Issue Comments

FBS.PR.B: Partial Redemption Call

5Banc Split Inc. has announced:

that it has called 1,796,047 Preferred Shares for cash redemption on December 15, 2009 representing approximately 17.2% of the outstanding Preferred Shares as a result of holders of 1,796,047 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 14, 2009 will have approximately 17.2% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $10.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 15, 2009.

In addition, holders of a further 1,222,021 Preferred and Capital Shares have deposited such shares concurrently for retraction on December 15, 2009. As a result, a total of 3,018,068 Preferred and Capital Shares, or approximately 25.8% of both classes of shares currently outstanding will be redeemed.

Payment of the amount due to retracting shareholders will be made by the Company on December 15, 2009. From and after December 16, 2009 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

FBS.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS. FBS.PR.B is tracked by HIMIPref™, but is relegated to the “Scraps” subindex on credit concerns.

Issue Comments

BIG.PR.B: Partial Redemption Call

Big 8 Split Corp. has announced:

that it has called 137,975 Preferred Shares for cash redemption on December 15, 2009 representing approximately 11.5% of the outstanding Preferred Shares as a result of holders of 137,975 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 14, 2009 will have approximately 11.5% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $12.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 15, 2009.

Payment of the amount due to retracting shareholders will be made by the Company on December 15, 2009. From and after December 16, 2009 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

BIG.PR.B was last mentioned on HIMIPref™ when DBRS put the issue on Review-Negative. BIG.PR.B is not tracked by HIMIPref™.

Issue Comments

EN.PR.A : Tiny Partial Redemption

Energy Split Corp. II has announced:

that it has called 5,209 ROC Preferred Shares for cash redemption on December 16, 2009 (in accordance with the Company’s Articles) representing approximately 0.559% of the outstanding ROC Preferred Shares as a result of the special annual retraction of 107,818 Capital Yield Shares by the holders thereof. The ROC Preferred Shares shall be redeemed on a pro rata basis, so that each holder of ROC Preferred Shares of record on December 15, 2009 will have approximately 0.559% of their ROC Preferred Shares redeemed. The redemption price for the ROC Preferred Shares will be $13.74 per share.

Holders of ROC Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including December 16, 2009.

Payment of the amount due to holders of ROC Preferred Shares will be made by the Company on December 16, 2009. From and after December 16, 2009 the holders of ROC Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

The Company’s ongoing dividend policy entitles holders of ROC Preferred Shares to receive quarterly fixed cumulative distributions equal to $0.1718 per ROC Preferred Share. The Capital Yield Shareholders are provided with a leveraged play on the yield and price performance from a fixed portfolio consisting of 14 oil and gas royalty trusts listed on the Toronto Stock Exchange.

EN.PR.A was last mentioned on PrefBlog when they revised the Capital Unit Dividend Policy. EN.PR.A is tracked by HIMIPref™ but is relegated to the “Scraps” subindex on both volume and credit concerns.

Index Construction / Reporting

HIMIPref™ Index Rebalancing: November, 2009

HIMI Index Changes, November 30, 2009
Issue From To Because
ACO.PR.A Scraps OpRet Volume
PWF.PR.G PerpetualDiscount PerpetualPremium Price
CU.PR.A PerpetualDiscount PerpetualPremium Price
GWO.PR.F PerpetualDiscount PerpetualPremium Price

There were the following intra-month changes:

HIMI Index Changes during October 2009
Issue Action Index Because
EPP.PR.B
Now CZP.PR.B		 Add Scraps New Issue
Market Action

November 30, 2009

CIT Group has slightly amended its bankruptcy terms.

Willem Buiter is frequently quoted on PrefBlog … and now he’s got a new job!:

Citigroup Inc. hired former Bank of England policy maker Willem Buiter as its chief economist to fill the position left vacant by Lewis Alexander’s move to the U.S. Treasury eight months ago.

