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Note from the Credit Desk

August 22, 2022 |Blog

By: Andrew Labbad Managing Partner, Portfolio Manager

We recently put out our monthly commentary, and wanted to follow up with a quick update two weeks after publishing it. Highlighting one of the themes discussed:

  1. May 10th, we posted a note from the credit desk:

“Another theme of late has been corporate issuers taking out some of their short-dated debt early. With interest rates this high, it becomes that much more enticing for cash-rich issuers with strong balance sheets to take out any debt early. Metro, Sobeys and Fortis all redeemed bonds at a premium over the last week. Because our investment profile tends to own shorter dated bonds, we also benefitted from this trend.”

  1. July Commentary, we posted:

“First, the underlying treasury curve has inverted with 10yr rates trading 0.45% lower than 2yr rates, causing greater fears of a recession underway. This bodes well given our preference to own shorter dated bonds. Our portfolio is mostly invested in 1-3yr corporate securities, at greater all-in yields to their longer-dated counterparts. As this dynamic unfolds, we think credit spreads on short-dated bonds will outperform other maturities.”

  1. Today on August 22nd, Loblaws is coming to the market to fund the early redemption of their September 2023 bonds, with 10yr and 30yr tenors.

“Use of Proceeds: The net proceeds of the offering may be used by the Company to fund the redemption of its outstanding $800 million aggregate principal amount 4.860% Series 2023 senior unsecured notes maturing September 12, 2023 and for general corporate purposes.”

We owned a healthy position in these bonds. Being patient with a good yield and now a premium redemption price to take out the bonds early, our investors have benefitted from this trade.

Amplus

Amplus, an innovative and flexible fixed-income strategy, is the place to be during good times and bad. It aims to protect investors during a downturn and maximize returns in a rising market. We invest in high-quality companies that are raising debt to invest in the growth of their businesses. We support their mission by purchasing bonds, preferred shares, and convertible notes, increasing our investment when the time is right. A small and agile fund combined with active trading, we can take full advantage of market volatility. Because Wealhouse’s goal is to make as much money for our investors as possible, we do not have layers of bureaucracy that hinder time-sensitive trades. During a sell-off, we can buy quickly. And during a market rally, we can sell just as fast.

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