PrefBlog

Market Action

April 16, 2015

Executives at Aston Hill Financial Inc. have been shopping their firm to other asset managers, hoping to find a buyer.

Over the past two months, senior employees at Aston Hill have reached out to several Canadian firms and expressed interest in selling their company, according to multiple people familiar with the discussions.

The overtures have been made at a volatile time for the company, which recently lost a high profile mandate to manage $2.2-billion ‎worth of funds for IA Clarington Investments Inc. which prompted Aston Hill to slash its dividend.

In January 2011, Aston Hill renamed its subsidiary, Catapult Financial Management Inc. to Aston Hill Investments Inc.

Catapult was mentioned on PrefBlog in February 2009 as offering a closed-end actively managed preferred share fund, Preferred Share Investment Trust. This fund now has $68.1-million under management and is still managed by Aston Hill Investments Inc. Performance has been disappointing.

It was another poor day for the Canadian preferred share market, with PerpetualDiscounts off 13bp, FixedResets losing 27bp and DeemedRetractibles down 15bp. The lengthy Performance Highlights table is dominated by losing FixedResets. 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 22.96 to be $1.11 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is $0.98 cheap at its bid price of 13.50.

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.J, resetting at +261 on 2018-3-19, bid at 24.30 to be $0.49 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 25.12 to be $0.70 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.06 to be $0.56 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 23.61 and appears to be $0.57 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.25, looks $1.01 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.05 and is $0.46 rich.

Click for Big

Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.30%, up marginally on the day. TRP.PR.A / TRP.PR.F remains an outlier, predicting 0.70%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.29%.

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	0.00 %	0.00 %	0	0.00	0	1.2637 %	2,211.4
FixedFloater	0.00 %	0.00 %	0	0.00	0	1.2637 %	3,866.6
Floater	3.28 %	3.41 %	58,156	18.74	4	1.2637 %	2,350.9
OpRet	4.43 %	-1.59 %	38,516	0.13	2	0.0000 %	2,762.1
SplitShare	4.58 %	4.57 %	62,057	3.42	3	-0.0668 %	3,219.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,525.6
Perpetual-Premium	5.33 %	-0.12 %	64,639	0.08	25	-0.1598 %	2,516.0
Perpetual-Discount	5.15 %	5.08 %	145,758	14.91	9	-0.1327 %	2,770.9
FixedReset	4.61 %	3.80 %	263,395	16.35	85	-0.2724 %	2,316.5
Deemed-Retractible	4.90 %	2.38 %	106,875	0.16	36	-0.1484 %	2,653.8
FloatingReset	2.54 %	2.99 %	77,851	6.25	8	-0.0535 %	2,344.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PF.E	FixedReset	-4.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 21.56 Evaluated at bid price : 21.56 Bid-YTW : 4.21 %
MFC.PR.K	FixedReset	-2.50 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.46 Bid-YTW : 5.24 %
TRP.PR.E	FixedReset	-2.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.28 Evaluated at bid price : 22.96 Bid-YTW : 3.63 %
TRP.PR.D	FixedReset	-1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 21.98 Evaluated at bid price : 22.42 Bid-YTW : 3.68 %
CU.PR.C	FixedReset	-1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 23.27 Evaluated at bid price : 24.31 Bid-YTW : 3.31 %
BMO.PR.W	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.80 Evaluated at bid price : 24.00 Bid-YTW : 3.25 %
CU.PR.E	Perpetual-Premium	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 24.29 Evaluated at bid price : 24.72 Bid-YTW : 5.00 %
IFC.PR.C	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 3.94 %
FTS.PR.M	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.69 Evaluated at bid price : 23.75 Bid-YTW : 3.59 %
SLF.PR.H	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.39 Bid-YTW : 5.62 %
FTS.PR.G	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 3.64 %
CIU.PR.C	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 3.46 %
BAM.PR.B	Floater	1.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 14.70 Evaluated at bid price : 14.70 Bid-YTW : 3.41 %
BAM.PR.C	Floater	2.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 3.42 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.J	FixedReset	152,806	RBC crossed 90,000 at 25.02. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 23.12 Evaluated at bid price : 24.90 Bid-YTW : 3.47 %
TD.PF.C	FixedReset	131,600	TD crossed 120,000 at 24.04. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.66 Evaluated at bid price : 23.71 Bid-YTW : 3.29 %
BIP.PR.A	FixedReset	88,298	TD crossed two blocks of 40,000 each, both at 24.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.97 Evaluated at bid price : 24.50 Bid-YTW : 4.42 %
NA.PR.W	FixedReset	80,400	TD crossed 70,000 at 24.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.91 Evaluated at bid price : 24.30 Bid-YTW : 3.20 %
TD.PF.D	FixedReset	73,200	RBC crossed 25,000 at 24.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 23.03 Evaluated at bid price : 24.67 Bid-YTW : 3.53 %
TRP.PR.G	FixedReset	70,700	Desjardins crossed 50,000 at 24.87. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 23.07 Evaluated at bid price : 24.85 Bid-YTW : 3.69 %
There were 69 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 21.46 – 22.14 Spot Rate : 0.6800 Average : 0.4802 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.46 Bid-YTW : 5.24 %
CU.PR.D	Perpetual-Premium	Quote: 24.80 – 25.21 Spot Rate : 0.4100 Average : 0.2512 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 24.34 Evaluated at bid price : 24.80 Bid-YTW : 4.98 %
MFC.PR.N	FixedReset	Quote: 22.79 – 23.49 Spot Rate : 0.7000 Average : 0.5427 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.79 Bid-YTW : 4.66 %
TD.PF.C	FixedReset	Quote: 23.71 – 24.14 Spot Rate : 0.4300 Average : 0.2890 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 22.66 Evaluated at bid price : 23.71 Bid-YTW : 3.29 %
BAM.PR.X	FixedReset	Quote: 16.46 – 16.89 Spot Rate : 0.4300 Average : 0.2895 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-16 Maturity Price : 16.46 Evaluated at bid price : 16.46 Bid-YTW : 4.30 %
NA.PR.M	Deemed-Retractible	Quote: 25.61 – 25.94 Spot Rate : 0.3300 Average : 0.2081 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-14 Maturity Price : 25.50 Evaluated at bid price : 25.61 Bid-YTW : 0.32 %

Market Action

April 15, 2015

Today’s big news was the Bank of Canada rate decision:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Total CPI inflation is at 1 per cent, reflecting the drop in consumer energy prices. Core inflation has remained close to 2 per cent in recent months, as the temporary effects of sector-specific factors and pass-through of the lower Canadian dollar have offset the disinflationary forces from slack in the economy.
…
The very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation. However, the anticipated recovery in growth means that the output gap will be back in line with its previous trajectory later this year. Consequently, the effects on core inflation of the lower dollar and the output gap will continue to offset each other. As the economy reaches and remains at full capacity around the end of 2016, both total and core inflation are projected to be close to 2 per cent on a sustained basis.

Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected. The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.

The loonie liked the news:

The Canadian dollar touched its highest level in two months after the central bank kept borrowing rates unchanged, pointing to signs damage from an oil-price shock may already be fading and manufacturing exports picking up.
…
In its monetary policy report, the Bank of Canada said the economy is responding to the stimulus it added to cushion Canada’s economy from the fall in oil, its largest export, and forecast faster growth later in the year.
…
The bank said in its quarterly MPR there were signs of improvement in the labor market and the non-energy exports it is counting on to drive economic expansion, with industries sensitive to a lower exchange rate, like aircraft and industrial machinery, expected to lead growth.

Parakeet Poluz had some good news for the electoral prospects of his masters:

Bank of Canada Governor Stephen Poloz is becoming Canada’s leading optimist projecting a faster return to target on inflation amid a generally improving economy.

Growth will quicken to a 2.8 percent annualized pace in the third quarter, the central bank said Wednesday, exceeding all forecasts in a Bloomberg survey. Poloz kept the benchmark interest rate at 0.75 percent and said the positive side of the story will dominate in the second half, lifting inflation back to the 2 percent target almost a year ahead of schedule.

It’s a stark change from January, when Poloz shocked markets by cutting rates by a quarter point, a move he called “insurance” against the economic damage wrought by collapsing oil prices. He also told the Financial Times last month Canada’s economy was atrocious in the first quarter. The statement released by the bank Wednesday signaled the worst of the oil-price shock may be over, with improvements ranging from early signs of labor-market strength to gains in the non-energy exporting sector.

My favourite SEC Commissioner, Daniel M. Gallagher, had some interesting things to say about supra-national regulatory bodies:

On its face, “regulatory harmonization” sounds like a noble goal: if jurisdictions could coalesce around a single set of high-quality standards, compliance burdens could be reduced with no real reduction of investor protections. Since the crisis, however, “regulatory harmonization” has taken on a new and worrisome meaning. Instead of facilitating cooperation among regulators from different jurisdictions, the concept of “regulatory harmonization” has morphed into a top-down, forcible imposition of one-size-fits-all regulatory standards on sovereign nations by opaque groups of global regulators. This “one world, one government” approach to regulation doesn’t allow itself to be bothered by musty old concepts like national sovereignty or consent of the governed.

In 2009, the G-20 directed the FSB to coordinate the work of national authorities and multinational standard-setting organizations in the development of effective financial services regulation, with an emphasis on promoting financial stability. However, in reality, the FSB has been doing far more than merely coordinate the efforts of national regulators.

Recently, as evidenced by a memorandum to FSB members from its chairman, Bank of England Governor Mark Carney, the FSB has removed all doubt of its real purpose: to direct national authorities to implement the FSB’s own policies.[3] Mr. Carney explained in his memo that the FSB’s decisions must receive “full, consistent and prompt implementation” in member nations, as this “is essential to maintaining an open and resilient financial system.”
…
Let me be clear: I am not calling for the disbanding of international financial regulatory organizations. Rather, we must return these entities to their original pre-financial crisis purposes of facilitating cooperation among regulators from different jurisdictions. The concepts that steered these efforts were regulatory equivalence and substituted compliance. The ultimate goal was for regulators in each jurisdiction to recognize that many of their foreign counterparts had regulatory goals similar to their own, and that their regulatory approaches were of a high quality despite their differences. Indeed, there is usually more than one way to achieve any given regulatory objective, and it’s not always clear which way is “best.”

Having acknowledged that there is more than one way to achieve the same goals, we as regulators could voluntarily choose to deem compliance with a high quality foreign regulatory regime to qualify as a substitute for compliance with our own domestic requirements. In doing so, we could avoid complicated cross-border regulatory disputes and lend greater certainty and predictability to cross-border transactions. By avoiding layered, duplicative, and sometimes incompatible regulations, we could facilitate smoother and more efficient interactions between our respective capital markets, and by allowing and even encouraging heterogeneity of regulation, we could foster robustness and innovation in our capital markets.

The current coercive approach to regulatory harmonization, on the other hand, is flawed as a matter of policy and will become increasingly impractical as the number of nations needing to be coerced grows. It is difficult enough to reach agreement on matters between the U.S. and Europe, despite their many similarities. Other markets, particularly in Asia, the Middle East, and other parts of the developing world, will undoubtedly — and in fact already have — considered going it alone. Others may not have been invited to the party in the first place, and so feel themselves under no obligation to play along.

In an effort to divine the future, Canadian preferred share investors turned to the tarot … two cards kept showing up:

Click for Big

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets off 98bp and DeemedRetractibles gaining 2bp. MFC, FTS and BAM FixedResets were notably prominent on an extremely lengthy Performance Highlights table, while volatility itself was underscored by the fact that there was an observable crop of winners as well. Volume was extremely high.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.50 to be $1.45 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.96 cheap at its bid price of 15.45.

Click for Big

Most expensive is MFC.PR.J, resetting at +261 on 2018-3-19, bid at 24.35 to be $0.52 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.12 to be $0.41 cheap.

Horrible performance by the MFC issues today resulted in a marked spread-widening; volatility was hardly affected. Yesterday’s figures were 223bp and 17%.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.07 to be $0.76 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.55 and appears to be $1.11 rich.

Again, horrible daily performance has manifested itself mainly in the spread. Yesterday’s figures were 303bp and 4%.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.30, looks $0.88 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.01 and is $0.46 rich.

Click for Big

Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of just over 0.30%, up marginally on the day. TRP.PR.A / TRP.PR.F remains an outlier, predicting 0.89%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.11%.

