Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close June 28, 2024, was $9.8516 after a dividend distribution of $0.149146.
This quarter’s distribution was boosted a bit by the dividend earned on CM.PR.S, recently added to the fund’s holdings in good size; this issue reset in January, 2023, when GOC-5 was about 3.43%. It’s nice to see a progression towards cash payments of the increase in ‘sustainable yield’ I’ve been forecasting for so long! Such progress will not necessarily be in a straight line: if, for instance, it seems to me that total return projections will improve if I swap out of CM.PR.S into an issue with a lower current dividend but better long term prospects … that’s exactly what I will do. However, with every passing day we get a day closer to the next reset date of all the outstanding issues that currently pay dividends based on resets with very low GOC-5 rates and this particular market feature will vanish … at least until the next market convulsion!
Performance was affected by IFC.PR.C underperforming (-6.25%, following May’s outperformance); CU.PR.C (-4.24%, again following outperformance last month); and FTS.PR.M (-3.13%). These were mitigated, but not outweighed by CM.PR.S (+0.40%) and MFC.PR.B (-0.05%) [small holdings are not considered for individual mention here].
Returns have been wonderful following the lows of the TXPR price index on 2023-10-31, but yields remain elevated well above those available on instruments with similar risk; for instance, Brookfield Renewable Partners L.P. recently noted they are refinancing BEP.PR.O on the “green perpetual subordinated notes” market at 70bp under the presumed reset rate of BEP.PR.O. Most of the refunding activity has been undertaken by the banks, most recently TD.PF.M and TD.PF.B.
FixedResets continue to yield more, in general, than PerpetualDiscounts although the spread has narrowed considerably despite a bounce upwards in May; on June 28, I reported median YTWs of 7.16% and 6.68%, respectively, for these two indices; compare with mean Current Yields of 5.16% and 6.49%, respectively.
The month closed with DBRS announcing an upgrade of ENB to Pfd-2(low), bringing its rating of the company back into alignment with S&P after years of ‘split rating’ status. The upgrade will provide a small tailwind to the return on ENB’s numerous issues, but I do not anticipate any price increase that is either very sharp or very immediate.
| Returns to June 28, 2024 | ||||
| Period | MAPF | TXPR* Total Return |
CPD – according to Blackrock | |
| One Month | -1.57% | -0.02% | N/A | |
| Three Months | +4.29% | +4.17% | N/A | |
| One Year | +30.03% | +20.75% | +19.97% | |
| Two Years (annualized) | +8.48% | +4.84% | N/A | |
| Three Years (annualized) | +3.23% | +1.14% | +0.60% | |
| Four Years (annualized) | +17.10% | +9.04% | N/A | |
| Five Years (annualized) | +9.71% | +5.57% | +4.97% | |
| Six Years (annualized) | +4.64% | +2.91% | N/A | |
| Seven Years (annualized) | +5.62% | +3.24% | N/A | |
| Eight Years (annualized) | +8.38% | +5.18% | N/A | |
| Nine Years (annualized) | +5.66% | +3.41% | N/A | |
| Ten Years (annualized) | +4.37% | +2.28% | +1.77% | |
| Eleven Years (annualized) | +4.69% | +2.38% | ||
| Twelve Years (annualized) | +4.81% | +2.39% | ||
| Thirteen Years (annualized) | +4.42% | +2.51% | ||
| Fourteen Years (annualized) | +5.44% | +3.13% | ||
| Fifteen Years (annualized) | +6.40% | +3.55% | ||
| Sixteen Years (annualized) | +8.35% | +3.34% | ||
| Seventeen Years (annualized) | +7.55% | +2.75% | ||
| Eighteen Years (annualized) | +7.42% | |||
| Nineteen Years (annualized) | +7.27% | |||
| Twenty Years (annualized) | +7.40% | |||
| Twenty-One Years (annualized) | +7.98% | |||
| Twenty-Two Years (annualized) | +7.94% | |||
| Twenty-Three Years (annualized) | +8.26% | |||
| MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees. | ||||
| The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020. | ||||
| “TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends. | ||||
| CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed. | ||||
| Figures for NBI Preferred Equity Income Fund, Series F [NBC780] (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +0.54%, +4.16% and +22.86%, respectively, according to National Bank Investments after all fees & expenses. Three year performance is +1.99%; five year is +7.42%; ten year is +4.08%.
