid of $10.12 and a hardMaturity 2015-3-31 at 10.00
LBS.PR.A SplitShare +2.0333% Now with a pre-tax bid-YTW of 3.68%, based on a bid of $11.04 and a hardMaturity 2013-11-29 at 10.00
Volume Highlights
Issue Index Volume Notes
CL.PR.B PerpetualPremium 300,000 Not usually much of a trader, but RBC crossed 150,000 at 26.15 for cash and Nesbitt crossed the same amount at 25.97 for delayed delivery … very similar to the trading on December 18! Hmmmm….. I pontificated November 29 that this was a prime candidate for redemption, but there’s been no news yet. The pre-tax bid-YTW is now 1.65% based on a bid of $26.09 and a call 2007-1-30 at 26.00. The next ex-date is 2007-3-1, so if the funny settlements are a dividend capture/avoidance game, it’s a deep one!
GWO.PR.X OpRet 188,968 Yesterday’s heavy trading continues. Now with a pre-tax bid-YTW of 2.49% based on a bid of 27.50 and a call 2009-10-30 at 26.00 … but given that it’s a retractible paying 1.20, with the call premium declining at 0.33 p.a., it might make it to the softMaturity 2013-9-29, yielding 3.15%.
CM.PR.D PerpetualPremium 312,702 Another very-high-priced perpetual, at 27.51b. Nesbitt crossed 100,000 at 27.68. Now with a pre-tax bid-YTW of 1.91% based on a bid of 27.54 and a call 2008-5-31 at $26.00. It might last until 2012-5-30, to have yielded 3.86%. With an annual dividend of 1.4375, it might not!
PWF.PR.J OpRet 81,463 TDSecurities processed an internal cross of 75,000 shares at 27.03. Now with a pre-tax bid-YTW of 2.30% based on a bid of 26.98 and a call 2008-5-30 at 26.00. It might make it to the soft maturity 2013-7-30, yielding 3.48%. Might.
GWO.PR.I PerpetualDiscount 56,685 National processed an internal cross of 20,000 at 24.92. Now with a pre-tax bid-YTW of 4.52% based on a bid of 24.92 and a limitMaturity.
CM.PR.I PerpetualPremium 46,391 Now with a pre-tax bid-YTW of 4.57% based on a bid of 25.42 and a call 2016-3-1 at 25.00.

There were twenty-three other index-included issues with over 10,000 shares traded today.

Issue Comments

A Rough Day for BNA.PR.A!

Down 3.73% on the day (bid/bid), but those unimpressed by headlines will be quick to point out that yesterday’s quote of 27.06-62 was an aberration. They’d be right, too, as a quick look at the graph of flatBidPrice shows.

The new issue announced today puts the future of BNA.PR.A in some doubt and should be causing some investors to look very carefully at the negative yield-to-worst on this issue of –5.36%. The pseudoPortfolioReportBox shows us the following optionCalculationList:

Call 2007-01-19 YTM: -5.36 % [Restricted: -0.44 %] (Prob: 27.71 %)
Call 2007-04-19 YTM: 3.23 % [Restricted: 1.06 %] (Prob: 5.10 %)
Call 2007-10-31 YTM: 3.85 % [Restricted: 3.32 %] (Prob: 5.22 %)
Hard Maturity 2010-09-30 YTM: 5.12 % [Restricted: 5.12 %] (Prob: 61.97 %)

The above calculations are based only on price and leave a lot to be desired. I work at improving the algorithm (and there will be a rather interesting idea announced shortly, provided the results of testing are what I think they might be), but the main things to bear in mind are:

  • BNA.PR.A pays $1.5624
  • BNA.PR.A is callable right now at 25.75
  • The new issue is supposed to closed 2007-1-10
  • The new issue pays $1.0875

I suspect that BNA.PR.A’s days are numbered!

Besides the graph above, I’ve uploaded graphs of Yield-toWorst and Modified-Duration-to-Worst.

Update! Always check the prospectus! The original prospectus, dated August 24, 2001, states:

Preferred Shares may be redeemed by the Company at any time prior to the Redemption Date at a price (the ‘‘Preferred Share Redemption Price’’) which, until September 30, 2002 will equal $26.20 and which will decline by $0.20 each year to be equal to $25.00 after September 30, 2007. All Preferred Shares outstanding on the Redemption Date will be redeemed for the Preferred Share Redemption Price, equal to the lesser of $25.00 and Net Asset Value per Unit. The Company will only redeem Preferred Shares prior to the Redemption Date if Capital Shares have been retracted or if there is a take-over bid for the Brascan Shares and the Board of Directors determines that such bid is in the best interest of the holders of the Capital Shares.