The appointment by the bank, which is 34 percent owned by the U.S. government, puts an academic known for his outspokenness in its most senior economics position. In 2008, Buiter told the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, that the central bank pays too much heed to the concerns of Wall Street.

The Tobin Tax idea seems to be getting some press attention:

U.K. Prime Minister Gordon Brown said on Nov. 7 that a transaction tax might compensate for the billions of dollars that the public has spent on bank bailouts. Government officials in France, Germany and Austria have voiced their backing. U.S. Treasury Secretary Timothy Geithner answered Brown a day later, saying the tax was not something the U.S. would support. House Speaker Nancy Pelosi, on the other hand, says the idea has “substantial currency” among congressional Democrats.

As noted on November 11, Gordon Brown mentioned the idea, but not in a manner to indicate either support or opposition.

Canadian Bond Indices is now offering live quotes on selected bonds. The link has been added to the “Canadian Fixed Income Data” category on the right hand panel of PrefBlog.

The Canadian preferred share market closed the month on a high note, with PerpetualDiscounts up 9bp and FixedResets gaining 5bp, on moderate volume. PerpetualDiscounts now yield 5.82%, equivalent to 8.15% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.9%, so the pre-tax interest-equivalent spread (also called the Seniority Spread, around here, anyway) is now about 225bp, a 10bp tightening from the 235bp reported on November 25.

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 0.0219 % 1,507.7
FixedFloater 6.06 % 4.17 % 41,287 18.58 1 -0.4986 % 2,573.0
Floater 2.59 % 3.03 % 88,613 19.58 3 0.0219 % 1,883.6
OpRet 4.80 % -3.27 % 132,285 0.09 14 -0.1716 % 2,308.9
SplitShare 6.35 % -9.34 % 303,043 0.08 2 -0.5660 % 2,116.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1716 % 2,111.3
Perpetual-Premium 5.85 % 4.74 % 126,357 0.57 4 0.1874 % 1,880.5
Perpetual-Discount 5.82 % 5.90 % 185,407 14.03 70 0.0943 % 1,784.8
FixedReset 5.44 % 3.81 % 372,610 3.92 41 0.0538 % 2,148.1
Performance Highlights
Issue Index Change Notes
IGM.PR.A OpRet -2.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.05
Bid-YTW : -2.51 %
POW.PR.D Perpetual-Discount -1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 6.01 %
MFC.PR.A OpRet -1.78 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.89
Bid-YTW : 3.42 %
GWO.PR.F Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 24.88
Evaluated at bid price : 25.17
Bid-YTW : 5.96 %
HSB.PR.C Perpetual-Discount -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 21.95
Evaluated at bid price : 22.08
Bid-YTW : 5.88 %
ELF.PR.G Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 18.10
Evaluated at bid price : 18.10
Bid-YTW : 6.68 %
MFC.PR.B Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 5.91 %
BAM.PR.J OpRet 1.86 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.78
Bid-YTW : 4.53 %
Volume Highlights
Issue Index Shares
Traded		 Notes
TD.PR.M OpRet 285,030 TD crossed 149,700 at 26.30, then another 50,000 and then another 79,500, all at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.36
Bid-YTW : -7.59 %
CM.PR.K FixedReset 69,100 Nesbitt crossed 65,000 at 26.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.71
Bid-YTW : 3.84 %
TRP.PR.A FixedReset 63,890 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 25.46
Evaluated at bid price : 25.51
Bid-YTW : 4.25 %
MFC.PR.D FixedReset 58,553 RBC crossed 33,100 at 27.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.73
Bid-YTW : 3.96 %
RY.PR.I FixedReset 40,210 RBC crossed 25,700 at 26.38.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 3.72 %
IGM.PR.A OpRet 26,959 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.05
Bid-YTW : -2.51 %
There were 35 other index-included issues trading in excess of 10,000 shares.
New Issues

New Issue: IGM 5.90% Straight

IGM Financial has announced:

that it has agreed to issue 6,000,000 Non-Cumulative First Preferred Shares, Series B (the “Series B Shares”) on a bought deal basis, for gross proceeds of $150 million. The Series B Shares will be priced at $25.00 per share and will carry an annual dividend yield of 5.90%. Closing is expected on or about December 8, 2009. The issue will be underwritten by a syndicate of underwriters co-led by BMO Capital Markets and by RBC Capital Markets.