Figures from Morningstar are no longer conveniently available. |
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| Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018. | ||||
| Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +0.19%, +4.53% & +25.23%, respectively. Three year performance is +2.47%, five-year is +7.24%, ten year is +3.33% | ||||
| Figures for NBI Preferred Equity Fund Series F [NBC710] (formerly Altamira Preferred Equity Fund) are +0.00%, +4.49% and +26.64% for one-, three- and twelve months, respectively. Three year performance is +2.85%; five-year is +7.60%; ten-year is +3.48%
Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical. The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014. |
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| The figures for the NAV of BMO Laddered Preferred Share Index ETF (ZPR) is +23.58% for the past twelve months. Two year performance is +5.79%, three year is +2.26%, five year is +6.85%, ten year is +1.83%
Note that analysis of ZPR shows some doubt as to whether this fund is either "laddered" or an "index fund". |
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| Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020. | ||||
| Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +0.04%, +1.46% and +16.48% for the past one-, three- and twelve-months, respectively. Three year performance is -1.31%; five-year is +3.37%; ten-year is +0.23%. | ||||
| Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023 | ||||
| Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).
Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016. |
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| Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -0.2%, +4.0% and +22.3% for the past one, three and twelve months, respectively. Three year performance is +2.0%, five-year is +6.2%. | ||||
| Figures for the Desjardins Canadian Preferred Share Fund F Class (F Class), as reported by the company are +0.16%, +4.45% and +20.70% for the past one, three and twelve months, respectively. Two year performance is +5.16%, three-year is +1.19%, five-year is +5.56% | ||||
| Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as -0.15%, +4.29% and +21.94% for the past one, three and twelve months, respectively. Three-year performance is +0.84%, five-year is +6.11% | ||||
| Figures for the Dynamic Active Preferred Shares ETF (DXP) are -0.0%, +4.0% and +22.5% for the past one, three and twelve months, respectively. Three-year performance is +3.2%; five-year is +8.3% | ||||
| Figures for the Purpose Canadian Preferred Share Fund (Class F) are +0.29%, +4.48% and +25.31% for the past one, three and twelve months, respectively. Three-year performance is +2.07%; four-year is +13.91%; five-year is +8.20%; seven-year is +3.51%; ten-year is +4.98%. | ||||
The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) moving from 3.74% at May month-end to 3.41% at June month-end (n.b. – these are the figures used by HIMIPref™, which may lag daily market changes).
The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 370bp on 2024-6-26 a violent widening from the 315bp on 2024-5-29 (chart end-date 2024-6-14) :
The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly (despite recent narrowing) from its 2021-11-10 low of 344bp to a level of 584bp (as of 2024-6-28) … (chart end-date 2024-06-14):
…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -61bp (as of 2024-6-26) from its 2021-7-28 level of +170bp (chart end-date 2024-06-14):
There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.
There is no significant correlation between the Issue Reset Spread and 3-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.
There is no significant correlation for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset:
… and we see similar behaviour for three-month returns vs. Term to Reset, with no correlation for either the Pfd-2 Group or the Pfd-3 Group:
It should be noted that to some extent a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter.
