July 16, 2020

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TXPR closed at 565.70, up 4.09% on the day. Volume today was 5.93-million, by far the highest of the past thirty days, well ahead of second-highest July 15.

CPD closed at 11.34, up 4.13% on the day. Volume was 378,294, the highest of the past 30 trading days and far ahead of second-highest July 15.

ZPR closed at 9.00, up 5.26% on the day. Volume of 2,290,330 was by far the highest of the past 30 trading days, well ahead of second-place July 15.

Five-year Canada yields were unchanged at 0.34% today.

The Canadian preferred share market rocketted upward today, thrown into a tizzy by the Royal Bank’s LRCN issue discussed yesterday. Multiple dealers offered commentary opining that the existence of this option could decrease the volume of bank new issuance in the future and also held out the possibility that redemption of extant issues could be financed by this structure.

It is my understanding that the interest paid by the Special Purpose Vehicle (that owns the preferred shares and issues the AT1 60-year notes) is tax deductible to the bank, since, according to one dealer:

Thanks to a ruling from OSFI this morning, the coupon payments on this instrument will be tax-deducible to the bank (unlike to a preferred share dividend). For years since Basel III came about this was not possible because CRA required a security have a maturity date to receive be tax deductible, while OSFI required a security not have a maturity date to receive capital treatment. Now that OSFI has softened its stance, this instrument represents a more tax-efficient way for banks to raise Additional Tier 1 capital.

It is not clear to me how the tax benefits of the underlying preferred shares are recovered by the bank, it may be that the dividends simply disappear on consolidation.

One reader writes in and asks:

did you notice 2 references in footnotes to Lifecos in the OSFI Ruling on new AT1 you posted on your site? I find that interesting.

Why talk about Lifecos for this new AT1 product which is all about NVCC unless NVCC is around the corner?

To put these footnotes in context, here’s a version of the OSFI ruling published yesterday:

OSFI concluded that the LRCN structure meets all of the criteria to be recognized as Additional Tier 1 regulatory capital by the Bank and other FRFIs [Footnote reads “If issued, the LRCNs may be recognized as Tier 1 Capital Instruments other than Common Shares in the case of life insurers or Category B capital in the case of property & casualty insurers or mortgage insurers.”]

LRCN issuances will be subject to a cap of 0.75% of RWA [Footnote reads “OSFI will develop equivalent limitations for insurers in due course.”]

And finally, here’s the S&P rating announcement for the issue:

S&P Global Ratings said today it assigned its ‘BBB’ issue-level rating to Royal Bank of Canada’s (RBC; AA-/Stable/A-1+) Canadian dollar-denominated additional Tier I structure limited recourse capital notes. Under this structure, a trust has been established where the bank is the sole beneficiary. Investors of the notes will have recourse only to the assets held by the trust. At the same time, S&P Global Ratings assigned its ‘BBB’ issue-level rating to the bank’s preferred shares, which will reside in the trust.

In accordance with our criteria for hybrid and other capital instruments, the rating reflects our analysis of the proposed instrument, and our assessment of RBC’s ‘a+’ stand-alone credit profile (SACP).

The ‘BBB’ issue rating is four notches below RBC’s SACP, incorporating:

  • A deduction of one notch, the minimum downward notching from the SACP under our criteria for subordinated debt, reflecting contractual subordination;
  • A deduction of two additional notches, reflecting that the coupon payments are fully cancellable, at the issuer’s discretion; and
  • A deduction of an additional notch to reflect that this subordinated note features a (mandatory) contingent conversion (non-viability contingent capital [NVCC]) trigger. Should a trigger event occur (as defined by the Office of the Superintendent of Financial Institutions’ [OSFI] guideline for Capital Adequacy Requirements), each preferred share held in the limited recourse trust will automatically and immediately be converted, without the holder’s consent, into a number of fully paid and freely tradable common shares of the bank, determined in accordance with a conversion formula.

The following constitute trigger events:

  • OSFI advises the bank that it is of the opinion that the bank has ceased, or is about to cease, to be viable and that, after the conversion of all contingent capital instruments and taking into account any other relevant factors, it is reasonably likely that the viability of the bank will be restored or maintained; or
  • A federal or provincial government in Canada publicly announces that the bank has accepted or agreed to accept a capital injection, or equivalent support, from the government or a political subdivision or agent or agency without which the bank would have been determined by OSFI to be non-viable.