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	0.00 %	0.00 %	0	0.00	0	2.0706 %	2,183.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	2.0706 %	3,818.4
Floater	3.32 %	3.48 %	58,896	18.59	4	2.0706 %	2,321.6
OpRet	4.43 %	-1.56 %	39,795	0.13	2	0.0000 %	2,762.1
SplitShare	4.58 %	4.56 %	62,990	3.42	3	-0.1201 %	3,222.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,525.6
Perpetual-Premium	5.32 %	0.92 %	64,904	0.08	25	-0.1784 %	2,520.1
Perpetual-Discount	5.14 %	5.11 %	145,629	14.92	9	0.1424 %	2,774.6
FixedReset	4.60 %	3.81 %	262,388	16.38	85	-0.9843 %	2,322.9
Deemed-Retractible	4.89 %	2.08 %	106,682	0.12	36	0.0165 %	2,657.8
FloatingReset	2.54 %	2.97 %	77,620	6.26	8	0.0321 %	2,345.3

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.K	FixedReset	-4.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.01 Bid-YTW : 4.92 %
MFC.PR.N	FixedReset	-4.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.69 Bid-YTW : 4.71 %
MFC.PR.L	FixedReset	-3.78 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.65 Bid-YTW : 5.21 %
MFC.PR.M	FixedReset	-3.68 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.02 Bid-YTW : 4.60 %
FTS.PR.K	FixedReset	-3.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 21.01 Evaluated at bid price : 21.01 Bid-YTW : 3.68 %
FTS.PR.G	FixedReset	-3.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 21.12 Evaluated at bid price : 21.12 Bid-YTW : 3.68 %
BAM.PF.G	FixedReset	-2.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.56 Evaluated at bid price : 23.55 Bid-YTW : 4.04 %
BAM.PF.F	FixedReset	-2.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.53 Evaluated at bid price : 23.40 Bid-YTW : 4.06 %
BNS.PR.Z	FixedReset	-2.90 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.75 Bid-YTW : 4.56 %
SLF.PR.G	FixedReset	-2.47 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.16 Bid-YTW : 7.36 %
TRP.PR.B	FixedReset	-2.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 13.61 Evaluated at bid price : 13.61 Bid-YTW : 3.81 %
TRP.PR.D	FixedReset	-2.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.22 Evaluated at bid price : 22.80 Bid-YTW : 3.60 %
BAM.PF.E	FixedReset	-2.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.01 Evaluated at bid price : 22.55 Bid-YTW : 3.97 %
ENB.PR.D	FixedReset	-2.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 18.02 Evaluated at bid price : 18.02 Bid-YTW : 4.62 %
ENB.PR.F	FixedReset	-2.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 4.63 %
BMO.PR.Q	FixedReset	-2.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.00 Bid-YTW : 4.52 %
BAM.PR.Z	FixedReset	-2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.92 Evaluated at bid price : 23.80 Bid-YTW : 4.05 %
BAM.PF.A	FixedReset	-2.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.64 Evaluated at bid price : 23.45 Bid-YTW : 4.05 %
MFC.PR.J	FixedReset	-1.97 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.35 Bid-YTW : 3.96 %
ENB.PR.Y	FixedReset	-1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 18.43 Evaluated at bid price : 18.43 Bid-YTW : 4.62 %
SLF.PR.H	FixedReset	-1.90 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.60 Bid-YTW : 5.49 %
RY.PR.H	FixedReset	-1.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.95 Evaluated at bid price : 24.30 Bid-YTW : 3.24 %
BAM.PR.X	FixedReset	-1.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 16.59 Evaluated at bid price : 16.59 Bid-YTW : 4.26 %
TRP.PR.E	FixedReset	-1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.57 Evaluated at bid price : 23.50 Bid-YTW : 3.52 %
TD.PF.D	FixedReset	-1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.01 Evaluated at bid price : 24.62 Bid-YTW : 3.54 %
HSE.PR.C	FixedReset	-1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.75 Evaluated at bid price : 23.90 Bid-YTW : 4.19 %
FTS.PR.M	FixedReset	-1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.80 Evaluated at bid price : 24.00 Bid-YTW : 3.54 %
PWF.PR.T	FixedReset	-1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.99 Evaluated at bid price : 24.26 Bid-YTW : 3.36 %
BNS.PR.Y	FixedReset	-1.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 4.16 %
ENB.PR.H	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 4.62 %
ENB.PR.B	FixedReset	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 17.67 Evaluated at bid price : 17.67 Bid-YTW : 4.70 %
FTS.PR.J	Perpetual-Premium	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.95 Evaluated at bid price : 24.36 Bid-YTW : 4.92 %
TD.PF.C	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.75 Evaluated at bid price : 23.90 Bid-YTW : 3.26 %
PWF.PR.S	Perpetual-Premium	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 24.22 Evaluated at bid price : 24.63 Bid-YTW : 4.86 %
BMO.PR.T	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.96 Evaluated at bid price : 24.31 Bid-YTW : 3.22 %
IFC.PR.A	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.52 Bid-YTW : 6.08 %
MFC.PR.G	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.76 Bid-YTW : 3.99 %
CU.PR.D	Perpetual-Premium	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 24.55 Evaluated at bid price : 25.02 Bid-YTW : 4.94 %
TD.PF.A	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.85 Evaluated at bid price : 24.10 Bid-YTW : 3.24 %
TRP.PR.A	FixedReset	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 3.78 %
BAM.PR.C	Floater	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 14.32 Evaluated at bid price : 14.32 Bid-YTW : 3.50 %
IFC.PR.C	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.56 Bid-YTW : 3.81 %
ENB.PR.T	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.50 %
TD.PF.B	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.85 Evaluated at bid price : 24.05 Bid-YTW : 3.24 %
BAM.PF.D	Perpetual-Discount	1.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.84 Evaluated at bid price : 23.14 Bid-YTW : 5.32 %
BAM.PR.K	Floater	2.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 14.20 Evaluated at bid price : 14.20 Bid-YTW : 3.53 %
PWF.PR.A	Floater	3.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 17.20 Evaluated at bid price : 17.20 Bid-YTW : 2.92 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.Q	FixedReset	121,083	Scotia crossed 30,000 at 24.82. TD crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.07 Evaluated at bid price : 24.80 Bid-YTW : 3.51 %
NA.PR.W	FixedReset	104,100	Nesbitt crossed 20,000 at 24.50. TD crossed 75,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.95 Evaluated at bid price : 24.38 Bid-YTW : 3.18 %
CM.PR.O	FixedReset	92,495	Nesbitt crossed 50,000 at 24.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.94 Evaluated at bid price : 24.25 Bid-YTW : 3.27 %
RY.PR.J	FixedReset	77,018	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.10 Evaluated at bid price : 24.85 Bid-YTW : 3.48 %
NA.PR.S	FixedReset	76,755	Nesbitt crossed 30,000 at 24.82; TD crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.17 Evaluated at bid price : 24.80 Bid-YTW : 3.25 %
TD.PF.D	FixedReset	73,580	RBC crossed 50,000 at 24.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 23.01 Evaluated at bid price : 24.62 Bid-YTW : 3.54 %
There were 64 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.M	FixedReset	Quote: 23.02 – 24.45 Spot Rate : 1.4300 Average : 0.9255 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.02 Bid-YTW : 4.60 %
MFC.PR.L	FixedReset	Quote: 21.65 – 22.75 Spot Rate : 1.1000 Average : 0.7477 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.65 Bid-YTW : 5.21 %
BAM.PF.G	FixedReset	Quote: 23.55 – 24.25 Spot Rate : 0.7000 Average : 0.3867 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.56 Evaluated at bid price : 23.55 Bid-YTW : 4.04 %
BAM.PF.F	FixedReset	Quote: 23.40 – 23.80 Spot Rate : 0.4000 Average : 0.2412 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 22.53 Evaluated at bid price : 23.40 Bid-YTW : 4.06 %
MFC.PR.K	FixedReset	Quote: 22.01 – 22.42 Spot Rate : 0.4100 Average : 0.2612 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.01 Bid-YTW : 4.92 %
ENB.PR.F	FixedReset	Quote: 18.66 – 19.19 Spot Rate : 0.5300 Average : 0.3880 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-15 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 4.63 %

New Issues

New Issue: TD FixedReset, 3.70%+287

The Toronto-Dominion Bank has announced:

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 9 (the “Series 9 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 8 million Series 9 Shares at a price of $25.00 per share to raise gross proceeds of $200 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 9 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.