Upwards-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.
I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past few years has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in the fairly near future. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2024-6-14).
I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.70% (weighted by shares held).
| Calculation of MAPF Sustainable Income Per Unit | ||||||
| Month | NAVPU | Portfolio Average YTW |
Leverage Divisor |
Securities Average YTW |
Capital Gains Multiplier |
Sustainable Income per current Unit |
| June, 2007 | 9.3114 | 5.16% | 1.03 | 5.01% | 1.3240 | 0.3524 |
| September | 9.1489 | 5.35% | 0.98 | 5.46% | 1.3240 | 0.3773 |
| December, 2007 | 9.0070 | 5.53% | 0.942 | 5.87% | 1.3240 | 0.3993 |
| March, 2008 | 8.8512 | 6.17% | 1.047 | 5.89% | 1.3240 | 0.3938 |
| June | 8.3419 | 6.034% | 0.952 | 6.338% | 1.3240 | $0.3993 |
| September | 8.1886 | 7.108% | 0.969 | 7.335% | 1.3240 | $0.4537 |
| December, 2008 | 8.0464 | 9.24% | 1.008 | 9.166% | 1.3240 | $0.5571 |
| March 2009 | $8.8317 | 8.60% | 0.995 | 8.802% | 1.3240 | $0.5872 |
| June | 10.9846 | 7.05% | 0.999 | 7.057% | 1.3240 | $0.5855 |
| September | 12.3462 | 6.03% | 0.998 | 6.042% | 1.3240 | $0.5634 |
| December 2009 | 10.5662 | 5.74% | 0.981 | 5.851% | 1.1141 | $0.5549 |
| March 2010 | 10.2497 | 6.03% | 0.992 | 6.079% | 1.1141 | $0.5593 |
| June | 10.5770 | 5.96% | 0.996 | 5.984% | 1.1141 | $0.5681 |
| September | 11.3901 | 5.43% | 0.980 | 5.540% | 1.1141 | $0.5664 |
| December 2010 | 10.7659 | 5.37% | 0.993 | 5.408% | 1.0298 | $0.5654 |
| March, 2011 | 11.0560 | 6.00% | 0.994 | 5.964% | 1.0298 | $0.6403 |
| June | 11.1194 | 5.87% | 1.018 | 5.976% | 1.0298 | $0.6453 |
| September | 10.2709 | 6.10% Note |
1.001 | 6.106% | 1.0298 | $0.6090 |
| December, 2011 | 10.0793 | 5.63% Note |
1.031 | 5.805% | 1.0000 | $0.5851 |
| March, 2012 | 10.3944 | 5.13% Note |
0.996 | 5.109% | 1.0000 | $0.5310 |
| June | 10.2151 | 5.32% Note |
1.012 | 5.384% | 1.0000 | $0.5500 |
| September | 10.6703 | 4.61% Note |
0.997 | 4.624% | 1.0000 | $0.4934 |
| December, 2012 | 10.8307 | 4.24% | 0.989 | 4.287% | 1.0000 | $0.4643 |
| March, 2013 | 10.9033 | 3.87% | 0.996 | 3.886% | 1.0000 | $0.4237 |
| June | 10.3261 | 4.81% | 0.998 | 4.80% | 1.0000 | $0.4957 |
| September | 10.0296 | 5.62% | 0.996 | 5.643% | 1.0000 | $0.5660 |
| December, 2013 | 9.8717 | 6.02% | 1.008 | 5.972% | 1.0000 | $0.5895 |
| March, 2014 | 10.2233 | 5.55% | 0.998 | 5.561% | 1.0000 | $0.5685 |
| June | 10.5877 | 5.09% | 0.998 | 5.100% | 1.0000 | $0.5395 |
| September | 10.4601 | 5.28% | 0.997 | 5.296% | 1.0000 | $0.5540 |
| December, 2014 | 10.5701 | 4.83% | 1.009 | 4.787% | 1.0000 | $0.5060 |
| March, 2015 | 9.9573 | 4.99% | 1.001 | 4.985% | 1.0000 | $0.4964 |
| June, 2015 | 9.4181 | 5.55% | 1.002 | 5.539% | 1.0000 | $0.5217 |
| September | 7.8140 | 6.98% | 0.999 | 6.987% | 1.0000 | $0.5460 |
| December, 2015 | 8.1379 | 6.85% | 0.997 | 6.871% | 1.0000 | $0.5592 |
| March, 2016 | 7.4416 | 7.79% | 0.998 | 7.805% | 1.0000 | $0.5808 |
| June | 7.6704 | 7.67% | 1.011 | 7.587% | 1.0000 | $0.5819 |
| September | 8.0590 | 7.35% | 0.993 | 7.402% | 1.0000 | $0.5965 |
| December, 2016 | 8.5844 | 7.24% | 0.990 | 7.313% | 1.0000 | $0.6278 |
| March, 2017 | 9.3984 | 6.26% | 0.994 | 6.298% | 1.0000 | $0.5919 |
| June | 9.5313 | 6.41% | 0.998 | 6.423% | 1.0000 | $0.6122 |
| September | 9.7129 | 6.56% | 0.998 | 6.573% | 1.0000 | $0.6384 |
| December, 2017 | 10.0566 | 6.06% | 1.004 | 6.036% | 1.0000 | $0.6070 |
| March, 2018 | 10.2701 | 6.22% | 1.007 | 6.177% | 1.0000 | $0.6344 |
| June | 10.2518 | 6.22% | 0.995 | 6.251% | 1.0000 | $0.6408 |
| September | 10.2965 | 6.62% | 1.018 | 6.503% | 1.0000 | $0.6696 |
| December, 2018 | 8.6875 | 7.16% | 0.997 | 7.182% | 1.0000 | $0.6240 |
| March, 2019 | 8.4778 | 7.09% | 1.007 | 7.041% | 1.0000 | $0.5969 |
| June | 8.0896 | 7.33% | 0.996 | 7.359% | 1.0000 | $0.5953 |
| September | 7.7948 | 7.96% | 0.998 | 7.976% | 1.0000 | $0.6217 |