The notes are rated the same as RBC’s NVCC preferred shares, as we would expect the probability of default of the former to be similar to that of the latter. This is despite the notes ranking ahead of the bank’s preferred shares in an insolvency or wind-up–because this preference is only relevant to loss given default; our ratings focus chiefly on probability of default.

The cancellability of the notes’ coupons, without causing a default or wind-up of the bank, and with no material restriction, represents a degree of loss-absorption capacity. Although RBC has the option to redeem the notes after a certain period, we understand this period will be no less than five years after the date of issuance, and we see no structural incentive to redeem the notes at the first call date–implying a degree of longevity. This combination of features leads us to assess the equity content of these notes as intermediate (as defined in our criteria).

S&P Global Ratings’ ‘BBB’ rating on the bank’s preferred shares, which will reside with the trust, reflects the rating on the bank’s outstanding NVCC preferred shares in accordance with its criteria for hybrid and other capital instruments. Although the notching for this instrument is identical to that on the proposed notes, the distinguishing factors are the risk of regulatory intervention and the deferral risk over the life of the instrument.

To be frank, basing a rally of current proportions on the existence of this structure seems a little extreme to me. Cessation of supply of bank issues doesn’t seem to me, by itself, to be all that big a deal; I suspect that those who are driving the market up so substantially are taking the view that this structure will be used to fund the redemption of extant issues currently trading at around $20.

There are also very clear indications that this structure – or something very similar, that does not mention NVCC – will be accessible to insurance companies, so maybe you can justify this as well.

But what about all the other issuers that are also up substantially? Is this based on lack of bank supply too, on the grounds that a rising tide lifts all boats? Are speculators hypothesizing that if the banks are successful in creating a new market for deeply subordinated 60-year notes, then the other issuers will join in with great enthusiasm, with a resurgent exchange-traded COPrS market?

Or could it be that there has been all kinds of money sitting on the sidelines, aching to get back into the preferred share market and looking for a sign, any sign, that could serve as a trigger for a broad rally?

You won’t catch me speculating (much)!

