Programme Changes

HIMIPref™ Release : 2006-10-11

There’s a new release of HIMIPref™ available for download at the usual place.

If you choose to install this upgrade, please, PLEASE remember to back-up your user data prior to re-installation!

This isn’t a very exciting upgrade, frankly – it is only made available to ensure that the Institutional and Administrative versions of the programme are kept synchronized – the major part of the upgrade was to the Administrative version and now, thanks to the miracle of modern automation, I will be able to commence a systematic computation of my FINAL preferred share indices!

There is no absolute necessity for Institutional users to install the new version – any old version that worked yesterday will continue to work today. There is the consideration that, in the unlikely event that (i) You find a bug, and (ii) the effect of this bug is different in the two versions, it will be much easier track down the error if we’re all singing from the same hymnbook.

Update, an hour later : Well, you’ll all be thrilled to know, I did remember an upgrade that will be noticable by institutional users: the appearance of the portfolioEvaluationReportContextMenu|Columns has been improved, with the choices organized a little more logically than “the order I did the programming” and separator lines. How’s that for vital?

Issue Comments

BCE to Make Offer for All BCE / BC Preferred Shares

According to a news release issued today, BCE will “eliminate its holding company operations and convert Bell Canada into an income trust.”

As part of this transaction “BCE and Bell Canada to make cash offer to repurchase all of their outstanding preferred shares”, specifically:

BCE and Bell Canada expect that the cash offer prices for the preferred shares will be as follows (information from linked press release)

    – $26.05 per share for the Series R First Preferred Shares of BCE (BCE.PR.R closed 10/10 @ 25.45-79)
    – $25.60 per share for the currently redeemable Series S First Preferred Shares of BCE (BCE.PR.S closed 10/10 @ 24.85-05)
    – $25.60 per share for the currently redeemable Series Y First Preferred Shares of BCE (BCE.PR.Y closed 10/10 @ 24.40-54)
    – $25.75 per share for the Series Z First Preferred Shares of BCE (BCE.PR.Z closed 10/10 @ 25.50-59)
    – $25.65 per share for the Series AA First Preferred Shares of BCE (BCE.PR.A closed 10/10 @ 25.39-59)
    – $25.85 per share for the Series AC First Preferred Shares of BCE (BCE.PR.C closed 10/10 @ 25.65-72)
    – $25.60 per share for the currently redeemable Series 15 Class A Preferred Shares of Bell Canada (not tracked by HIMIPref™)
    – $26.05 per share for the Series 16 Class A Preferred Shares of Bell Canada (not tracked by HIMIPref™)
    – $25.95 per share for the Series 17 Class A Preferred Shares of Bell Canada (BC.PR.B closed 10/10 @ 25.10-24)
    – $25.60 per share for the currently redeemable Series 18 Class A Preferred Shares of Bell Canada (BC.PR.E closed 10/10 @ 25.13-25)
    – $26.25 per share for the Series 19 Class A Preferred Shares of Bell Canada (BC.PR.C closed 10/10 @ 25.46-51)

“BCE also intends to directly or indirectly make an offer to acquire any Series T First Preferred Shares of BCE that may be issued on conversion of the currently outstanding Series S First Preferred Shares.”

Market Action

October 10, 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 4.23% 4.18% 44,182 10.56 2 -0.2983% 1,015.5
Fixed-Floater 4.99% 4.02% 205,195 10.13 7 0.0741% 1,018.0
Floater 4.53% -17.21% 77,308 6.53 5 0.0720% 1,017.6
Op. Retract 4.68% 2.11% 89,612 2.42 17 -0.0327% 1,016.8
Split-Share 4.92% 3.26% 62,615 3.03 10 -0.0004% 1,017.9
Interest Bearing 6.88% 4.63% 55,354 2.03 7 0.0679% 1,024.2
Perpetual-Premium 5.12% 3.73% 174,559 4.30 46 0.0575% 1,030.8
Perpetual-Discount 4.59% 4.61% 622,381 16.19 7 -0.3472% 1,033.0
Major Price Changes
Issue Index Change Notes
There were no index-included issues with major price moves today (unless you count SLF.PR.D)
Volume Highlights
Issue Index Volume Notes
SLF.PR.A PerpetualPremium 90,750 Scotia crossed 40,000 @ $25.41, then another 42,000 at the same price. This issue looks rather expensive at the closing bid of 25.55 … pre-tax YTW of 4.45% based on a call in 2014. This is just a penny less than the SLF.PR.B, which pays $0.0125 more p.a. with a similar call schedule … and is more liquid.
GWO.PR.X OpRet 51,869 Scotia crossed 50,000 @ 27.40. Another issue considered rather expensive by HIMIPref™ given its closing bid of $27.40 – Pre-Tax YTW of 2.83% based on a 2009 call; the pre-tax-curve price is $26.54.
W.PR.J PerpetualPremium 51,830 Scotia crossed 28,000 @ 25.30, then bought 18,000 from Nesbitt at the same price. Currently callable at $25.50, declining by $0.25 every July … an attractive issue, I’d say, paying $1.40 for a pre-tax YTW of 4.93% based on a 2008 call.
BSD.PR.A InterestBearing 45,849 Pre-tax YTW of 5.94% INTEREST based on a 2015 maturity.
BNS.PR.K PerpetualPremium 40,350 Nesbit bought 31,400 in three quick trades at 25.93; 28,400 from Scotia, 3,000 from RBC.