| December, 2019 | 8.0900 | 6.03% | 0.995 | 6.060% | 1.0000 | $0.4903 |
| March | 5.5596 | 7.04% | 1.006 | 6.998% | 1.0000 | $0.3891 |
| June | 6.3568 | 6.10% | 0.9900 | 6.162% | 1.0000 | $0.3917 |
| September | 7.2852 | 5.32% | 1.00 | 5.320% | 1.0000 | $0.3876 |
| December, 2020 | 8.3947 | 4.46% | 0.999 | 4.464% | 1.0000 | $0.3747 |
| March, 2021 | 9.6473 | 4.48% | 0.996 | 4.498% | 1.0000 | $0.4339 |
| June | 10.3712 | 3.92% | 0.985 | 3.980% | 1.0000 | $0.4127 |
| September | 10.7572 | 4.08% | 1.017 | 4.012% | 1.0000 | $0.4316 |
| December, 2021 | 10.7432 | 4.31% | 0.999 | 4.314% | 1.0000 | $0.4635 |
| March, 2022 | 10.5040 | 5.53% | 1.004 | 5.508% | 1.0000 | $0.5786 |
| June | 9.3115 | 7.04% | 0.993 | 7.090% | 1.0000 | $0.6672 |
| September | 8.4093 | 8.10% | 0.997 | 8.124% | 1.0000 | $0.6916 |
| December, 2022 | 7.9921 | 8.47% | 0.996 | 8.504% | 1.0000 | $0.6796 |
| March, 2023 | 8.0788 | 7.90% | 0.997 | 7.924% | 1.0000 | $0.6401 |
| June 30 | 8.0197 | 9.19% | 1.003 | 9.163% | 1.0000 | $0.7348 |
| September 29 | 7.9922 | 9.86% | 0.997 | 9.890% | 1.0000 | $0.7904 |
| Decenber 29, 2023 | 8.4715 | 8.14% | 1.002 | 8.124% | 1.0000 | $0.6882 |
| March 28,2024 | 9.5892 | 7.60% | 1.006 | 7.555% | 1.0000 | $0.7244 |
| June 28, 2024 | 9.8516 | 7.32% | 0.999 | 7.327% | 1.0000 | $0.7219 |
| NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains. Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00% The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99 Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings. The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested. Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units. |
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| DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.
The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks. In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues |
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| The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0. | ||||||
| Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012. | ||||||
These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:
| Canada Yields Assumed in Calculations | ||
| Month-end | GOC-5 | 3-Month Bill |
| September, 2015 | 0.78% | 0.40% |
| December, 2015 | 0.71% | 0.46% |
| March, 2016 | 0.70% | 0.44% |
| June | 0.57% | 0.47% |
| September | 0.58% | 0.53% |
| December, 2016 | 1.16% | 0.47% |
| March, 2017 | 1.08% | 0.55% |
| June | 1.35% | 0.69% |
| September | 1.79% | 0.97% |
| December, 2017 | 1.83% | 1.00% |
| March, 2018 | 2.06% | 1.08% |
| June | 1.95% | 1.22% |
| September | 2.33% | 1.55% |
| December, 2018 | 1.88% | 1.65% |
| March, 2019 | 1.46% | 1.66% |
| June | 1.34% | 1.66% |
| September | 1.41% | 1.66% |
| December, 2019 | 1.68% | 1.68% |
| March, 2020 | 0.57% | 0.21% |
| June | 0.37% | 0.21% |
| September | 0.35% | 0.14% |
| December, 2020 | 0.42% | 0.08% |
| March, 2021 | 0.94% | 0.09% |
| June | 0.93% | 0.13% |
| September | 1.07% | 0.13% |
| December, 2021 | 1.31% | 0.16% |
| March, 2022 | 2.44% | 0.53% |
| June | 3.24% | 2.11% |
| September | 3.45% | 3.60% |
| December, 2022 | 3.37% | 4.35% |
| March, 2023 | 2.93% | 4.44% |
| June | 3.74% | 5.00% |
| September | 4.31% | 5.21% |
| December, 2023 | 3.21% | 5.13% |
| March, 2024 | 3.55% | 5.06% |
| June, 2024 | 3.41% | 4.71% |
ENB Upgraded to Pfd-2(low) by DBRS
June 28th, 2024DBRS Limited has announced that it:
Affected issues are (deep breath): ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PF.K, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T and ENB.PR.Y.
This is a pretty big deal, for those who care about such things. ENB comprises about 11.5% of ZPR (as of mid-November, 2023) and about 8.4% of CPD (as of mid-March, 2021, according to my notes made during my PrefLetter monitoring. So measured credit quality for the preferred share market has just improved considerably! Enbridge issues have been rated P-2(low) by S&P since June, 2015.
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