The Series 9 Shares will yield 3.70% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending October 31, 2020. Thereafter, the dividend rate will reset every five years at a level of 2.87% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on October 31, 2020 and on October 31 every 5 years thereafter, TD may redeem the Series 9 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 9 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 10 (the “Series 10 Shares”), on October 31, 2020, and on October 31 every five years thereafter. Holders of the Series 10 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury bill yield plus 2.87%.

The expected closing date is April 24, 2015. TD will make an application to list the Series 9 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

The Bank, as previously announced, will redeem its outstanding Non-cumulative Redeemable Class A First Preferred Shares, Series R on May 1, 2015.

The redemption of TD.PR.R has been previously reported on PrefBlog.

This new issue actually looks pretty reasonable. If we look at the standard Implied Volatility calculation …:

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… we see that the Implied Volatility is very high, at 40%+, but that it appears that the (expected) relative richness of the NVCC non-compliant issues might be throwing off the calculation.

If the calculation is repeated using only the NVCC-compliant issues as sources of error …:

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… we see that our fears of material miscalculation are not realized: the Implied Volatility remains at 40%+.

This number is too high, ridiculously high. Although such high levels can be maintained for lengthy periods of time, they are associated with issues trading near par; the lowest price for a NVCC-compliant TD issues is 23.90 (for TD.PF.C, resetting 2020-1-31 at GOC-5 + 225bp), which is close enough to par that some people (I am sure) figure that it will always be close to par (an idea that has been dubbed the par always, shit forever hypothesis.

I conclude that the new issue is very attractively priced relative to the other TD NVCC FixedResets, as in the event of a spread-widening and consequent decline in price of each element of the series, the lower spread issues will significantly underperform as Implied Volatility declines to a more reasonable figure; of course, it is entirely possible and completely logical that the Implied Volatility will decline (flattening the curve) even in the absence of spread-widening for this series.

Market Action

April 14, 2015

SEC Commissioner Luis A. Aguilar managed to deliver notice of his own incompetence and a slap in the face to Canadian regulators simultaneously:

Now let’s talk about one particular type of complex security known as structured notes — which has now become a $45 billion market — and where the registered offerings are targeted at retail investors.[22] In fact, recent data shows that an estimated 99% of all purchasers of these products are retail investors.[23] These securities are issued by large financial institutions and offer returns that are linked to the performance of a reference asset or index.[24] In their most basic form, structured notes are investment products that typically have a fixed maturity that includes a bond component and an embedded derivative.[25] What isn’t always made clear are the risks of these debt look-alikes — of which there can be many. As the SEC recently pointed out in an Investor Bulletin, the risks of these products include, among others, the products’ complex payoff structures, market risk on the reference asset or index, high fees, a lack of a liquid secondary market, opaque pricing, credit risk, and complicated payoff structures that can make it difficult to assess value, risk, and potential for growth.[26] Moreover, there are a wide variety of structured notes that have different risk profiles — some of these examples include principal protected notes, reverse convertible notes, enhanced participation or leveraged notes, and hybrid notes that combine multiple characteristics.[27]

Structured notes grabbed widespread public notoriety in 2008 when Lehman Brothers filed the biggest bankruptcy in U.S. history.[28] Lehman Brothers had sold unsecured debt called “principal protected notes” that became worthless when the firm collapsed, and investors lost billions of dollars as a result.[29] In essence, the securities sold as “principal protected” were really not “protected;” in fact, the “protection” that was offered was tied to the creditworthiness of the issuer, which cratered along with Lehman Brothers. These products have been referred to as “Trojan horses” that ultimately enter into an investment portfolio and destroy people’s life savings.[30]

Well, yeah. A guarantee is only as good as the guarantor. Since when is that news? Meanwhile, here in Canada:

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There’s an interesting story about emerging battery technologies and players on Bloomberg.

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$500 sounds like an awful lot to pay to store $0.20 (tops) worth of electricity, but:

[MIT Professor Donald] Sadoway, a 65-year-old Canadian, defies the nerdy inventor mold. He’s been known to teach his class in a tuxedo while serving champagne. Yet he’s all science when explaining batteries. He says Ambri can top lithium-ion on price and longevity with tricky chemistry that he and a former student have finally perfected. The battery combines two metals Sadoway won’t disclose that have different weights and melting points. He separates them with a salt layer. Electric currents heat the metals to as much as 700 degrees Celsius (1,292 degrees Fahrenheit) to pass electrons through the molten salt. That helps the metals hold more energy. Unlike the lithium-ion in laptops, which can take about 400 charges and last four years, Sadoway says his batteries can take 10,000 charges and work for at least a decade.

So if you do it 10,000 times, that’s $0.05 per cycle in capital cost, and the arbitrage over time just got a lot more interesting.

Sadoway is one of the first out of the gate. This year, he plans to ship six 10-ton prototypes packed with hundreds of liquid metal cells to wind and solar farms in Hawaii, a microgrid in Alaska, and a Consolidated Edison substation in Manhattan. Ambri’s battery will store power Con Ed offloads when demand is low. Then, rather than cranking up another coal- or gas-fired plant, the utility will drain the battery when New Yorkers want more juice

It is of great interest to learn that AltaGas has issued 2-Year USD FRNs at USD 3-Month LIBOR + 85bp. 3-Month LIBOR will generally be roughly equal to 3-Month Treasuries plus a spread, the famous TED Spread, currently about 25bp, where it is most of the time. So, for the sake of round-figures, say these notes have been issued at 3-Month Treasuries +125.

Now compare this with, for instance, ALA.PR.A, which currently pays $1.25 p.a. and will become exchangeable into a FloatingReset paying 3-Month bills+317bp at the end of October and is bid today at 19.35 to yield 4.51% to perpetuity (assuming a yield on the underlying Canada of 0.78%. That’s quite the difference!