However, as has been previously noted, the terms of this issue changed 2003-8-21:

The Corporation’s right to redeem the Preferred Shares prior to maturity will be amended to permit the redemption of the Preferred Shares at the then applicable redemption price, including any premium, using the net proceeds of an issuance of a new series or class of preferred shares. The Corporation has no current intention to redeem the Preferred Shares.

Market Action

December 20, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.16% 4.19% 35,352 17.07 1 +0.0403% 1,024.8
Fixed-Floater 4.78% 3.74% 99,889 8.36 7 -0.0053% 1,034.9
Floater 4.48% -21.70% 62,865 0.34 5 +0.0480% 1,042.0
Op. Retract 4.64% 1.02% 84,391 2.19 17 +0.0047% 1,031.8
Split-Share 5.06% 1.63% 247,660 2.51 9 -0.0408% 1,042.2
Interest Bearing 6.96% 5.84% 81,930 2.34 7 -0.0672% 1,026.2
Perpetual-Premium 5.00% 3.47% 289,050 4.19 52 +0.0026% 1,054.9
Perpetual-Discount 4.52% 4.50% 899,077 11.75 6 +0.0334% 1,061.2
Major Price Changes
Issue Index Change Notes
MFC.PR.B PerpetualPremium -1.0832% Now with a pre-tax bid-YTW of 4.31% based on a bid of 25.57 and a call 2014-4-18 at 25.00.
Volume Highlights
Issue Index Volume Notes
GWO.PR.F PerpetualPremium 401,887 The highest priced index-included perpetual, at 28.07b. Nesbitt crossed 100,000 at 28.10. Now with a pre-tax bid-YTW of 1.28% based on a bid of 28.06 and a call 2008-10-30 at 26.00. It might last a while and get called 2012-10-30 at 25.00, but with an annual dividend of 1.475 and a call schedule declining by 0.25 annually, I don’t like its chances. You can get better than 3.57% without the risk of an early, horrid call anyway.
TD.PR.M OpRet 381,850 Royal processed an internal cross at 27.78. Now with a pre-tax bid-YTW of 2.18% based on a call 2009-5-30 at $26.00, but it would appear some people are confident it will last until a call at $25.00 2013-10-30, to yield 3.12%
CM.PR.D PerpetualPremium 312,702 Another very-high-priced perpetual, at 27.51b. Nesbitt crossed 100,000 at 27.68. Now with a pre-tax bid-YTW of 1.91% based on a bid of 27.54 and a call 2008-5-31 at $26.00. It might last until 2012-5-30, to have yielded 3.86%. With an annual dividend of 1.4375, it might not!
PWF.PR.I PerpetualPremium 304,010 Nesbitt crossed 200,000 at 27.50, then another 100,000 at the same price three hours later. Now with a pre-tax bid-YTW of 2.44% based on a bid of 27.43 and a call 2008-5-30 at $26.00. Pays 1.50, so is there really a competent and confident school of thought that thinks it will last until a call at 25.00 2012-5-30, yielding 4.19%? The relatively recent PWF.PR.L pays 1.275.
NA.PR.K PerpetualPremium 202,815 The second-highest-priced index-included perpetual, at 27.90b. Nesbitt crossed 200,000 at 27.98. Now with a pre-tax bid-YTW of 1.03% based on a bid of 27.90 and a call 2008-6-14 at 26.00. It will yield 3.64% if it lasts until a 25.00 call 2012-6-14. Too chancy for me! Pays 1.4625.
PWF.PR.A Scraps 200,000 Royal processed an internal cross of 200,000 at 25.45. A floating rate issue, currently out of the index due to insufficient volume.
CM.PR.B PerpetualPremium 198,945 Called for redemption.
ACO.PR.A OpRet 115,349 Royal processed an internal cross of 115,000 shares at 28.25. Now with a pre-tax bid-YTW of 1.57% based on a bid of 28.13 and a call 2008-12-31 at 26.00. It pays 1.4375 and has a very steeply declining call premium (0.50 p.a.), so it might make last longer.
GWO.PR.X OpRet 108,897 Nesbitt crossed 100,000 at 27.50. Pre-tax bid-YTW now 2.49% based on a bid of 27.50 and a call 2009-10-30 at 26.00. It might last longer – the call premium declines by 0.33 p.a. – but I’ll let other people bet on that one.
NSI.PR.D Scraps 101,100 Royal processed an internal cross of 100,000 at 30.00. Not the biggest trader in the world, which is why it’s not in the OpRet index … at a bid of 29.62, it has a pre-tax bid-YTW of 3.62% based on a call 2015-11-14 at 25.00. This compares to 3.15% at the ask price of 30.61.

There were nineteen other index-included issues with over 10,000 shares traded today.