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 4.3875 % 1,560.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 4.3875 % 2,862.8
Floater 5.35 % 5.39 % 74,471 14.86 3 4.3875 % 1,649.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0114 % 3,470.1
SplitShare 4.84 % 4.78 % 54,017 3.77 7 0.0114 % 4,144.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0114 % 3,233.4
Perpetual-Premium 5.11 % 4.81 % 72,052 4.05 1 1.2623 % 3,081.4
Perpetual-Discount 5.53 % 5.55 % 81,492 14.40 35 1.1394 % 3,299.2
FixedReset Disc 5.66 % 4.46 % 142,931 15.92 75 4.6197 % 1,997.3
Deemed-Retractible 5.27 % 5.36 % 79,751 14.45 27 1.0709 % 3,248.2
FloatingReset 2.38 % 3.45 % 31,802 1.52 4 1.6876 % 1,763.3
FixedReset Prem 5.39 % 3.31 % 360,717 1.00 3 0.0000 % 2,613.2
FixedReset Bank Non 1.95 % 2.18 % 126,754 1.52 2 0.7735 % 2,829.5
FixedReset Ins Non 5.83 % 4.54 % 104,261 15.86 22 6.8775 % 2,042.1
Performance Highlights
Issue Index Change Notes
BAM.PR.R FixedReset Disc -8.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 11.31
Evaluated at bid price : 11.31
Bid-YTW : 5.96 %
IAF.PR.G FixedReset Ins Non -4.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 5.23 %
PWF.PR.P FixedReset Disc -4.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 8.90
Evaluated at bid price : 8.90
Bid-YTW : 5.52 %
MFC.PR.K FixedReset Ins Non -4.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 14.16
Evaluated at bid price : 14.16
Bid-YTW : 5.19 %
SLF.PR.G FixedReset Ins Non -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.35
Evaluated at bid price : 9.35
Bid-YTW : 4.79 %
GWO.PR.T Deemed-Retractible 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.80
Evaluated at bid price : 23.14
Bid-YTW : 5.60 %
GWO.PR.L Deemed-Retractible 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.21
Evaluated at bid price : 24.50
Bid-YTW : 5.81 %
CU.PR.F Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.87
Evaluated at bid price : 21.87
Bid-YTW : 5.22 %
ELF.PR.G Perpetual-Discount 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.42
Evaluated at bid price : 21.68
Bid-YTW : 5.50 %
SLF.PR.E Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.26
Evaluated at bid price : 21.53
Bid-YTW : 5.26 %
GWO.PR.H Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.39
Evaluated at bid price : 21.66
Bid-YTW : 5.64 %
IAF.PR.B Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.33
Evaluated at bid price : 21.60
Bid-YTW : 5.36 %
POW.PR.B Perpetual-Discount 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.99
Evaluated at bid price : 23.26
Bid-YTW : 5.78 %
CIU.PR.A Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.39
Evaluated at bid price : 21.39
Bid-YTW : 5.46 %
GWO.PR.P Deemed-Retractible 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.58
Evaluated at bid price : 23.85
Bid-YTW : 5.70 %
POW.PR.A Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.34
Evaluated at bid price : 24.65
Bid-YTW : 5.70 %
GWO.PR.G Deemed-Retractible 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.01
Evaluated at bid price : 23.28
Bid-YTW : 5.62 %
ELF.PR.F Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.80
Evaluated at bid price : 23.08
Bid-YTW : 5.76 %
GWO.PR.Q Deemed-Retractible 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.61
Evaluated at bid price : 22.86
Bid-YTW : 5.67 %
RY.PR.P Perpetual-Premium 1.26 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2025-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 4.81 %
ELF.PR.H Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.72
Evaluated at bid price : 24.00
Bid-YTW : 5.75 %
GWO.PR.R Deemed-Retractible 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.55
Evaluated at bid price : 21.55
Bid-YTW : 5.62 %
RY.PR.O Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.27
Evaluated at bid price : 24.56
Bid-YTW : 5.05 %
PWF.PR.R Perpetual-Discount 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.57
Evaluated at bid price : 23.85
Bid-YTW : 5.77 %
CU.PR.E Perpetual-Discount 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.18
Evaluated at bid price : 23.43
Bid-YTW : 5.29 %
NA.PR.A FixedReset Disc 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.56
Evaluated at bid price : 24.90
Bid-YTW : 5.03 %
TD.PF.F Perpetual-Discount 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.26
Evaluated at bid price : 24.55
Bid-YTW : 4.99 %
POW.PR.G Perpetual-Discount 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.92
Evaluated at bid price : 24.20
Bid-YTW : 5.81 %
GWO.PR.S Deemed-Retractible 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.22