We can, and almost certainly will, argue for hours about how much effect there is of tax effects, currency, maturity date and liquidity in the difference between these spreads. But it’s a fascinating contrast anyway.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 73bp, FixedResets off 10bp and DeemedRetractibles gaining 1bp. The Performance Highlights table continues to illustrate a high level of volatility. Volume was above average.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.88 to be $1.66 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.05 cheap at its bid price of 15.45.

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Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 23.65 to be $0.51 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.16 to be $0.85 cheap. The lowest spread issue, MFC.PR.F, is noticeably off the curve defined by its peers.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.25 to be $0.90 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.10 and appears to be $1.29 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.40, looks $1.12 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.77 and is $0.71 rich.

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Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.30%. TRP.PR.A / TRP.PR.F remains an outlier, predicting 1.03%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.18%.

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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	0.00 %	0.00 %	0	0.00	0	-1.9471 %	2,139.5
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.9471 %	3,740.9
Floater	3.39 %	3.50 %	58,788	18.54	4	-1.9471 %	2,274.5
OpRet	4.43 %	-1.52 %	36,854	0.13	2	0.0000 %	2,762.1
SplitShare	4.57 %	4.56 %	61,508	3.42	3	0.0534 %	3,225.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,525.6
Perpetual-Premium	5.31 %	0.73 %	65,242	0.08	25	0.0126 %	2,524.6
Perpetual-Discount	5.15 %	5.07 %	150,570	14.91	9	-0.7257 %	2,770.6
FixedReset	4.55 %	3.82 %	263,779	16.40	85	-0.0981 %	2,346.0
Deemed-Retractible	4.89 %	1.93 %	107,614	0.12	36	0.0055 %	2,657.3
FloatingReset	2.54 %	2.95 %	76,314	6.26	8	0.1232 %	2,344.5

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-3.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 15.92 Evaluated at bid price : 15.92 Bid-YTW : 3.54 %
PWF.PR.A	Floater	-3.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.03 %
BAM.PR.K	Floater	-2.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 13.82 Evaluated at bid price : 13.82 Bid-YTW : 3.63 %
BAM.PF.D	Perpetual-Discount	-2.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.39 Evaluated at bid price : 22.75 Bid-YTW : 5.41 %
TD.PF.B	FixedReset	-2.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.73 Evaluated at bid price : 23.78 Bid-YTW : 3.29 %
BAM.PF.B	FixedReset	-1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 21.42 Evaluated at bid price : 21.75 Bid-YTW : 4.11 %
IFC.PR.C	FixedReset	-1.58 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 3.94 %
BAM.PR.X	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 16.91 Evaluated at bid price : 16.91 Bid-YTW : 4.18 %
ENB.PR.N	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 4.58 %
ENB.PR.T	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 19.14 Evaluated at bid price : 19.14 Bid-YTW : 4.55 %
ENB.PR.B	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 17.91 Evaluated at bid price : 17.91 Bid-YTW : 4.63 %
BAM.PR.C	Floater	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 14.17 Evaluated at bid price : 14.17 Bid-YTW : 3.54 %
BAM.PR.N	Perpetual-Discount	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 21.94 Evaluated at bid price : 22.34 Bid-YTW : 5.34 %
FTS.PR.M	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.95 Evaluated at bid price : 24.36 Bid-YTW : 3.47 %
MFC.PR.N	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.65 Bid-YTW : 4.20 %
TRP.PR.E	FixedReset	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.75 Evaluated at bid price : 23.88 Bid-YTW : 3.44 %
ENB.PF.G	FixedReset	1.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 4.58 %
PWF.PR.P	FixedReset	1.83 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 3.59 %
BAM.PR.R	FixedReset	2.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 19.25 Evaluated at bid price : 19.25 Bid-YTW : 4.20 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.I	FixedReset	148,432	Nesbitt crossed blocks of 89,600 and 50,000, both at 25.22. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.13 Bid-YTW : 3.61 %
IFC.PR.C	FixedReset	90,676	Desjardins crossed 12,600 at 24.70. Nesbitt crossed two blocks of 25,000 each at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 3.94 %
TRP.PR.G	FixedReset	87,139	Scotia crossed 25,000 at 25.05, then sold 10,000 to RBC at 25.00. RBC crossed 25,000 at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 23.08 Evaluated at bid price : 24.87 Bid-YTW : 3.68 %
TD.PR.R	Deemed-Retractible	87,009	TD crossed 45,400 at 25.49. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-05-30 Maturity Price : 25.50 Evaluated at bid price : 25.48 Bid-YTW : 4.24 %
BAM.PF.G	FixedReset	79,566	TD crossed blocks of 25,600 shares, 40,000 and 12,000, all at 24.27. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.88 Evaluated at bid price : 24.27 Bid-YTW : 3.89 %
HSE.PR.E	FixedReset	63,420	RBC crossed 40,000 at 25.22. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 23.21 Evaluated at bid price : 25.15 Bid-YTW : 4.28 %
There were 39 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TD.PF.B	FixedReset	Quote: 23.78 – 24.45 Spot Rate : 0.6700 Average : 0.4089 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.73 Evaluated at bid price : 23.78 Bid-YTW : 3.29 %
ENB.PR.J	FixedReset	Quote: 20.10 – 20.49 Spot Rate : 0.3900 Average : 0.2363 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 4.50 %
BAM.PF.D	Perpetual-Discount	Quote: 22.75 – 23.12 Spot Rate : 0.3700 Average : 0.2163 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.39 Evaluated at bid price : 22.75 Bid-YTW : 5.41 %
BAM.PR.K	Floater	Quote: 13.82 – 14.30 Spot Rate : 0.4800 Average : 0.3468 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 13.82 Evaluated at bid price : 13.82 Bid-YTW : 3.63 %
CU.PR.G	Perpetual-Discount	Quote: 23.30 – 23.62 Spot Rate : 0.3200 Average : 0.1956 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 22.99 Evaluated at bid price : 23.30 Bid-YTW : 4.87 %
CIU.PR.C	FixedReset	Quote: 15.92 – 16.59 Spot Rate : 0.6700 Average : 0.5566 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-14 Maturity Price : 15.92 Evaluated at bid price : 15.92 Bid-YTW : 3.54 %

Issue Comments

AIM.PR.A, AIM.PR.B & AIM.PR.C Downgraded To Pfd-3(low) By DBRS

DBRS has announced that it:

has today downgraded Aimia Inc.’s (Aimia or the Company) Issuer Rating and Senior Secured Debt rating to BBB (low) and its Preferred Shares rating to Pfd-3 (low). The trends are all Stable. The rating action reflects a deterioration in Aimia’s earnings profile, caused by a number of developments which DBRS believes will lead to a decline in operating income over the near to medium term.

