PrefBlog

It would appear that it is the banks who shave the Spanish barber:

Bankia group risks dragging the rest of Spain into its vortex

As Spain’s third-biggest bank asks Prime Minister Mariano Rajoy’s government for 19 billion euros ($24 billion), international investors are tallying the potential cost for the rest of the industry and betting he won’t be able to foot the bill. With foreign investors shunning Spanish debt, leaving national banks to fund the government, the nation’s 10-year borrowing costs compared with Germany’s are near a record.

Spain needs to bail out lenders still reeling from the collapse of the real-estate boom while its own access to funding increasingly depends on domestic banks being kept afloat by the European Central Bank’s refinancing operations. Rising borrowing costs are putting pressure on Rajoy’s five month-old government to join Greece, Portugal and Ireland in seeking a rescue that would be the European Union’s biggest.

There’s capital flight in Spain:

More than €97-billion in capital fled Spain in the first quarter of the year as the country’s crisis escalated along with the troubles of the euro zone.

That stunning number, published today by the country’s central bank and reported in The Financial Times, represents almost 10 per cent of Spain’s gross domestic product.

I recall William Shirer stressed capital flight as a destabilizing factor of the French Third Republic. But that’s just panic.

There is NO PANIC. Let me repeat that: there is NO PANIC! There is absolutely NO PANIC anywhere and anybody who might panic will be shot, not that anybody would panic:

The International Monetary Fund said it is not preparing financial aid for Spain and the country denied any talks about a bailout even as its borrowing costs approach euro-era records.

“There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, told reporters in Washington today.

Hate your neighbors? Want to take revenge for that time their cat peed on your lawn? The good folks of the federal government are offering a new way to denounce your neighbors!

The Copyright Board of Canada has, for the first time, decided to charge fees to anyone who uses recorded music as part of a public event. That means anyone who plans on using tunes to get the party started will need to dig a little deeper before hitting play on the iPod.

The new rules include any event in which music is played – weddings, ice shows, street parties, circuses, parades and karaoke bars are all named in the official notice from the country’s copyright board.
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Re:Sound does employ inspectors, but would only undertake an inspection if complaints were received.

Denounce your neighbor today and help to bring back Stalinism!

S&P affirmed CSE.PR.A:

• We are affirming our ratings, including our ‘BB+’ long-term corporate credit rating, on Capstone Infrastructure Corp.
• In addition, we are removing the ratings from CreditWatch with developing implications.
• The affirmation and CreditWatch removal reflects our view of the progress that the company has made in regard to the various initiatives to address its liquidity.
• The stable outlook reflects our view that Capstone benefits from contracted revenue and insulation from electricity demand and price risks
  provided by power purchase agreements with investment-grade off-takers.

We could raise the ratings if the company takes steps to improve its liquidity (for example, through a reduction in its common share dividend) such that it is consistent with our criteria description of “adequate” and demonstrates concrete steps in recontracting the expiring PPAs while maintaining or improving its significant financial risk profile. We expect the company to continue to focus its growth strategy on assets with cash-flow predictability supported by either favorable contracts or regulation.

We could consider lowering the ratings should Capstone’s overall cash flow quality weaken materially from its moderate level of stability. This could come from major operational disruptions in its generation facilities or acquisition of assets with materially higher cash flow variability. In addition, we could consider a negative rating action if we expect the company’s cash-flow coverage measures to weaken materially, with partially consolidated cash flow to interest falling below 2.7x or partially consolidated cash flow to total recourse debt falling below 20% on a sustained basis, in accordance with our criteria for project developers. This could happen if it increases its reliance on debt financing to support its growth initiatives or its distribution. In addition, failure to renew expiring PPAs or replace them with acquisitions of other contracted assets could also lead to a downgrade in the medium term.

DBRS affirmed DGS.PR.A at Pfd-3:

DBRS has today confirmed the rating of the Preferred Shares of Dividend Growth Split Corp. (the Company) at Pfd-3. In December 2007, the Company issued approximately 1.5 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The scheduled redemption date for both classes of shares issued is November 30, 2014.
…
Since the rating was last confirmed in May 2011, following the completion of a merger of the Company with Brompton Equity Split Corp., the net asset value (NAV) of the Company has remained fairly stable, with downside protection fluctuating between 38% and 47%. The current downside protection (as of April 26, 2012) is approximately 42%. Based on the current yields of the underlying securities in the Portfolio, the dividend coverage ratio is approximately 1.43 times as of April 30, 2012, so the dividends received on the Portfolio fully cover the Preferred Share distributions.

The Canadian preferred share market closed the month with a mildly negative day, with PerpetualPremiums flat, FixedResets off 4bp and DeemedRetractibles down 6bp. Volatility was good. Volume was average.

Spain is cutting off welfare recipients:

Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.

From wind-turbine maker Gamesa Corp. Tecnologica SA (GAM) to solar park developer T-Solar Global SA, companies are locked out of their home market for new business. These are the same suppliers that spearheaded more than $69 billion of wind and solar projects since 2004 that today supply more than 50 percent of Spain’s power demand on the most breezy and sunny days.

But fear not, subsidy fans! Germany’s still got lots of money!