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

Data Changes

Quiet Disaster for SLF.PR.D

Readers will be familiar with my earlier comments on this issue … price-wise, things worked out much as expected – the closing quotation was $24.50-55, 14×61. The volume was a surprise, however, with only 12,300 shares trading on its first day out, which can be interpreted in a number of ways.

 I suspect that the correct interpretation is simply that the issue got sold in large chunks to long term investors (e.g., Balanced and Dividend funds run by the big fundcos), who don’t care what price they pay, as long as they can put eight-figures “to work” on a single ticket – and probably all committed before the issue was even thought about! But who knows? We’ll just have to see how this thing looks going forward.

 I never did issue the press release I had been intending. After some thought, I decided that given the presence of such a close comparable as SLF.PR.C (which closed at $24.64-70, 9×70, on volume of 6,300) made the HIMIPref™ evaluation of the new issue as expensive somewhat less than startling news.

SLF.PR.D has been set up on HIMIPref™ and will be added to “PerpetualDiscount” index and prefInfo in the very near future. The Preissue Security Code was P50005; the permanent code is A48983.

The price is actually quite reasonable at 24.50-55 … Now that the Street has given Sun Life it’s $6-million gift (12-million shares, overpriced by about $0.50, according to the first day of trading, if nothing else), the issue is looking like a much more reasonable investment.

Market Action

October 6, 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 4.24% 4.18% 44,771 10.59 2 0.4022% 1,018.5
Fixed-Floater 5.00% 4.02% 204,814 12.39 7 0.0230% 1,017.2
Floater 4.53% -17.05% 78,069 6.52 5 -0.3142% 1,016.9
Op. Retract 4.68% 1.85% 90,004 2.43 17 -0.0387% 1,017.1
Split-Share 4.92% 3.24% 61,733 3.05 10 -0.0290% 1,017.9
Interest Bearing 6.88% 4.84% 54,519 1.81 7 0.1497% 1,023.5
Perpetual-Premium 5.13% 3.79% 175,054 4.20 47 -0.0108% 1,030.3
Perpetual-Discount 4.59% 4.62% 326,785 16.19 6 -0.1143% 1,036.6
Major Price Changes
Issue Index Change Notes
AL.PR.E Floater -1.3534% On volume of 3,685 shares, closing at 26.24-42, 3×5. I don’t understand why Alcan isn’t redeeming these shares … there are only 5.7-million out there, providing financing at 6% AFTER TAX. Alcan is, after all buying back its common. From the look of their website, though, it looks like they can barely remember the preferreds exist!
PWF.PR.L PerpetualPremium +1.1846% On volume of 4,000 shares, closing at 25.95-09, 90×32
Volume Highlights
Issue Index Volume Notes
TD.PR.M OpRet 397,125 Something of a joke … Global crossed 198,200 on a cash basis at 27.79, then crossed the same number for regular settlement at 27.49. They went ex-dividend yesterday, paying $0.29375. This issue is notable for being expensive even for an Operating Retractible: the pre-tax YTW is 2.16%, based on a bid of 27.50 and a call in 2009.
SLF.PR.B PerpetualPremium 123,745 Nesbitt processed an internal cross of 90,000 shares @ 25.60 just before the close.
POW.PR.C PerpetualPremium 101,000 RBC crossed 100,000 @ 26.60
CM.PR.A OpRet 85,060 Nesbitt processed an internal cross of 35,000 @ 26.65, Scotia crossed 45,500 @ 26.75.
MFC.PR.C PerpetualDiscount 84,755 Nesbitt processed an internal cross of 80,000 @ 24.70.