Evaluated at bid price : 23.49
Bid-YTW : 5.63 %
CU.PR.D Perpetual-Discount 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.19
Evaluated at bid price : 23.44
Bid-YTW : 5.29 %
W.PR.K FixedReset Disc 1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.12
Evaluated at bid price : 24.74
Bid-YTW : 5.31 %
BNS.PR.H FixedReset Disc 1.66 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 4.47 %
W.PR.M FixedReset Disc 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.80
Evaluated at bid price : 24.94
Bid-YTW : 5.18 %
RY.PR.W Perpetual-Discount 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.56
Evaluated at bid price : 24.81
Bid-YTW : 5.00 %
GWO.PR.I Deemed-Retractible 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.61 %
BAM.PF.I FixedReset Disc 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.71
Evaluated at bid price : 24.07
Bid-YTW : 5.01 %
TRP.PR.K FixedReset Disc 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.79
Evaluated at bid price : 24.12
Bid-YTW : 5.13 %
CM.PR.Y FixedReset Disc 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.82
Evaluated at bid price : 23.93
Bid-YTW : 4.36 %
BAM.PF.H FixedReset Disc 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.27
Evaluated at bid price : 24.86
Bid-YTW : 5.04 %
BAM.PF.D Perpetual-Discount 1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.28
Evaluated at bid price : 22.61
Bid-YTW : 5.45 %
IFC.PR.I Perpetual-Discount 2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.24
Evaluated at bid price : 24.62
Bid-YTW : 5.52 %
BIP.PR.C FixedReset Disc 2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.17
Evaluated at bid price : 23.67
Bid-YTW : 5.68 %
BAM.PF.J FixedReset Disc 2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.87
Evaluated at bid price : 23.62
Bid-YTW : 5.03 %
TD.PF.H FixedReset Disc 2.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.84
Evaluated at bid price : 25.09
Bid-YTW : 4.41 %
SLF.PR.B Deemed-Retractible 2.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.84
Evaluated at bid price : 23.12
Bid-YTW : 5.22 %
BIP.PR.D FixedReset Disc 2.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.40
Evaluated at bid price : 21.72
Bid-YTW : 5.79 %
MFC.PR.B Deemed-Retractible 2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.84
Evaluated at bid price : 22.08
Bid-YTW : 5.31 %
BIP.PR.B FixedReset Disc 2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.80
Evaluated at bid price : 24.52
Bid-YTW : 5.62 %
EML.PR.A FixedReset Ins Non 2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.49
Evaluated at bid price : 24.92
Bid-YTW : 5.38 %
IFC.PR.E Deemed-Retractible 2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.55
Evaluated at bid price : 23.96
Bid-YTW : 5.46 %
BIP.PR.E FixedReset Disc 2.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 20.96
Evaluated at bid price : 20.96
Bid-YTW : 6.03 %
TRP.PR.J FixedReset Disc 2.70 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.49
Bid-YTW : 4.03 %
IFC.PR.F Deemed-Retractible 2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.79
Evaluated at bid price : 24.20
Bid-YTW : 5.51 %
BAM.PF.C Perpetual-Discount 2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.05
Evaluated at bid price : 22.05
Bid-YTW : 5.55 %
BAM.PR.N Perpetual-Discount 3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.37
Evaluated at bid price : 21.64
Bid-YTW : 5.52 %
BAM.PR.M Perpetual-Discount 3.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.44
Evaluated at bid price : 21.70
Bid-YTW : 5.51 %
TRP.PR.B FixedReset Disc 3.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 8.33
Evaluated at bid price : 8.33
Bid-YTW : 4.99 %
CU.PR.I FixedReset Disc 3.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 24.37
Evaluated at bid price : 24.97
Bid-YTW : 4.53 %
MFC.PR.C Deemed-Retractible 3.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.46
Evaluated at bid price : 21.72
Bid-YTW : 5.22 %
TRP.PR.C FixedReset Disc 3.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.05
Evaluated at bid price : 9.05
Bid-YTW : 5.26 %
BIP.PR.F FixedReset Disc 3.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.34
Evaluated at bid price : 21.34
Bid-YTW : 6.04 %
TD.PF.M FixedReset Disc 4.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.96
Evaluated at bid price : 24.25
Bid-YTW : 4.21 %
BAM.PR.Z FixedReset Disc 4.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.22
Evaluated at bid price : 16.22
Bid-YTW : 5.49 %
TD.PF.L FixedReset Disc 4.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.15
Evaluated at bid price : 22.66
Bid-YTW : 4.31 %
