Canadian Finance, Economics and Fiscal Analysis
As anticipated, the S&P 500 made its break to the upside, and notably, volatility is at a significant low:
I haven’t had much time to devote brainpower to the markets over the past month, so I will have to leave it at that. It does appear, however, that treasury yields are slowly rising and the uptrend in the market is continuing. For how long?
Notably, an index investor in the S&P 500 will be up about 10-11% year to date.
So the Greek debt crisis gets averted for another year or two until they have more problems, and the markets are back to their local highs, per the chart:
Do we go higher? My guess is yes, but not for long. Just have to be patient.
Nothing that most of the resource stocks are trading at a larger percentage down than their underlying commodities, so it’s clear that there is some sort of supply dump going on. The question is – how much and how far will this rotation go?
Although my portfolio is substantially all cash and this is pleasant for me to see, I think this brief downturn is just that – brief. Still being patient.
The market for high-yielding products continues to dwindle as anything with a yield has been bidded up to the roof, and the products remaining with a yield have qualities that warrant them trading as such. The following is a comprehensive list of convertible debentures that have a yield to maturity of 8% or above:
| Company | Ticker | Coupon | Date | Term | Price | YieldToMaturity |
| Yellow Media Inc | YLO.DB.A | 6.25% | 1-Oct-17 | 5.6 | 12.1 | 70.00% |
| Perpetual Energy | PMT.DB.D | 7.25% | 31-Jan-15 | 2.9 | 75.75 | 18.40% |
| Perpetual Energy | PMT.DB.E | 7.00% | 31-Dec-15 | 3.8 | 73.75 | 16.54% |
| Armtec Infrastructure | ARF.DB | 6.50% | 30-Jun-17 | 5.3 | 70 | 14.85% |
| Boyuan Construction | BOY.DB.A | 10.00% | 31-Oct-15 | 3.7 | 87 | 14.72% |
| Tree Island Wire | TIL.DB | 10.00% | 26-Nov-14 | 2.7 | 90 | 14.57% |
| Perpetual Energy | PMT.DB.C | 6.50% | 30-Jun-12 | 0.3 | 98 | 12.99% |
| Royal Host REIT | RYL.DB.B | 6.00% | 31-Oct-15 | 3.7 | 81.5 | 12.46% |
| Royal Host REIT | RYL.DB.D | 5.90% | 30-Jun-14 | 2.3 | 88.1 | 11.93% |
| Ivanhoe Energy | IE.DB | 5.75% | 30-Jun-16 | 4.3 | 80.5 | 11.62% |
| Lanesbourough REIT | LRT.DB.G | 9.50% | 28-Feb-15 | 3.0 | 95 | 11.53% |
| Royal Host REIT | RYL.DB.C | 6.25% | 30-Sep-13 | 1.6 | 92.64 | 11.52% |
| Data Group | DGI.DB.A | 6.00% | 30-Jun-17 | 5.3 | 82.5 | 10.36% |
| Altus Group | AIF.DB | 5.75% | 31-Dec-17 | 5.8 | 81.25 | 10.09% |
| Gen Donlee Income | GDI.DB | 7.00% | 30-Jun-14 | 2.3 | 94 | 9.96% |
| Brigus Gold Corp. | BRD.DB.U | 6.50% | 31-Mar-16 | 4.1 | 90.01 | 9.52% |
| Clearwater Seafoods | CLR.DB.B | 10.50% | 31-Dec-13 | 1.8 | 102 | 9.26% |
| Discovery Air | DA.DB.A | 8.38% | 30-Jun-16 | 4.3 | 98.5 | 8.79% |
| Superior Plus | SPB.DB.E | 5.75% | 30-Jun-17 | 5.3 | 88 | 8.61% |
| GreatBasin Gold | GBG.DB | 8.00% | 30-Nov-14 | 2.7 | 98.85 | 8.47% |
| Superior Plus | SPB.DB.F | 6.00% | 30-Jun-18 | 6.3 | 88.55 | 8.37% |
| Anderson Energy | AXL.DB.B | 7.25% | 30-Jun-17 | 5.3 | 97 | 8.07% |
Suffice to say, most of these companies have “issues” pertaining to the solvency of the underlying entity. They were also trading much lower during the mini-credit crisis back in October-November; for example, Data Group and Superior Plus, which are both cash-producing entities, were trading 25 cents on the dollar lower.
I don’t need to say anything about Yellow Media, which also makes money. Perpetual Energy has positive cash flow, but being in the oil and gas industry, has tremendous capital investment requirements and has debt ratios that is not terribly favourable to the subordinated debt holders.
First Uranium (TSX: FIU) sold all of its principal assets today, pending shareholder approval.
First Uranium had two assets: a profitable Mine Waste Solutions asset, which was sold to AngloGold Ashanti for $335 million in cash; and a woefully cash-sucking and unprofitable Ezulwini mine, which was sold for $70 million in cash.
Most notably is the impact to the debtholders. The subordinated convertible debentures get the following (if they approve of the various changes proposed):
Furthermore, Debenture holders will agree to accept on closing of the Transactions a cash payment of 95% of the principal amount of the Debentures, an additional 2% of the principal amount if they have executed and delivered a validly completed form of election proxy voted in favour of the Company’s proposals on or before the early consent deadline to be set (the 2% will be allocated pro rata to holders tendering by the deadline) and an additional payment of the lesser of (i) 3% of the principal amount or (ii) the total amount released to the Company from the Escrows, in priority to any distribution to FIU shareholders from the Escrows.
It is likely that these holders will receive 97% of principal value, which is significantly better than the 70% the market had them pegged at a week ago. The debenture holders will have no choice to accept the deal since otherwise they will be converted into common equity of the company.
Debentures (TSX: FIU.DB) are trading at bid/ask 90/91 cents on the dollar, so people wanting to pick up the cigar butt off the street for one last puff still have a shot here.
The noteholders will get paid 100% of par value, and also accrue interest up to March 31, 2012. They are likely to be made whole whether they vote for or against the agreement; in the event they vote against the agreement, it brings up an interesting risk scenario. I am wondering why the company did not include a small sweetener for the noteholders as they have the ability to really botch things up for the company by voting against a change in their sledgehammer clause which gives them security over both Mine Waste Solutions and Ezulwini.
Notes (TSX: FIU.NT) are trading at bid/ask 96.5/98.5, so again, there is opportunity to squeak out a few percentage points at the risk of having your capital wound up in some calamity in the unlikely event the vote fails.
Once this is done, the rest of the corporation is going to be winded up.
This ends the sad, sad tale of First Uranium. Onto bigger and better things.