In its press release on September 2, 2014, DBRS stated that it believed adjusted EBITDA (excluding non-recurring items and distributions from Premier Loyalty & Marketing’s Club Premier loyalty program) would decrease to approximately $300 million in 2014 because of the Aeroplan program transformation and financial cards agreement with TD Bank Group (TD; rated AA with a Stable trend by DBRS) and Canadian Imperial Bank of Commerce (CIBC; rated AA with a Stable trend by DBRS). Going forward, DBRS expected that operating performance would benefit from increased customer engagement resulting from the enhancements to the Aeroplan program as well as higher pricing from more favourable contract terms.

While DBRS recognizes elements of progress made to date following the program transformation, a number of factors have caused management’s guidance for adjusted EBITDA to fall to approximately $235 million in 2015. These factors include margin pressure in the Aeroplan business (as a result of lower yield, reduced card spending and increased costs of rewards), the non-renewal of Groupe Auchan at Nectar Italia (its largest partner in Italy), the loss of a major client in its proprietary loyalty services business in Canada and the yet-to-be-determined impact, if any, from credit card interchange fee reform.

As such, DBRS forecasts that credit metrics will weaken to a level that is no longer appropriate for the previous rating category (i.e., gross debt-to-adjusted EBITDA before distributions of approximately 1.75 times (x) to 2.25x and adjusted EBITDA interest coverage of around 7.0x). DBRS now expects gross debt-to-EBITDA to increase to approximately 2.8x at the end of 2015 and adjusted EBITDA interest coverage to decrease to 6.2x, levels more appropriate with the BBB (low) and Pfd-3 (low) rating categories.

The Stable trends reflect DBRS’s view that Aimia will begin to grow its earnings off the new baseline based on the strength of its brands and relationships with key commercial partners. Gross billings should benefit from its strong market positions in Canada and the United Kingdom and its steadily improving geographic and sponsor/partner diversification, as the Company continues to grow its data analytics business and expand globally. The trends also acknowledge Aimia’s exposure to consumer spending and redemption patterns, the significant but moderating degree of revenue concentration and increasing loyalty program offerings from competitors.

In terms of financial profile, DBRS believes Aimia will continue to be a substantial free cash flow generating company. DBRS expects that in 2015, free cash flow after dividends will be approximately $80 million. Free cash flow along with cash on hand is expected to be applied toward share repurchases and small tuck-in acquisitions rather than to repay debt. DBRS believes that Aimia has adequate capacity in the new rating category to execute its business strategy and capital allocation plans over the near to medium term. DBRS forecasts that key credit metrics should remain appropriate for the new rating category (i.e., gross debt-to-adjusted EBITDA before distributions of approximately 2.25x to 3.0x and adjusted EBITDA coverage near 6.0x).

The recent 43% conversion of AIM.PR.A to AIM.PR.B was reported on PrefBlog. The September 2 DBRS ratings confirmation was also reported on PrefBlog.

AIM.PR.A, AIM.PR.B and AIM.PR.C are all tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Market Action

April 13, 2015

There’s some interesting news about drones:

Amazon.com Inc.’s proposed use of drones could drive down the cost to deliver small packages crosstown to about $1 — a fraction of existing same-day delivery options, according to a study by a financial research company.

The report from New York-based ARK Invest also suggests deliveries may arrive in as soon as 30 minutes. The research tried to quantify the savings from the use of drones compared with delivery trucks and couriers.

Amazon has pushed the U.S. government for permission to test unmanned aircraft as it seeks to develop drones to speed shipping products. The Federal Aviation Administration gave the Seattle-based online retailer a waiver allowing flights as fast as 100 miles (161 kilometers) an hour and as high as 400 feet off the ground, according to a letter from the agency dated Wednesday.
…
Amazon would need to hire thousands of operators, each capable of monitoring multiple drones simultaneously, to ensure safe takeoffs and landings, according to the study, which included the personnel cost in its calculations. Most of the drone flight would be automated, according to the study, which assumes each package weighs as much as 5 pounds and each delivery is no more than 10 miles.

This is of interest on many levels: primarily, of course, I’m interested in getting the things that I ordered quickly – when I buy the latest installment of Teenage Vampire Stewardesses Go To Nursing School, I want it right away! Additionally, there is the potential for skeet shooting with prizes! And finally, what happens when more than one company does it? Will we need to have drone Air Traffic Controllers? Or, given that the potential for death and injury is less with package-delivering drones, will it be enough to have some kind of automated system? Will an automated system work with visual sensors, echo-location or self-responding with GPS and transponders? Stay tuned!

It will not have escaped notice that immediately following the publication of the story in which I discussed upcoming dividend cuts on reset, the preferred share market tanked, particularly FixedResets. The enormous amount of influence I have over the market has also impressed a lot of my groupies, who send me gushing eMails:

Your comments on preferred share recently were totally out of line. Irresponsible comments about the yields on all rate reset preffered. shares. You should be sued on those comments. I am too poor to sue you but I wish I could.

Politics is getting really complicated. First there was the Wildrose Party in Alberta and now I understand there’s a new political movement in Saskatchewan:

Click for Big

Saskatchewan is clamping down on the sale of the province’s farmland to major Canadian pension funds and institutional investors, restricting deep-pocketed groups at a time when land prices are climbing.

Agriculture Minister Lyle Stewart said Monday that Saskatchewan will undertake a review of provincial farmland ownership rules. In the meantime, pension plans, administrators of pension fund assets and trusts will not be allowed to purchase land, adding to the already stringent rules in place to prevent foreign investors from profiting from the industry.
…
The move to change ownership rules comes after Canada Pension Plan Investment Board paid $128-million for 115,000 acres of Saskatchewan farmland that produced wheat, barley, canola and other crops in 2013. The acquisition has become a hot-button issue as the province seeks to protect small farmers while encouraging growth in its agriculture industry.

Used to be that a buck was a buck; in fact, I understand that that’s why money was invented. But it seems very fashionable to declare that some dollars are better than other dollars; the system of licenses might even get some senior bureaucrats some very nice dinners and hockey tickets.

This story about abusive staffing practices rang a bell for me:

Gap Inc. and other retailers were told by New York’s attorney general that using on-call shifts may be illegal, bringing fresh criticism to a practice that forces workers to make themselves available on short notice.

Attorney General Eric Schneiderman sent letters to 13 retailers on April 10 seeking information about their reliance on the staffing approach. He warned the companies that making workers stay on call may be violating state employment law.

The attorney general said he received reports that a growing number of employees are working such shifts, which require them to check in as little as a few hours in advance to see if they’re needed. A range of clothing and department-store chains, including Sears Holdings Corp., Abercrombie & Fitch Co. and Target Corp., all received letters on the issue — the latest attempt by the high-profile prosecutor to rein in what he sees as unscrupulous retail practices.

