Canadian Finance, Economics and Fiscal Analysis
The reorganized entity of Whistler Blackcomb went public and has been trading for one week:
It has been trading narrowly around its (reduced) $12 price. With the announcement of inclement weather in the Greater Vancouver area and the early opening of the ski resort, it has not resulted in a budge in the share price.
I earlier covered Whistler Blackcomb and was not terribly positive on them at their IPO price.
BAX futures suggest that the overnight target rate will be held at 1% for the December 7, 2010 Bank of Canada meeting:
| Month / Strike | Bid Price | Ask Price | Settl. Price | Net Change | Vol. |
| + 10 NO | 0.000 | 0.000 | 98.690 | 0.000 | 0 |
| + 10 DE | 98.710 | 98.715 | 98.710 | 0.000 | 4741 |
| + 11 JA | 0.000 | 0.000 | 98.675 | 0.000 | 0 |
| + 11 MR | 98.600 | 98.610 | 98.600 | 0.000 | 12558 |
| + 11 JN | 98.460 | 98.470 | 98.460 | 0.000 | 15591 |
| + 11 SE | 98.280 | 98.300 | 98.290 | 0.000 | 13157 |
| + 11 DE | 98.140 | 98.150 | 98.140 | 0.010 | 7394 |
| + 12 MR | 98.020 | 98.040 | 98.030 | 0.000 | 3483 |
| + 12 JN | 97.930 | 97.970 | 97.950 | 0.010 | 274 |
| + 12 SE | 97.850 | 97.930 | 97.910 | 0.010 | 108 |
| + 12 DE | 97.780 | 97.830 | 97.830 | 0.010 | 7 |
The rates do suggest that by mid-year we might see another 0.5% increase in rates throughout 2011, but this is financially speculative noise peeking through the woodwork. 3-month corporate paper is yielding 1.17% at present, so there is not much of a divergence between existing rates and implied December 2010 rates.
In terms of long-term rates, Canadian 10-year bonds have crept up to 2.98% at the end of November 10th trading. While this is not anything significant in terms of the range over the past 12 months, it is up about a quarter point over the past month. The big scare for real estate gurus out there was likely in the early second quarter (April) when 10-year bond rates went to 3.7%. Still, this is nothing close to the past decade’s average of 4.3%, and the peak rate of roughly 5.96% back in the year 2001.
I am struggling to make what is a rather boring interest rate post interesting, so I will leave it here.
This is slightly old news, but on October 7, 2010 the management of Clearwater Seafoods Income Fund are trying to get $45 million in debentures, due at the end of the year, out of the way without excessive cost.
The terms they offered are the following:
– Higher Interest rate: The proposed amendments provide Debentureholders with an interest rate that will be increased by 3.5% from 7.0% to 10.5%.
– Lower Conversion Price: The conversion price will be reduced from $12.25 per Fund unit (“Fund Unit”) to $3.25 per Fund Unit.
– Extended Term: The maturity date will be extended from December 31, 2010 to December 31, 2013, and the amended debentures will not be redeemable prior to June 30, 2011. As such, Debentureholders will have a longer period of time to receive a higher interest rate and potential to exchange their debenture for equity in an entity that is poised to create significant value for unitholders.
The higher interest rate is the only appealing sweetener for the holders – the conversion price decrease is insignificant when compared to the present unit price of 86 cents per unit; the extension of the maturity is also not beneficial when considering that it puts them behind in order with a series of term loans and a bond maturing on August 2013.
If I was holding the debentures (which I am not), I would walk away this deal.
If they dropped the conversion price to $1.00/unit, I would consider it. $3.25/unit, however, is a ridiculously high conversion rate.
Even if the debenture holders were stupid enough to approve this deal, they will not be collecting their coupons for too long since the company actually has to generate cash to pay out. It will not be long before this whole company has to give out a lot of equity to get rid of the high debt on their books. It would be one thing if the company were operationally running well but was financially leveraged too highly, but it just appears that this company is not particularly profitable, but management talks like it is.
When management has to use language like “potential to exchange their debenture for equity in an entity that is poised to create significant value for unitholders” in a pitch to debt holders, I have my doubts the right people are running the company as they are taking their owners and creditors like idiots.
The public will find out on November 12, 2010 whether this proposal goes through or not.
As I have previously disclosed, I have no holdings in Clearwater Seafoods equity or debt.
It appears that Ireland’s ability to borrow money is becoming much more impaired in the past three months, looking at the 10-year yield on their notes (note that the chart is the spread between the German and Irish 10-year sovereign debt, not the absolute yield to maturity of the Irish 10-year note; Germany’s 10-year debt yields roughly 2.4% at present):
The absolute yield to maturity is here:
Observers should note that during the Greek bond crisis (which peaked in early May 2010) that yield spreads on the same Irish notes went up from roughly 1.3% to 3.0% before trading at a range of roughly 1.6% to 4.5% before this wave of relative selling hit. This corresponds to a yield to maturity on Irish debt of roughly 4.4% to 5.9% and 4.6% to 6.7% after the Greek debt crisis.
Something else to note was that US treasuries were recipients of capital inflows during the Greek debt crisis, which apparently is not happening right now.
I have no further insight other than what is making the news right now, which means it is not tradable information. But it is something to be aware of – there may be another European sovereign debt crisis coming down the pipeline. If a yield spike hit the US government debt market, it would make major financial headlines. There is no telling whether the 50 basis point run-up in the last month is the start of a 5% rise in yield, or whether it is market noise.
Although I don’t have a stake in the equity of First Uranium (TSX: FIU), I note with some mild amusement how a company can go up and down so rapidly in a short period of time – makes you wonder whether it is the same participants buying and selling, or what the motivations of the market are at the time:
From a high of $1.36 intraday to 93 cents a share at the close is a 32% drop. Wonder who those people were that bought at $1.36, and what they are thinking now.
The debentures and notes were relatively stable – a trade went off at 110 cents on the notes (closing with a bid-ask of 95-100), and the debentures have creeped up to 74 cents, but nothing near the volatility seen in the equity.