There were seven other index-included issues trading over 10,000 shares today.

Update, 2006-10-13 : There is an error on the issue performance reporting – the PWF.PR.L value was calculated on the basis that the ex-date for the first dividend was 10/6 – in fact, it was 10/5, as noted here.

HIMIPref News

Effect of Mass-Bank-Upgrade on Calculated Yield-Curve

As noted in DBRS Posts Mass Upgrade of Banks! there has been a major change in credit-quality inputs.

 Readers may be interested to see what effect these changes have on the yield curve calculation:

Taxable Curve
Parameter Before Upgrade After Upgrade
Base Rate 3.77 % 3.77%
Short Term Premium -1.02 % -0.98%
Short Term Decay Time 3.3 Years 3.4 Years
Long Term Premium -0.98 % -0.97%
Long Term Decay Time 10.8 Years 10.8 Years
Spread for Interest Income 0.77 % 0.76%
Spread for Cumulative payments 0.00 % 0.00%
Spread for Split Share Corps 0.34 % 0.32%
Spread for Retraction Privilege -0.54 % -0.54%
Spread for 2nd Tier Credits 0.14 % 0.12%
Liquidity Premium -0.16 % -0.16%
Spread for 3rd Tier Credits 0.37 % 0.35%
Floating Rate Premium -0.74 % -0.73%
Spread for HIGH Credits 0.00 % 0.00%
Spread for LOW Credits 0.07 % 0.10%
Fitting Data
Total Priced Instruments 170 170
Instruments Used in calculation 153 153
Fitting Error 82.1729 81.2355
Non-Taxable Curve
Parameter Before Upgrade After Upgrade
Base Rate 4.79 % 4.80%
Short Term Premium -1.73 % -1.72%
Short Term Decay Time 9.7 Years 9.5 Years
Long Term Premium -0.03 % -0.03%
Long Term Decay Time 29.7 Years 29.7 Years
Spread for Interest Income 3.40 % 3.39%
Spread for Cumulative payments 0.00 % -0.01%
Spread for Split Share Corps 0.48 % 0.46%
Spread for Retraction Privilege -0.72 % -0.72%
Spread for 2nd Tier Credits 0.22 % 0.20%
Liquidity Premium -0.18 % -0.17%
Spread for 3rd Tier Credits 0.56 % 0.54%
Floating Rate Premium -0.94 % -0.93%
Spread for HIGH Credits 0.00 % 0.00%
Spread for LOW Credits 0.10 % 0.13%
Fitting Data
Total Priced Instruments 170 170
Instruments Used in calculation 153 153
Fitting Error 104.9932 104.8866

 

Update, 2006-10-7 : The credit changes have been processed, the curve recalculated, the results of the recalculation posted and there are a few items of interest. Split share corporations have tightened in to the "base curve" noticably, but there is nothing that leaps immediately to mind as an interesting comment to make. I’ll have to think about it … and see if Tuesday’s trading starts moving the curve around a little!

Data Changes

DBRS Posts Mass Upgrade of Banks!

DBRS has announced a slew of upgrades to the credit rating of bank preferreds:

Issuer Industry Debt Rated Action Rating Trend
Bank of Montreal Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 Stb
Scotia Mortgage Investment Corporation Banks & Trusts Non-Cumulative Preferred Shares Series A (bsd. on BNS) Upgraded Pfd-1 Stb
National Bank of Canada Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 (low) Stb
TD Mortgage Investment Corporation Banks & Trusts Higher Yielding Bank Related Securities (bsd. on TD Bank) Upgraded Pfd-1 Stb
Royal Bank of Canada Banks & Trusts Non-Cumulative Preferred Shares Upgraded Pfd-1 Stb
Bank of Nova Scotia Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 Stb
Bank of Nova Scotia Banks & Trusts Non-Cumulative Preferred Shares Upgraded Pfd-1 Stb
Canadian Imperial Bank of Commerce Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 (low) Stb

Well! This creates an exercise in data-entry, doesn’t it? I won’t be able to get these done tonight, although I will update prices as normal. I will update this post once the upgrades have been reflected in the HIMIPref™ database – and this will happen well before the market opens on Tuesday morning.

I don’t really anticipate much change in HIMIPref™ values as a result of this change, although I will be most interested to see if anything happens to the “Low” spread! I suspect that the most noticable change will be with CIBC issues since

Update, 2006-10-7 : The changes have been processed. There is some discussion of the effects of these changes on calculated values at Effect of Mass-Bank-Upgrade on Calculated Yield-Curve