Germany’s power-transmission companies have tabled plans to build four electricity Autobahns to link wind turbines off the north coast with manufacturing centres in the south – a boost for Angela Merkel after criticism from industry that Berlin has done little since announcing an accelerated nuclear phase-out a year ago.

Tennet, Amprion, 50 Hertz and Transnet BW said that building 3,800km high-voltage electricity lines – at a cost of around €20-billion – over the next decade was possible if politicians and public rallied behind the so-called energy transformation.

German two-year notes yield zero:

German two-year government notes advanced, sending the yield to zero for the first time.

The rate was at 0.002 percent at 4:36 p.m. London time.

Other countries yield a little more:

Signs of stress multiplied in financial markets today. Italy missed its target in a bond auction, driving its 10-year yields up to 6.01 percent at one point, the highest since Jan. 31. The yield was at 5.93 percent at 5:26 p.m. in Brussels. Doubts over the health of Spain’s banks pushed up Spanish 10- year yields to 6.70 percent, the highest since Nov. 28. That yield was last at 6.63 percent.

But … there’s never an ill wind …:

U.S. 5-year government bonds have also reached a new low of 0.6967 per cent, lower than the 0.7045 per cent they hit in early February, and 30-year Treasuries have also dropped to 2.72 per cent – though the low for these bonds was around 2.5 per cent in December 2008.

It was a sharply negative day for the Canadian preferred share market, with PerpetualPremiums down 15bp, FixedResets losing 31bp (about one-third of this was due to the evaporation of the bid in RY.PR.Y and may be regarded as ficticious and transient) and DeemedRetractibles off 11bp. The Performance Highlights table is longer than usual and dominated by losers. Volume was on the light side.

PerpetualDiscounts now yield 5.15%, equivalent to 6.70% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.4%, so the pre-tax interest-equivalent spread is now about 230bp, unchanged from the figure reported May 23.

Too soon to call it a trend … but there are interesting goings-on in the credit rating agency world:

The response to the Moody’s Investors Service downgrade of the biggest Nordic banks was rising bond and share prices.

The reaction is the latest sign that investors are paying less attention to the views of rating companies and relying more on their own analysis to determine whether to buy or sell.
…
Denmark, which is bringing its proposals to the European Parliament, says ratings often don’t reflect credit risks. Measures to improve the industry include a plan to cut reliance on ratings for both investors and within financial regulation, the Business Ministry in Copenhagen said May 21. The intention is also to make it easier for investors and issuers to demand compensation from ratings companies that fail to do their job properly, the ministry said.

In Denmark, banks have started firing Moody’s after winning assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value. Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s in April, citing its “volatile” views.

There’s nothing in the article about the potential for investors and issuers to demand compensation from investment managers that fail to do their job properly – what a surprise! Assurances from large investors that opinions of ratings companies hold limited value hold limited value – what else are they going to say?

In Greek news:

The New Democracy party in Greece, which supports the austerity measures imposed by the European Union, came first in all six opinion polls published on May 26 as campaigning continued for the country’s general election on June 17.

Party leader Antonis Samaras sought to illustrate the consequences of a euro exit, saying Greek incomes, bank deposits and property values would lose at least half their value within days, while food prices would rise by a quarter.

Hmmm … maybe it will help him win. Maybe. And maybe it will also accellerate the bank run. Maybe.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets off 2bp and DeemedRetractibles down 6bp. Volatility was average. Volume remained light.

Interesting commentary from Fitch about possible changes in the money market:

In particular, we believe further MMF reform will likely lead managers to expand their product offerings beyond MMFs, possibly resulting in one unintended consequence. A potential decrease in information transparency for short-term market participants and regulators could occur, should more cash be moved from highly regulated and transparent MMFs into other parts of the financial system.

For example, corporate investors may shift liquid funds into separately managed cash accounts (SPA) as an alternative to MMFs. SPAs are one way a corporate treasurer could choose to diversify cash management activities without relying on MMFs. SPAs are managed in line with customized investment strategies that are designed to meet the investment objectives of a specific client. Importantly, SPAs are generally designed to provide liquidity from maturing securities with only minimum reliance on secondary market liquidity, which could be could be constrained during times of market stress. In contrast to MMFs which offer same-day liquidity, SPAs require corporate treasurers to have a high degree of confidence in their cash needs and cash flow forecasts.

This comes after revelations that the Fed is offering investment advice:

The Federal Reserve has warned U.S. money market funds to cut their investments in Europe, a top official says.

“The Fed and regulators have tried to stress to money market funds to reduce their exposure to European financial institutions,” Charles Plosser, the president of the Reserve Bank of Philadelphia, told the Wall Street Journal.

However, the Fed has not yet begun to centrally micromanage the economy:

Federal Labour Minister Lisa Raitt tabled a back-to-work bill on Monday, ordering an end to the strike within days at Canadian Pacific Railway Ltd. …

Ms. Raitt’s move comes as the economic impact mounts from the six-day strike by 4,800 members of the Teamsters Canada Rail Conference.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets off 5bp and DeemedRetractibles losing 17bp. SLF DeemedRetractibles performed shockingly badly, with all of them down far more than would have been predicted from knowing that they went ex-Dividend today; otherwise the Performance Highlights table shows fair volatility. Volume was light; no surprise given that it was a US holiday.