My cutie is a nurse. As many of you know, the complete absence of anybody with any kind of brain in the health care system means that many, if not most, nurses can only find part-time jobs. One of her jobs is at a hospital, as a casual, which means she has to provide them with a minimum amount of availability every month, with a minimum amount of that to be weekends. If they need her, they’ll call her; I believe a health minister read a newspaper article about ‘Just In Time Inventory’ one day and decided that this would be his legacy. So anyway, it’s not bad enough that she’ll get called at 4:30am to leave the house at 5:00am to commute to a 6:00am shift start time; the worst part is, she’s neither paid for the availability, nor is she guaranteed a certain proportion of calls. So it’s entirely possible that she could block out 20 shifts availability over a month, not get a single call, and get a grand total of zero on her paycheque.

The system may have been inspired by a politician, but it was definitely designed by an MBA. And then the news is filled with interviews with the big shots, utterly baffled regarding why so many young nurses leave the profession. Why do so many go to the States? Hell, how much experience of life do you really need before you realize that if you treat your staff like shit, you get shit staff?

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 55bp, FixedResets down 32bp and DeemedRetractibles off 7bp. The lengthy Performance Highlights table is dominated by FixedReset losers, but there were quite a few winners on the day. Volume was very high.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.60 to be $1.38 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.88 cheap at its bid price of 15.60.

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Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.00 to be $0.60 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.16 to be $0.90 cheap. The lowest spread issue, MFC.PR.F, is noticeably off the curve defined by its peers.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.87 to be $1.31 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.10 and appears to be $1.27 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.25, looks $1.34 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.62 and is $0.52 rich.

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Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.30%. TRP.PR.A / TRP.PR.F remains an outlier, predicting 0.84%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -0.76%.

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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	0.00 %	0.00 %	0	0.00	0	0.5018 %	2,182.0
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.5018 %	3,815.2
Floater	3.32 %	3.48 %	58,104	18.58	4	0.5018 %	2,319.6
OpRet	4.43 %	-2.93 %	36,059	0.14	2	0.0394 %	2,762.1
SplitShare	4.57 %	4.52 %	62,048	3.42	3	0.0267 %	3,224.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0394 %	2,525.6
Perpetual-Premium	5.31 %	2.29 %	65,412	0.08	25	0.0474 %	2,524.2
Perpetual-Discount	5.11 %	5.05 %	151,737	15.01	9	-0.5530 %	2,790.9
FixedReset	4.55 %	3.78 %	269,994	16.41	85	-0.3164 %	2,348.3
Deemed-Retractible	4.89 %	2.14 %	108,202	0.13	36	-0.0659 %	2,657.2
FloatingReset	2.54 %	2.95 %	75,264	6.26	8	-0.4478 %	2,341.6

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.K	FixedReset	-4.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 21.32 Evaluated at bid price : 21.62 Bid-YTW : 3.54 %
MFC.PR.F	FixedReset	-4.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.36 Bid-YTW : 6.85 %
TRP.PR.F	FloatingReset	-4.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 3.43 %
MFC.PR.L	FixedReset	-3.62 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 4.67 %
HSE.PR.A	FixedReset	-3.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 15.70 Evaluated at bid price : 15.70 Bid-YTW : 4.16 %
FTS.PR.G	FixedReset	-2.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 21.72 Evaluated at bid price : 22.00 Bid-YTW : 3.50 %
MFC.PR.K	FixedReset	-2.41 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.05 Bid-YTW : 4.34 %
BAM.PF.A	FixedReset	-2.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.91 Evaluated at bid price : 24.00 Bid-YTW : 3.93 %
BAM.PF.B	FixedReset	-1.99 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 21.79 Evaluated at bid price : 22.15 Bid-YTW : 4.03 %
PWF.PR.P	FixedReset	-1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 16.92 Evaluated at bid price : 16.92 Bid-YTW : 3.66 %
SLF.PR.H	FixedReset	-1.89 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.80 Bid-YTW : 5.37 %
BNS.PR.Z	FixedReset	-1.79 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.45 Bid-YTW : 4.04 %
MFC.PR.N	FixedReset	-1.47 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.40 Bid-YTW : 4.33 %
BMO.PR.Q	FixedReset	-1.40 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.50 Bid-YTW : 4.14 %
MFC.PR.C	Deemed-Retractible	-1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.21 Bid-YTW : 4.98 %
GWO.PR.N	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.96 Bid-YTW : 6.76 %
BAM.PR.R	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 18.87 Evaluated at bid price : 18.87 Bid-YTW : 4.29 %
TRP.PR.D	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.42 Evaluated at bid price : 23.15 Bid-YTW : 3.53 %
VNR.PR.A	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 23.05 Evaluated at bid price : 23.99 Bid-YTW : 3.78 %
ENB.PF.A	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 4.60 %
ENB.PF.G	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 20.25 Evaluated at bid price : 20.25 Bid-YTW : 4.67 %
ELF.PR.H	Perpetual-Premium	1.26 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-04-17 Maturity Price : 25.25 Evaluated at bid price : 25.75 Bid-YTW : 5.01 %
BAM.PR.X	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 17.13 Evaluated at bid price : 17.13 Bid-YTW : 4.12 %
ENB.PR.J	FixedReset	1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 20.27 Evaluated at bid price : 20.27 Bid-YTW : 4.46 %
CIU.PR.C	FixedReset	2.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 16.45 Evaluated at bid price : 16.45 Bid-YTW : 3.43 %
TRP.PR.E	FixedReset	2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.62 Evaluated at bid price : 23.60 Bid-YTW : 3.50 %
PWF.PR.A	Floater	3.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 17.14 Evaluated at bid price : 17.14 Bid-YTW : 2.93 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.D	FixedReset	144,500	TD crossed 25,000 at 25.03. Scotia crossed blocks of 50,000 shares, 35,000 shares, 15,000 and 15,900, all at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 23.15 Evaluated at bid price : 25.01 Bid-YTW : 3.47 %
CU.PR.C	FixedReset	125,178	TD crossed 61,000 at 24.90; Nesbitt crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 23.45 Evaluated at bid price : 24.73 Bid-YTW : 3.23 %
FTS.PR.H	FixedReset	87,914	RBC bought 82,400 from Desjardins at 15.49. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 15.25 Evaluated at bid price : 15.25 Bid-YTW : 3.70 %
BMO.PR.W	FixedReset	74,000	Nesbitt crossed 40,000 at 24.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.95 Evaluated at bid price : 24.36 Bid-YTW : 3.18 %
RY.PR.Z	FixedReset	70,544	RBC crossed blocks of 25,000 and 28,300, both at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 23.17 Evaluated at bid price : 24.81 Bid-YTW : 3.11 %
CM.PR.P	FixedReset	69,700	TD crossed 65,000 at 24.32. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.92 Evaluated at bid price : 24.32 Bid-YTW : 3.17 %
There were 52 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.L	FixedReset	Quote: 22.60 – 23.15 Spot Rate : 0.5500 Average : 0.3739 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 4.67 %
BAM.PF.A	FixedReset	Quote: 24.00 – 24.40 Spot Rate : 0.4000 Average : 0.2412 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.91 Evaluated at bid price : 24.00 Bid-YTW : 3.93 %
FTS.PR.J	Perpetual-Premium	Quote: 24.55 – 25.00 Spot Rate : 0.4500 Average : 0.3218 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 24.13 Evaluated at bid price : 24.55 Bid-YTW : 4.88 %
FTS.PR.G	FixedReset	Quote: 22.00 – 22.37 Spot Rate : 0.3700 Average : 0.2441 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 21.72 Evaluated at bid price : 22.00 Bid-YTW : 3.50 %
TRP.PR.F	FloatingReset	Quote: 18.25 – 18.73 Spot Rate : 0.4800 Average : 0.3541 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 3.43 %
TRP.PR.D	FixedReset	Quote: 23.15 – 23.68 Spot Rate : 0.5300 Average : 0.4108 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-13 Maturity Price : 22.42 Evaluated at bid price : 23.15 Bid-YTW : 3.53 %

