Raising cheap debt capital

Cenovus Energy (TSX: CVE) raised $1.25 billion in debt financing today. Here were the relevant terms:

TRANCHE 1
AMT $500 MLN    COUPON 3 PCT       MATURITY     8/15/2022
TYPE NTS        ISS PRICE 99.129   FIRST PAY    2/15/2013
MOODY'S Baa2    YIELD 3.102 PCT    SETTLEMENT   8/17/2012   
S&P BBB-PLUS    SPREAD 137.5 BPS   PAY FREQ    SEMI-ANNUAL
FITCH N/A       MORE THAN TREAS    MAKE-WHOLE CALL 20 BPS
    
TRANCHE 2
AMT $750 MLN    COUPON 4.45 PCT    MATURITY     9/15/2042
TYPE NTS        ISS PRICE 99.782   FIRST PAY    3/15/2013
MOODY'S Baa2    YIELD 4.463 PCT    SETTLEMENT   8/17/2012   
S&P BBB-PLUS    SPREAD 165 BPS     PAY FREQ    SEMI-ANNUAL
FITCH N/A       MORE THAN TREAS    MAKE-WHOLE CALL 25 BPS

So they can raise 10-year money at 3.1% and 30-year money at 4.46%. After taxes (assume 26%) this is about 2.3% and 3.3%, respectively. At these rates, I’d be raising as much 30-year capital as I can and figure out what to do with it later – there has to be a way to deploy it at a better pre-tax return rate of 4.46%.

Long term bond yields – creeping up

The following is a chart of the US Government 10-year and 30-year bond yield to maturity:

Up about 0.3% from their yield lows, which is fairly significant. Now the $64,000 question is: Is this just a short squeeze, or do yields shoot higher from present?

Ex-dividend price reaction

When stocks open trading ex-dividend, all things being equal, they should trade at the previous closing price minus the dividend. This can vary slightly depending on what happens in the market overnight, but without any relevant news the price should follow that formula.

Genworth MI Canada went ex-dividend today, which was a 29 cent dividend, but their opening price did not even make a blip to reflect this dividend.

Yahoo sometimes adjusts the charts to reflect dividends (especially large special dividends), and sometimes it does not. It always pays to find out whether huge price drops are caused by special dividends or distributions, or whether it was purely market action. For instance, EnCana’s chart at the end of 2009 is still unadjusted by the Cenovus distribution. In MIC’s instance they did not update the chart so what you are seeing is the unadjusted trading action.

I wonder if there are any studies done on future performance of equities compared to how they trade after they go ex-div. Intuitively I would guess there is no correlation whatsoever, but you always hear of amateurish websites that talk about “dividend capture” strategies where you’d buy stocks the day before they go ex-dividend and sell it the day after to “capture the dividend”. What they frequently forget is that the market marks down the stock appropriately (not to mention liquidity), but at least at this one time, the market seemed to forget about the dividend.

Database corruption

The site was down for quite a few hours apparently because of some database corruption. Using some wizardry that I haven’t had to use in quite some time (e.g. command prompt restoration of the database backup file) I restored the database and lost the two weekend posts which I recovered out of Google Reader.

Hopefully this wasn’t a result of a directed hack attack or anything.

Amazon and Walmart

Continuing some large-cap cursory scanning, I notice that Amazon is still at its very lofty valuation – I have no idea why they are trading so highly, but then again, that’s been the case for quite some time.

Whenever I look at Amazon I instinctively punch in Walmart. They have been in a trading range for most of last decade, but interestingly enough, they’ve appeared to have broken out of their trading range:

Back in the early 2000′s, Walmart was trading a very healthy P/E (around 20-25) and they had to settle into their valuation by actually earning enough in earnings to warrant the price. A few years ago they were around the 10-11 future-looking P/E range, while now they have crept up to 14 times future earnings. Is this because capital that was otherwise earmarked toward fixed income investments has moved into the equity side? Walmart equity is as close to a GDP-linked bond-like instrument as you could have gotten in the large cap market and I am wondering if others are seeing it this way?

Walmart is pretty much the economic barometer of the US retail economy and the other explanation is that maybe the US economy is recovering or stronger than the media makes it out to be?

I also notice that Target has exhibited a similar boost this year, albeit somewhat less pronounced than Walmart.