Data Changes

BAM Split Corp.: New Issue 4.35% Retractibles

I have been advised of a new issue by the recently renamed BAM Split Corp. A press release is available via CCN Matthews.

This is a bought issue, with closing scheduled for January 10, 2007. Issue size is $200-million, very nice for a split-share corporation.

 Dividends are cumulative and quarterly, 4.35% p.a. on the par value of $25.00.

The embeddedOptions are:

BAM Split 4.35% Ret. Options
Redemption 2007-1-10 2016-1-9 $26.00
Redemption 2016-1-10 2017-1-9 $25.75
Redemption 2017-1-10 2018-1-9 $25.50
Redemption 2018-1-10 2019-1-9 $25.25
Maturity 2019-1-10 2019-1-10 $25.00

The first record date is projected to be February 22, 2007, for the first (short) dividend of $0.1460 payable March 7, 2007.

The material I have isn’t entirely clear, but it appears that the bought deal is conditional upon DBRS assigning a rating of Pfd-2 to the issue and reconfirming the Pfd-2 ratings outstanding on BNA.PR.A and BNA.PR.B

Update & Bump: The issue has been added to the HIMIPref™ database with a preIssue securityCode of P50009.

An analysis of curvePrice has been prepared, with some comparatives:

Curve Price Components using taxable Curve
Component BNA.PR.? PIC.PR.A LBS.PR.A
Price due to base-rate 24.02 15.80 10.53
Price due to short-term 0.04 0.12 0.03
Price due to long-term 0.81 0.38 0.34
Price to to Cumulative Dividends 0.00 0.00 0.00
Price due to SplitShareCorp -0.96 -0.22 -0.25
Price due to Retractibility 1.72 0.40 0.47
Price due to Credit Spread (2) -0.28 -0.06 -0.08
Price due to error 0.06 -0.00 -0.00
Price due to Credit Spread (High) 0.00 0.00 0.00
Price due to Credit Spread (Low) 0.00 0.00 0.00
Intrinsic Price 25.41 16.43 11.03
Price due to Liquidity ? 0.03 0.23
Curve Price ? 16.46 11.26
Quotation, 12/20 25.00 Issue 16.06-15 10.82-89
Yield-To-Worst (taxable) 3.45% 3.20% 3.20%
Modified Duration To Worst (taxable) 9.79 3.50 5.97
Yield-To-Worst (non-taxable)  4.34%  4.01% 4.03% 
Modified Duration To Worst (non-taxable)  9.38  3.45  5.81

The portfolio evaluation of the experimental SplitShare Index is here.

HIMI Preferred Indices

HIMI Preferred Indices, August 1996

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1996-08-30
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,405.6 0 0 0 0 0 0
FixedFloater 1,402.7 0 0 0 0 0 0
Floater 1,323.6 7 1.56 4.41% 16.3 64M 4.69%
OpRet 1,188.4 23 1.30 5.67% 5.3 80M 6.75%
SplitShare 1,188.4 0 0 0 0 0 0
Interest-Bearing 1,188.4 0 0 0 0 0 0
Perpetual-Premium 1,168.0 4 1.00 4.47% 2.8 131M 8.01%
Perpetual-Discount 1,115.1 0 0 0 0 0 0

Index Constitution, 1996-08-30, Pre-Rebalancing

Index Constitution, 1996-08-30, Post-Rebalancing

Market Action

December 19, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.17% 4.20% 32,732 17.06 1 +0.3235% 1,024.4
Fixed-Floater 4.78% 3.76% 101,817 8.37 7 +0.1236% 1,035.0
Floater 4.48% -22.00% 63,265 3.48 5 -0.3826% 1,041.5
Op. Retract 4.64% 0.78% 82,577 2.19 17 -0.0512% 1,031.8
Split-Share 5.06% 2.12% 248,989 2.52 9 -0.1149% 1,042.6
Interest Bearing 6.96% 5.80% 80,991 1.86 7 -0.0968% 1,026.8
Perpetual-Premium 4.99% 3.61% 291,270 4.18 52 +0.1171% 1,054.8
Perpetual-Discount 4.52% 4.49% 916,896 11.75 6 +0.0807% 1,060.8
Major Price Changes
Issue Index Change Notes
ENB.PR.D InterestBearing -1.1811% Called yesterday. I guess it was a surprise to some people!
PWF.PR.L PerpetualPremium +1.1240% Now with a pre-tax bid-YTW of 4.14% based on a bid of 26.99 and a call at $25.00, 2015-11-30.
Volume Highlights
Issue Index Volume Notes
FBS.PR.B SplitShare 288,977 Recent New Issue. Now with a pre-tax bid-YTW of 1.23% based on a bid of $10.38 and a call at $10.00 2008-1-14.
BC.PR.C FixedFloater 59,073 Nesbitt crossed 23,000 at $25.80.
CM.PR.I PerpetualPremium 55,140 New Issue November 15, continues to trade heavily. Now with a pre-tax bid-YTW of 4.52% based on a bid of $25.50 and a call 2016-3-1 at 4.52%
CM.PR.B PerpetualPremium 48,026 Basically a money market instrument, since it is being called Jan. 31.
RY.PR.D PerpetualPremium 45,045 Recent New Issue, now with a pre-tax bid-YTW of 4.41% based on a bid of $25.22 and a call 2016-3-25 at $25.00

There were seventeen other index-included issues with over 10,000 shares traded today.