BAM.PR.B Floater 4.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 8.03
Evaluated at bid price : 8.03
Bid-YTW : 5.39 %
BAM.PR.K Floater 4.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 7.95
Evaluated at bid price : 7.95
Bid-YTW : 5.44 %
BAM.PR.C Floater 4.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 8.05
Evaluated at bid price : 8.05
Bid-YTW : 5.37 %
TRP.PR.F FloatingReset 4.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 10.30
Evaluated at bid price : 10.30
Bid-YTW : 5.14 %
NA.PR.C FixedReset Disc 4.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.18
Evaluated at bid price : 21.18
Bid-YTW : 4.56 %
BMO.PR.F FixedReset Disc 4.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.04
Evaluated at bid price : 24.39
Bid-YTW : 4.18 %
BIP.PR.A FixedReset Disc 4.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.71
Evaluated at bid price : 15.71
Bid-YTW : 6.32 %
GWO.PR.N FixedReset Ins Non 4.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.70
Evaluated at bid price : 9.70
Bid-YTW : 4.33 %
BAM.PF.A FixedReset Disc 5.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 5.39 %
BAM.PF.F FixedReset Disc 5.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 5.34 %
SLF.PR.I FixedReset Ins Non 5.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.56
Evaluated at bid price : 17.56
Bid-YTW : 4.51 %
CM.PR.Q FixedReset Disc 5.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 4.62 %
BNS.PR.I FixedReset Disc 5.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 4.15 %
RY.PR.H FixedReset Disc 5.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.18
Evaluated at bid price : 17.18
Bid-YTW : 4.18 %
TRP.PR.A FixedReset Disc 5.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 12.21
Evaluated at bid price : 12.21
Bid-YTW : 5.36 %
RY.PR.S FixedReset Disc 5.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.22 %
CM.PR.S FixedReset Disc 5.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.39
Evaluated at bid price : 17.39
Bid-YTW : 4.39 %
BAM.PF.B FixedReset Disc 5.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.43
Evaluated at bid price : 15.43
Bid-YTW : 5.42 %
TRP.PR.E FixedReset Disc 5.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 13.77
Evaluated at bid price : 13.77
Bid-YTW : 5.39 %
TD.PF.D FixedReset Disc 5.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 4.29 %
NA.PR.G FixedReset Disc 6.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.28
Evaluated at bid price : 19.28
Bid-YTW : 4.46 %
CM.PR.O FixedReset Disc 6.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.80
Evaluated at bid price : 15.80
Bid-YTW : 4.61 %
BMO.PR.T FixedReset Disc 6.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 4.33 %
RY.PR.Z FixedReset Disc 6.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 4.19 %
BMO.PR.D FixedReset Disc 6.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 4.31 %
PWF.PR.T FixedReset Disc 6.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.16
Evaluated at bid price : 16.16
Bid-YTW : 4.66 %
BMO.PR.E FixedReset Disc 6.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.57
Evaluated at bid price : 19.57
Bid-YTW : 4.35 %
CM.PR.T FixedReset Disc 6.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.91
Evaluated at bid price : 22.30
Bid-YTW : 4.43 %
BAM.PF.G FixedReset Disc 6.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.19
Evaluated at bid price : 15.19
Bid-YTW : 5.33 %
TRP.PR.D FixedReset Disc 6.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 13.90
Evaluated at bid price : 13.90
Bid-YTW : 5.39 %
TD.PF.E FixedReset Disc 7.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 4.33 %
TD.PF.C FixedReset Disc 7.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.86
Evaluated at bid price : 16.86
Bid-YTW : 4.31 %
TD.PF.A FixedReset Disc 7.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.83
Evaluated at bid price : 16.83
Bid-YTW : 4.21 %
BMO.PR.C FixedReset Disc 7.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.22
Evaluated at bid price : 22.53
Bid-YTW : 4.21 %
IFC.PR.G FixedReset Ins Non 7.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.43
Evaluated at bid price : 17.43
Bid-YTW : 4.66 %
SLF.PR.J FloatingReset 7.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.50
Evaluated at bid price : 9.50
Bid-YTW : 4.21 %
CM.PR.R FixedReset Disc 7.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.47
Evaluated at bid price : 21.47
Bid-YTW : 4.45 %
TD.PF.B FixedReset Disc 7.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 4.24 %
NA.PR.S FixedReset Disc 7.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 4.47 %
