Archive for the ‘Issue Comments’ Category

FFH Outlook Now Stable, says S&P

Friday, April 3rd, 2020

Standard & Poor’s has announced:

  • Our positive outlook was predicated on Fairfax Financial Holdings Ltd. achieving a redundant capitalization at the ‘AA’ confidence level.
  • While capital management actions are supportive, robust business growth, investment redeployment, and financial markets volatility will make it difficult for the company to achieve the ‘AA’ capitalization level over the next 12 months.
  • Therefore, we are revising our outlook to stable from positive and affirming all of our ratings on Fairfax and its operating subsidiaries. The stable outlook reflects our view that Fairfax will maintain strong business and financial risk profiles supported by improving re/insurance pricing.


We could lower the ratings in the next two years if, contrary to our expectations:

  • Capitalization declines sustainably below the ‘A’ confidence level; or
  • The volatility profile changes due to an increase in risk tolerance or shifts in investment or business mix resulting in high-risk exposure.

We could raise our ratings on the company in the next two years if Fairfax is able to:

  • Strengthen its risk-adjusted capitalization and maintain redundancy at the ‘AA’ confidence level;
  • Sustain strong earnings in line with those of higher-rated peers; and
  • Keep a fixed-charge coverage ratio sustainably above 4x and financial leverage (excluding nonrecourse debt held at non-insurance operations) less than 35%.

The outlook revision reflects our view that Fairfax’s capitalization will likely remain below the ‘AA’ confidence level this year despite active capital management actions and strong earnings over the past two years. Although capital grew in this period, robust insurance business growth, investment repositioning, financial markets volatility, and interest rate declines diminish S&P Global Ratings’ view of total available capital relative to increased capital requirements.

Fairfax’s proportion of risky assets (equities, non-investment-grade bonds, and alternative investments) is relatively high compared with that of peers and stood at 36.9% of total consolidated investments (including cash) at year-end 2019. This investment allocation exposes the company’s capital to market volatility. Even though its investments in associates (including private equity), which represented 12.4% of its total investments, are not exposed to mark-to-market volatility, the underlying economic trends will equally affect such holdings as well. However, the company’s large holdings of cash and short-duration securities partially mitigate the risk from the recent increase in credit spreads. The company’s consolidated investment portfolio of $39 billion as of Dec. 31, 2019, is composed of bonds (41.8%), public and private equity investments (29.1%), short-term investments (16.3%), and cash and cash equivalents (11.1%). Of the bonds holdings of $16.3 billion, investment-grade securities constituted 85.3% (includes ‘BBB’ rated securities, which were 19.7% of the total).

The May, 2018, setting of the Outlook to Positive was reported on PrefBlog.

Affected issues are FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.J, FFH.PR.K and FFH.PR.M .

BRF.PR.A To Reset At 3.137%; Interconvertible with BRF.PR.B

Friday, April 3rd, 2020

Brookfield Renewable Partners L.P. has announced (on April 1, they say, but I swear I looked on their site and on Globe Newswire that night and didn’t find anything):

Brookfield Renewable Power Preferred Equity Inc. (“BRP Equity”) has determined the fixed dividend rate on its Class A Preference Shares, Series 1 (“Series 1 Shares”) (TSX:BRF.PR.A) for the five years commencing May 1, 2020 and ending April 30, 2025. If declared, the fixed quarterly dividends on the Series 1 Shares during that period will be paid at an annual rate of 3.137% ($0.196063 per share per quarter).

Holders of Series 1 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on April 15, 2020, to convert all or part of their Series 1 Shares, on a one-for-one basis, into Class A Preference Shares, Series 2 (“Series 2 Shares”) (TSX:BRF.PR.B), effective April 30, 2020. Holders of Series 1 Shares are not required to elect to convert all or any part of their Series 1 Shares into Series 2 Shares.

The quarterly floating rate dividends on the Series 2 Shares will be paid at an annual rate, calculated for each quarter, of 2.62% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the May 1, 2020 to July 31, 2020 dividend period for the Series 2 Shares will be 0.71911% (2.853% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.179778 per share, payable on July 31, 2020.

Holders of Series 2 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on April 15, 2020, to convert all or part of their Series 2 Shares, on a one-for-one basis, into Series 1 Shares, effective April 30, 2020. Holders of Series 2 Shares are not required to elect to convert all or any part of their Series 2 Shares into Series 1 Shares.