IGM Financial has also granted the underwriters an option to purchase an additional 2,000,000 Series B Shares at the same offering price, exercisable up to 48 hours prior to closing. Should the underwriters’ option be exercised fully, the total gross proceeds of the Series B Share offering will be $200 million.

Proceeds from the issue will be used to supplement IGM Financial’s financial resources and for general corporate purposes.

The first dividend is anticipated (based on 2009-12-8 closing) to be 0.57788, payable 2010-4-30.

Redemption terms are standard for straights: redeemable for 26.00 commencing 2014-12-31; redemption price declines by 0.25 p.a. until 2018-12-31; redeemable at 25.00 thereafter.

It’s quite interesting that these are non-cumulative. There is no direct reason for them to be so; IGM is not regulated as a bank or insurer and doesn’t need to qualify them for Tier 1 Capital. I can only imagine – so far – two explanations: (i) that they have decided that making it non-cumulative won’t cost them anything (in other words, that the current spreads observed for cumulativity exist only as a proxy for “non-financial”, and not for any other reason), or (ii) that they are preparing in some way for their parent, PWF, to be regulated due to its position as owner of an insurer, GWO, and there might be a need to qualify this issue as Tier 1 on the consolidated books of PWF. But all that’s merely speculation.

Issue Comments

IGM.PR.A to be Redeemed

IGM Financial has announced:

that it intends to redeem all $360 million of its outstanding 5.75% First Preferred Shares, Series A on December 31, 2009

Consistent with the terms of the original offering document, the redemption price will be $26.00 for each First Preferred Share, Series A plus an amount equal to all declared and unpaid dividends, net of any tax required to be withheld by the Corporation.

A notice of the redemption of the First Preferred Shares, Series A will be sent in accordance with the rights, privileges, restrictions and conditions attached to the First Preferred Shares, Series A.

Market Action

November 27, 2009

Credit Default Swaps are proving to be less predictable than hoped:

Thomson provided the first test of the procedures for settling contracts triggered by a restructuring in Europe when it said in August it was deferring payments on $72.5 million of 6.05 percent private notes due this year.

The system for restructurings uses multiple auctions that set different payouts based on swap expiration dates. Dealers couldn’t settle the Thomson contracts with simpler failure-to- pay procedures that produce one recovery value because they were unable to prove the electronics company defaulted.

Asked in a July conference call with investors whether Thomson still owed the money, Chief Executive Officer Frederic Rose responded, “Since I am not a qualified lawyer, I prefer not to answer that question.” Marine Boulot, a Thomson spokeswoman in Paris, declined to comment.

To determine the size of the payouts on contracts covering $2 billion in debt, bonds and loans were split by maturity date ranges into three so-called buckets and sold at auction.

Contracts that expired on June 20, 2012 — the first bucket’s latest date — sold for 96.25 percent of the face amount, meaning swap holders received 3.75 percent of the amount covered. Swaps expiring a day later paid 34.875 percent because the debt in that bucket went for 65.125 percent.

Holders of June 20 swaps covering 10 million euros in debt got 375,000 euros, while those with June 21 contracts received almost 3.5 million euros. Swaps that terminated after Oct. 24, 2014, paid the most, 36.75 percent.

The disparity was a result of too few securities in the first bucket to settle swaps, according to Matthew Leeming, a London-based strategist at Barclays. “An imbalance of supply and demand for the deliverables can affect the recovery rate,” he said in a note.

Because they were part of industry indexes, swaps referencing the company “dwarfed the amount of Thomson debt,” said Teo Lasarte, an analyst at Bank of America-Merrill Lynch in London.