NA.PR.E FixedReset Disc 7.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.98
Evaluated at bid price : 17.98
Bid-YTW : 4.41 %
BAM.PR.T FixedReset Disc 7.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 13.23
Evaluated at bid price : 13.23
Bid-YTW : 5.24 %
BAM.PF.E FixedReset Disc 7.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 14.87
Evaluated at bid price : 14.87
Bid-YTW : 5.23 %
TD.PF.K FixedReset Disc 7.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.06
Evaluated at bid price : 19.06
Bid-YTW : 4.27 %
TD.PF.J FixedReset Disc 8.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.22 %
CM.PR.P FixedReset Disc 8.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.47
Evaluated at bid price : 16.47
Bid-YTW : 4.44 %
CU.PR.C FixedReset Disc 8.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.92
Evaluated at bid price : 15.92
Bid-YTW : 4.48 %
BMO.PR.S FixedReset Disc 8.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.02
Evaluated at bid price : 17.02
Bid-YTW : 4.35 %
IFC.PR.A FixedReset Ins Non 8.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 12.51
Evaluated at bid price : 12.51
Bid-YTW : 4.56 %
BAM.PR.X FixedReset Disc 8.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 10.76
Evaluated at bid price : 10.76
Bid-YTW : 5.19 %
IFC.PR.C FixedReset Ins Non 9.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 4.69 %
NA.PR.W FixedReset Disc 9.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.27
Evaluated at bid price : 16.27
Bid-YTW : 4.45 %
MFC.PR.R FixedReset Ins Non 9.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 23.38
Evaluated at bid price : 23.77
Bid-YTW : 4.48 %
MFC.PR.J FixedReset Ins Non 9.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 4.55 %
MFC.PR.N FixedReset Ins Non 9.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.34
Evaluated at bid price : 16.34
Bid-YTW : 4.49 %
MFC.PR.Q FixedReset Ins Non 9.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.04
Evaluated at bid price : 18.04
Bid-YTW : 4.45 %
RY.PR.M FixedReset Disc 9.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.14 %
IAF.PR.I FixedReset Ins Non 10.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.42
Evaluated at bid price : 19.42
Bid-YTW : 4.36 %
BMO.PR.Y FixedReset Disc 10.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.27
Evaluated at bid price : 18.27
Bid-YTW : 4.25 %
TRP.PR.G FixedReset Disc 10.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.42
Evaluated at bid price : 15.42
Bid-YTW : 5.46 %
TD.PF.I FixedReset Disc 10.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.11
Evaluated at bid price : 21.11
Bid-YTW : 4.15 %
MFC.PR.H FixedReset Ins Non 10.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 4.54 %
MFC.PR.L FixedReset Ins Non 10.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.46
Evaluated at bid price : 15.46
Bid-YTW : 4.54 %
MFC.PR.M FixedReset Ins Non 10.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.79
Evaluated at bid price : 16.79
Bid-YTW : 4.46 %
MFC.PR.I FixedReset Ins Non 10.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 4.47 %
BMO.PR.W FixedReset Disc 11.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.94
Evaluated at bid price : 16.94
Bid-YTW : 4.29 %
MFC.PR.G FixedReset Ins Non 11.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.34
Evaluated at bid price : 18.34
Bid-YTW : 4.54 %
MFC.PR.F FixedReset Ins Non 11.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 10.33
Evaluated at bid price : 10.33
Bid-YTW : 4.35 %
SLF.PR.H FixedReset Ins Non 14.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 4.41 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.M FixedReset Disc 240,552 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.14 %
CM.PR.R FixedReset Disc 178,908 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 21.47
Evaluated at bid price : 21.47
Bid-YTW : 4.45 %
PWF.PR.F Perpetual-Discount 143,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.43
Evaluated at bid price : 22.69
Bid-YTW : 5.79 %
PWF.PR.T FixedReset Disc 126,193 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 16.16
Evaluated at bid price : 16.16
Bid-YTW : 4.66 %
BMO.PR.C FixedReset Disc 105,383 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.22
Evaluated at bid price : 22.53
Bid-YTW : 4.21 %
TD.PF.M FixedReset Disc 104,510 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 22.96
Evaluated at bid price : 24.25
Bid-YTW : 4.21 %
There were 91 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 Ins Non Quote: 14.16 – 18.10
Spot Rate : 3.9400
Average : 2.2772