As provided in the share conditions of the Series 1 Shares, (i) if BRP Equity determines that there would be fewer than 1,000,000 Series 1 Shares outstanding after April 30, 2020, all remaining Series 1 Shares will be automatically converted into Series 2 Shares on a one-for-one basis effective April 30, 2020; and (ii) if BRP Equity determines that there would be fewer than 1,000,000 Series 2 Shares outstanding after April 30, 2020, no Series 1 Shares will be permitted to be converted into Series 2 Shares. There are currently 5,449,675 Series 1 Shares outstanding.

As provided in the share conditions of the Series 2 Shares, (i) if BRP Equity determines that there would be fewer than 1,000,000 Series 2 Shares outstanding after April 30, 2020, all remaining Series 2 Shares will be automatically converted into Series 1 Shares on a one-for-one basis effective April 30, 2020; and (ii) if BRP Equity determines that there would be fewer than 1,000,000 Series 1 Shares outstanding after April 30, 2020, no Series 2 Shares will be permitted to be converted into Series 1 Shares. There are currently 4,510,389 Series 2 Shares outstanding.

BRF.PR.A was issued as a FixedReset, 5.25%+262, that commenced trading 2010-3-10 after being announced 2010-2-18. It reset to 3.355% in 2015 and I recommended against conversion. Nevertheless, there was a 45% conversion to the FloatingReset.

BRF.PR.B is a FloatingReset, Float+262, that resulted from a 45% conversion from BRF.PR.A in 2015.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., FFH.PR.M and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Ludicrous quotes supplied at great expense by the Toronto Stock Exchange are not up task of providing a particularly view of market pricing although an overall tendency is clear. I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

pairs_fr_200402b
Click for Big

The market shows wide dispersion in its quoted enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at -0.51% (ignoring the outlier FTS.PR.H / FTS.PR.I) and -0.11%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the BRF.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset BRF.PR.B (received in exchange for BRF.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 0.50% 0.00% -0.50%
BRF.PR.A 10.75 262bp 10.73 10.27 9.81

Before I get eviscerated in the comments, please note that I am well aware that BRF.PR.B is trading and is quoted with a bid of 10.50. Who cares? At the moment, the issues are interconvertible effective May 1 and are therefore exactly same thing (except for a minor difference in final dividend) from an investment perspective. We are interested in predicting what might happen after the potential for conversion has passed.

Based on current market conditions, I suggest that the FloatingResets, BRF.PR.B, that will result from conversion are likely to trade at a lower price than their FixedReset counterparts, BRF.PR.A. Therefore, it seems likely that I will recommend that holders of BRF.PR.A retain their shares, while holders of BRF.PR.B convert to BRF.PR.A, but I will wait until it’s closer to the April 15 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

HSE On Review-Negative at DBRS

Tuesday, March 31st, 2020

DBRS has announced (on March 26) that it:

has placed all its North American oil and gas (O&G) issuers and oil field service (OFS) issuers Under Review with Negative Implications. The portfolio review was undertaken in response to the recent extreme price declines and heightened volatility in crude oil and petroleum product markets largely caused by the rapid global spread of the Coronavirus Disease (COVID-19) and the concurrent crude oil price war between OPEC (led by Saudi Arabia) and Russia. Because of the very high level of volatility and uncertain length of time for which weak crude oil and petroleum product markets will persist, the following DBRS Morningstar-publicly-rated North American issuers (11in this press release) have been put Under Review with Negative Implications:

— Chevron Corporation*
— Imperial Oil Limited**
— ConocoPhillips*
— Suncor Energy Inc.**
— Husky Energy Inc**
— Canadian Natural Resources Limited**
— Cenovus Energy Inc.**
— Ovintiv Inc.**
— CES Energy Solutions Corp.**
— Crew Energy Inc.**
— Source Energy Services Canada LP and Source Energy Services Canada Holdings Ltd.**

The Under Review with Negative Implications status accounts for DBRS Morningstar’s view that because of (1) the extreme decline in the price of crude oil and petroleum product prices; (2) the significant rise in market volatility; and (3) the considerable uncertainty regarding the demand outlook for crude oil and petroleum products, DBRS Morningstar expects issuers’ credit profiles to experience considerable downward pressure over the weeks and months to come although the full extent of the recent shock to crude oil and petroleum product markets has yet to be established. The Under Review with Negative Implications status generally reflects DBRS Morningstar’s belief that downgrades for at least a significant part of the portfolio is likely. However, as situations and potential rating implications may vary, the final rating determination may change from the initial assessment. The Under Review with Negative Implications status is generally resolved with a rating action within three months. However, if heightened market uncertainty and volatility persists, DBRS Morningstar may extend the Under Review status for a longer period of time.