Canadian preferred shares had a good day, with PerpetualDiscounts gaining 9bp and FixedResets up 7bp. Volume was moderate.

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 -0.6957 % 1,507.4
FixedFloater 6.02 % 4.14 % 41,212 18.62 1 0.5011 % 2,585.9
Floater 2.59 % 3.01 % 92,164 19.65 3 -0.6957 % 1,883.2
OpRet 4.80 % -6.69 % 122,560 0.09 14 0.0736 % 2,312.9
SplitShare 6.31 % -18.14 % 315,272 0.09 2 -0.1304 % 2,128.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0736 % 2,114.9
Perpetual-Premium 5.86 % 5.01 % 126,482 2.39 4 0.0889 % 1,877.0
Perpetual-Discount 5.82 % 5.88 % 183,705 14.03 70 0.0924 % 1,783.1
FixedReset 5.44 % 3.83 % 366,170 3.92 41 0.0727 % 2,146.9
Performance Highlights
Issue Index Change Notes
TRI.PR.B Floater -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 19.42
Evaluated at bid price : 19.42
Bid-YTW : 2.04 %
PWF.PR.E Perpetual-Discount 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 22.69
Evaluated at bid price : 23.50
Bid-YTW : 5.88 %
RY.PR.Y FixedReset 1.25 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.55
Bid-YTW : 3.93 %
GWO.PR.F Perpetual-Discount 1.35 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.61 %
GWO.PR.I Perpetual-Discount 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 5.82 %
Volume Highlights
Issue Index Shares
Traded		 Notes
CM.PR.M FixedReset 185,750 Desjardins crossed blocks of 15,000 and 25,000 at 27.82, and another one of 10,600 at 27.80. TD crossed 124,100 at 27.82.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.82
Bid-YTW : 4.03 %
BNS.PR.Q FixedReset 123,750 TD crossed 120,000 at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-24
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.99 %
BAM.PR.B Floater 52,150 Nesbitt crossed 44,300 at 13.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 13.20
Evaluated at bid price : 13.20
Bid-YTW : 3.01 %
BMO.PR.J Perpetual-Discount 29,999 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 20.13
Evaluated at bid price : 20.13
Bid-YTW : 5.63 %
TRP.PR.A FixedReset 20,785 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.33 %
BMO.PR.K Perpetual-Discount 20,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 22.93
Evaluated at bid price : 23.09
Bid-YTW : 5.72 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Interesting External Papers

Liquidity and Forced Sales

The Bank of England has released a working paper by Viral V Acharya, Hyun Song Shin and Tanju Yorulmazer titled Endogenous choice of bank liquidity: the role of fire sales:

Banks’ liquidity is a crucial determinant of the adversity of banking crises. In this paper, we consider the effect of fire sales and entry during crises on banks’ ex-ante choice of liquid asset holdings. We consider a setting with limited pledgeability of risky cash flows relative to safe ones and a differential expertise between banks and outsiders in employing banking assets. When a large number of banks fail, market for assets clears only at fire-sale prices and outsiders enter the market if prices fall sufficiently low. In such states, there is a private benefit of liquid holdings to banks from purchasing assets. There is also a social benefit since greater banking system liquidity reduces inefficiency from liquidation of assets to outsiders. When pledgeability of risky cash flows is high, for instance, in countries with well-developed capital markets, banks hold less liquidity than is socially optimal due to risk-shifting incentives; otherwise, banks may hold even more liquidity than is socially optimal to capitalise on fire sales. However, if there is a systemic cost associated with crises, for example, in the form of fiscal costs associated with provision of deposit insurance, then socially optimal liquidity may always be higher than the privately optimal one, and, in turn, regulation in the form of prudent liquidity requirements may be desirable. We provide some international evidence on banks’ liquid holdings that is consistent with model’s predictions.

Regretably, I don’t have a lot of time today to go into this further.