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 14.16
Evaluated at bid price : 14.16
Bid-YTW : 5.19 %

GWO.PR.N FixedReset Ins Non Quote: 9.70 – 13.00
Spot Rate : 3.3000
Average : 1.7756

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.70
Evaluated at bid price : 9.70
Bid-YTW : 4.33 %

IAF.PR.G FixedReset Ins Non Quote: 15.75 – 18.49
Spot Rate : 2.7400
Average : 1.6123

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 5.23 %

BAM.PR.R FixedReset Disc Quote: 11.31 – 13.30
Spot Rate : 1.9900
Average : 1.2406

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 11.31
Evaluated at bid price : 11.31
Bid-YTW : 5.96 %

SLF.PR.G FixedReset Ins Non Quote: 9.35 – 10.99
Spot Rate : 1.6400
Average : 0.9800

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 9.35
Evaluated at bid price : 9.35
Bid-YTW : 4.79 %

PWF.PR.P FixedReset Disc Quote: 8.90 – 11.00
Spot Rate : 2.1000
Average : 1.4478

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-16
Maturity Price : 8.90
Evaluated at bid price : 8.90
Bid-YTW : 5.52 %

6 Responses to “July 16, 2020”

  1. LD says:

    James, well done on the images!

    If LRCN structures are eventually available and employed by Lifecos, do you see this also impacting POW/PWF prefs?

    While this is perhaps unrelated, if I remember correctly, you previously felt any NVCC requirements applied to Lifecos would also impact POW and PWF (although the justification escapes me).

  2. jiHymas says:

    If LRCN structures are eventually available and employed by Lifecos, do you see this also impacting POW/PWF prefs?

    No, not really. As it stands right now, there is nothing stopping POW and PWF from issuing preferred securities, but they’re not doing it anyway.

    if I remember correctly, you previously felt any NVCC requirements applied to Lifecos would also impact POW and PWF (although the justification escapes me).

    Well, I don’t think you remember correctly, but if you can find anything I’ve written that implies that, I’ll be happy to swallow my words.

    POW and PWF are not regulated by OSFI. I think they should be, as they exercise control over GWO, but that’s a whole ‘nuther ball of wax.

  3. LD says:

    Thanks James,

    Below is an excerpt from prefletter. When I read this (long ago), I incorrectly interpreted this as implying a goodish chance that OSFI would extend the new capital requirements to PWF when actually you were just mentioning”possibilities”. My mistake.

    “GWO may be directly affected by the potential for regulation at the consolidated level; see the commentary for MFC.PR.D, below, for discussion of this issue. PWF may be indirectly affected; it would be entirely reasonable for OSFI to apply capital regulation to PWF due to its controlling position and importance to the fundraising capability of GWO. As well, an increased funding requirement for GWO will force PWF to inject additional funds into its subsidiary if it wishes to maintain its stake.Additionally, application of the regulation to parent companies could possibly imply the forced redemption of the PWF preferreds if redemption is forced on GWO if the capital rules currently in process for banks are applied to insurers; the market, however, has so far deemed this possibility to be small. See the appendix to this issue for more discussion.”

  4. peet says:

    RBC yesterday announced the rate on its new 1.75 billion, 60-year, 5-year reset LRCN.

    It is set at 4.5% until November 25, 2025, and then the coupon resets every five years at the then current 5-yr. GOC + 4.137% .

    As James has already noted, these LRCNs may have [already had?] a beneficial impact on the pref market but I’m still wondering just how much. In theory there are still some major differences between LRCNs and preferred shares, which differences argue that there will still be a role for preferred shares. For instance, the LRCN cannot be called prior to 2080, ie. 60 years but still reset every 5 years; the pref resets can be called every five years on their anniversary dates… a potentially big difference if there is ever a material increase in the 5-yr. GOC. So, will there be a reduction in new supply? Perhaps, but not clear when and how much, I believe Banks will still want some of the flexibility offered by the prefs, and the retail market will still want prefs rather than the LRCN, at least for taxable portfolios.

  5. jiHymas says:

    According to the term sheet for the LRCNs

    The Notes shall be redeemable by the Bank every five years during the period from October 24 to and including November 24, commencing in 2025, only upon the redemption by the Bank of the Preferred Shares held by the LRT Trustee (defined below) in the Limited Recourse Trust in accordance with the terms of such shares and with the prior written approval of the Superintendent of Financial Institutions (Canada) (the “Superintendent”), in whole but not in part on not less than 15 nor more than 60 days’ prior notice, at the Redemption Price.

    See further discussion on the July 22 market action report.

    Also note that issuance of LRCNs is limited to half the available AT1 bucket.

  6. peet says:

    Thanks, James, you’re right about there being a right to redeem. The “Capital Ruling” by OSFI in July [ https://www.osfi-bsif.gc.ca/Eng/fi-if/app/default/Pages/lrcn.aspx%5D had put it this way::

    3.The LRCNs must have an initial term to maturity of at least 60 years.

    4.Unless the instrument has been replaced with an instrument of higher capital quality (i.e.CET1-qualifying common shares or retained earnings), the issuer will only be permitted to redeem the LRCNs or preferred shares where the carrying cost of the LRCNs or preferred shares exceeds the cost of replacement capital of equivalent quality (i.e. AT1).

    My apologies!

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