HIMI Preferred Indices

HIMI Preferred Indices : July 1996

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1996-07-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,393.8 0 0 0 0 0 0
FixedFloater 1,390.9 0 0 0 0 0 0
Floater 1,312.5 7 1.55 4.77% 15.6 82M 5.14%
OpRet 1,172.9 23 1.25 5.86% 5.5 81M 6.80%
SplitShare 1,172.9 0 0 0 0 0 0
Interest-Bearing 1,172.9 0 0 0 0 0 0
Perpetual-Premium 1,162.7 4 1.00 4.47% 2.8 98M 8.01%
Perpetual-Discount 1,110.1 0 0 0 0 0 0

Index Constitution, 1996-07-31, Pre-Rebalancing

Index Constitution, 1996-07-31, Post-Rebalancing

Market Action

December 18, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.19% 4.22% 33,096 17.02 1 +0.0405% 1,021.1
Fixed-Floater 4.79% 3.79% 98,800 8.38 7 +0.0617% 1,033.7
Floater 4.46% -25.23% 62,871 0.34 5 +0.0550% 1,045.5
Op. Retract 4.64% 0.87% 81,879 2.19 17 +0.0137% 1,032.3
Split-Share 5.05% 2.11% 247,111 2.52 9 -0.1056% 1,043.8
Interest Bearing 6.95% 5.11% 79,449 1.86 7 +0.0229% 1,027.8
Perpetual-Premium 5.00% 3.56% 293,584 4.24 52 +0.1269% 1,053.6
Perpetual-Discount 4.53% 4.50% 922,402 13.33 6 +0.3778% 1,060.0
Major Price Changes
Issue Index Change Notes
ELF.PR.G PerpetualPremium +1.0993% Now with a pre-tax bid-YTW of 4.48% based on a bid of $25.75 and a call 2015-11-16 at $25.00
IAG.PR.A PerpetualDiscount +1.3944% This one looks like it will be moving to “PerpetualPremium” pretty promptly! Now with a pre-tax bid-YTW of 4.34%, based on a bid of $25.45 and a call 2015-4-30 at $25.00
Volume Highlights
Issue Index Volume Notes
FBS.PR.B SplitShare 499,712 Recent New issue. Now with a bid-YTW of 1.41% based on a bid of $10.36 and a call 2008-1-14 at $10.00
CM.PR.I PerpetualPremium 358,090 New issue closed Nov. 15, continues to trade heavily. Now with a pre-tax bid-YTW of 4.52% based on a bid of $25.51 and a call 2016-3-1 at $25.00
CL.PR.B PerpetualPremium 302,635 RBC crossed 150,000 at $26.15, then Nesbitt crossed the same number at the same price 13 minutes later. I last mentioned this November 29 and, well, at least the pre-tax bid-YTW’s not negative any more! It’s 1.20% based on a bid of $26.10 and a call 2007-1-30 at $26.00.
CM.PR.B PerpetualPremium 211,820 Basically a money market instrument, since it is being called Jan. 31.
RY.PR.C PerpetualPremium 147,825 National crossed 125,000, then 10,000, then 5,000, all at $25.55. Now with a pre-tax bid-YTW of 4.42% based on a bid of $25.53 and a call 2015-12-24 at $25.00
BAM.PR.M PerpetualDiscount 108,300 RBC crossed 100,000 at $25.10. Now with a pre-tax bid-YTW of 4.70% based on a bid of $25.10 and a call 2016-3-1 at $25.00

There were fourteen other index-included issues with over 10,000 shares traded today.

Issue Comments

ENB.PR.D to be Redeemed

Well, it’s not exactly the biggest surprise in the world … Enbridge announced today (via CCN Matthews) that:

Enbridge Inc. (TSX:ENB)(NYSE:ENB) announced today its intention to redeem all 8,000,000 of its outstanding 7.80% preferred securities, at a price of $25.00 each plus accrued interest of $0.2458 per security, for the period following the previously announced December 31, 2006 interest payment date. The redemption date is February 15, 2007, for all of the 7.80% preferred securities, originally issued in February 2002.

So there goes another one of the lovely high-coupon preferred securities!