PrefLetter

April PrefLetter Released!

The April, 2015, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the April, 2015, issue, while the “Next Edition” will be the May, 2015, issue, scheduled to be prepared as of the close May 8 and eMailed to subscribers prior to market-opening on May 11.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

Issue Comments

BK.PR.A Gets Bigger

Quadravest has announced:

Canadian Banc Corp. (the “Company’) is pleased to announce it has completed the overnight marketing of up to 1,320,000 Preferred Shares and up to 1,320,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $30.7 million.

The offering is being co-led by National Bank Financial Inc., CIBC, RBC Capital Markets and also includes Scotia Capital Inc., TD Securities Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5% and the Class A Shares will be offered at a price of $13.25 per Class A Share to yield 10%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on April 1, 2015 was $10.30 and $13.75, respectively.

The net proceeds of the offering will be used by the Company to invest in a portfolio of six publicly traded Canadian Banks as follows: [Logos of Big 6 Banks]

The Company’s investment objectives are to:
Preferred Shares:
i. provide holders with cumulative preferential floating rate monthly cash dividends at a rate per annum equal to the prevailing Canadian prime rate plus 0.75% (minimum annual rate of 5.0% and maximum annual rate of 7%) based on original issue price; and
ii. On or about December 1, 2018 or such other date as the Company may determine (the “termination date”) to pay holders the
original $10 issue price of those shares.
Class A Shares:
i. provide holders with regular monthly cash distributions currently targeted to be at the annualized rate of 10% based upon the volume-weighted average trading price of the Class A Shares on the TSX for the last three trading days of the preceding month; and
ii. On the termination date to pay holders the original $15 issue price of those shares.

The intent to issue was previously reported on PrefBlog.

Issue Comments

SBN.PR.A: Annual Report 2014

S Split Corp. has released its Annual Report to December 31, 2014.

SBN / SBN.PR.A Performance
Instrument	One Year	Three Years	Five Years
Whole Unit	+0.04%	+7.59%	+5.01%
SBN.PR.A	+5.38%	+5.38%	+5.38%
SBN	-5.41%	+10.30	+4.53%
Bank of Nova Scotia	+3.66%	+13.68%	+10.35%
S&P/TSX Financial Index	+13.80%	+18.27%	+12.17%

Not much of an advertisement for a call-option writing strategy, is it? They’ve underperformed their underlying issue by over 5% annualized over the past five years. Not only that, the Capital Units have underperformed the common DURING A BULL MARKET! It would be interesting to perform a detailed reconciliation of the performance difference, to determine the amounts attributable to MER, option writing and Sequence of Return Risk adjustments.

Figures of interest are:

MER: 1,426,153 expenses before fund extension costs and special resolution expense divided by 53.8-million average assets (see below) is 2.65%. Ouch!

Average Net Assets: We need this to calculate portfolio yield; and it’s tricky because there were massive redemptions during the year. Preferred Share distributions of 1,509,073 @ 0.525 / share implies 2.874-million shares out on average. Average Unit Value (beginning & end of year) = (18.78 + 19.86) / 2 = 19.32. Therefore 2.874-million @ 19.32 = 55.5-million average net assets. Assets dropped substantially during the year, from 62.072-million to 22.058-million, largely due to a redemption of units on December 1, 2014, in connection with the term extension. So give the lower figure a 1/4 weighting and the higher one 3/4 (assume they were fairly liquid during the fourth quarter) and get (0.75 * 62.072 + 0.25 * 22.058) = 52.1-million average net assets. Good agreement between these two methods! Call it $53.8-million average fund assets.

Underlying Portfolio Yield: Dividends and interest income received of 2.323-million divided by average net assets of 53.8-million is 4.32%

Income Coverage: Net Investment Income (before capital gains & losses and issuance costs and resolution costs ) of $896,671 divided by Preferred Share Distributions of 1,883,142 is 59%.

Issue Comments

LCS.PR.A: Annual Report 2014

Brompton Lifeco Split Corp. has released its Annual Report to December 31, 2014.

LCS / LCS.PR.A Performance
Instrument	One Year	Three Years	Five Years
Whole Unit	+5.1%	+26.6%	+8.2%
LCS.PR.A	+5.6%	+5.9%	+5.4%
LCS	+4.6%	N/A	+11.5%
S&P/TSX Financial Index	+12.6%	+18.7%	+11.8%
S&P/TSX Composite Index	+10.6%	+10.2%	+7.5%

Note that the benchmarking isn’t ideal, since the Financial index will include banks, while the fund has a mandate only for insurers.

Figures of interest are:

MER: 1.27% of the whole unit value, excluding Preferred share distributions and issuance costs and agents’ fees in connection with the Fund’s treasury offerings of Preferred shares,.

Average Net Assets: We need this to calculate portfolio yield; and it’s tricky because there was massive issuance during the year. MER of 1.27% on Total Expenses excluding Preferred share distributions and issuance costs and agents’ fees of $773,319 implies $60.89-million net assets. Preferred Share distributions of 1,883,142 @ 0.525 / share implies 3.587-million shares out on average. Average Unit Value (beginning & end of year) = (16.36 + 17.00) / 2 = 16.68. Therefore 3.587-million @ 16.68 = 59.8-million average net assets. Good agreement between these two methods! Call it $60.4-million average fund assets.

Underlying Portfolio Yield: Dividends, interest and lending income received of 1.659-million divided by average net assets of 60.4-million is 2.77%

Income Coverage: Net Investment Income (before capital gains & losses and issuance costs and agents’ fees ) of $886,012 divided by Preferred Share Distributions of 1,883,142 is 47%.

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