REFINING MARGINS UNDER PRESSURE—NOT PROVIDING SAME BUFFER AS IN PREVIOUS DOWNTURNS
Crude oil is the feedstock for refiners. Historically, for integrated companies, an oil price decline caused upstream profitability to shrink, but resilient profitability from refining (downstream) operations provided a partial offset or buffer to total integrated company margins. However, in the current situation, demand destruction for petroleum-derived products has been so sudden and severe that the squeeze on refining margins and falling demand is forcing operators to cut refining runs. Simply stated, the diversified model has not provided the same margin protection that integrated companies have historically enjoyed. Despite this, DBRS Morningstar expects that when economic activity rebounds and demand for lower-priced gasoline, jet fuel, and other refined products bounces back, downstream profitability will recover before the upstream business.

Currently, reduced capex programs being implemented or proposed by issuers that DBRS Morningstar has reviewed appear to be below what is needed to sustain their base level of operations. Lastly, the current ability to sell assets and tap equity or debt markets to raise cash is considerably more challenging relative to the 2014–16 market environment.

DBRS MORNINGSTAR ANTICIPATES AN EVENTUAL RECOVERY IN OIL PRICES
DBRS Morningstar believes that the current, very depressed price of crude oil for producers is unsustainable over the long term. Current pricing does not provide an adequate economic return for much of existing production and certainly not for new developments. Inevitably, the lack of investment will cause global oil production volumes to decline. In particular, DBRS Morningstar expects U.S. shale oil volumes to materially drop due to the steep decline rates typically associated with this kind of production. Furthermore, the depressed oil price may eventually inflict enough financial pain on Saudi Arabia, other OPEC members, and Russia to compel them to cooperate. A renewed OPEC plus production cut agreement would help to stabilize the market and accelerate price recovery.

DBRS Morningstar believes the WTI oil price will eventually recover to a midcycle range of USD 50/bbl to USD 60/bbl

CONCLUSION—HIGH PRICE UNCERTAINTY AND VOLATILITY MAKE ASSESSING CREDIT QUALITY DIFFICULT
Due to the drastic declines recently experienced by oil prices and the especially poor, near-term visibility regarding crude oil and petroleum product markets, DBRS Morningstar is placing all ratings for its North American rated O&G and OFS issuers Under Review with Negative Implications. DBRS Morningstar generally resolves the Under Review status within three months, assuming that greater clarity and stability returns to energy markets. With greater confidence about the direction of energy pricing and updated input from issuers regarding their immediate actions and longer-term plans, DBRS Morningstar will be in a better position to assess each issuer’s credit metrics. However, as denoted by the Under Review with Negative Implications designation, DBRS Morningstar notes that issuer credit profiles have weakened considerably and expects a number of negative rating actions.

This action was taken on the same day as S&P’s announcement of a Negative Outlook for HSE and downgrades for four other major Canadian producers.

Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G .

HSE Has Negative Outlook At S&P

Thursday, March 26th, 2020

Standard & Poor’s has announced:

  • S&P Global Ratings lowered its West Texas Intermediate (WTI) and Brent crude oil price assumptions on March 19, 2020, which initiated a global review of its rated oil and gas issuers.
  • We lowered our 2020 WTI price to US$25 from US$35 and lowered our Brent price to US$30 from US$40.
  • The reduced 2020 price assumptions, in conjunction with the lower 2021 and 2022 prices published on March 9, translate into materially lower revenue and cash flow forecasts for Husky.
  • Our projected three-year (2020-2022) weighted-average funds from operations (FFO)-to-debt and discretionary cash flow (DCF)-to-debt ratios have weakened relative to those we previously forecast.
  • S&P Global Ratings revised its outlook on Husky to negative from stable and affirmed its ‘BBB’ long-term issuer credit and senior unsecured debt ratings on the company.
  • The negative outlook reflects S&P Global Ratings’ view that there is increased risk Husky’s cash flow metrics could deteriorate below the minimum level required to support the ‘BBB’ credit rating.


While we acknowledge the counterbalancing benefits of the company’s downstream segment, including midstream assets, the upstream segment’s revenues and profitability continue to dominate the company’s credit profile. Moreover, the company’s heavy oil-dominant upstream product mix exposes its financial performance to additional volatility, given the persistent weakness of Canadian heavy oil prices.

We would lower the rating to ‘BBB-‘, if Husky’s weighted-average FFO-to-debt ratio decreased below 30%, and we expected the cash flow ratio would remain at this weakened level for a sustained period. Nevertheless, we believe Husky’s participation in several industry sectors, and the integration benefits of its downstream operations, should continue to support an investment-grade rating.

We would revise the outlook to stable, if Husky is able to improve and sustain its three-year weighted-average FFO-to-debt ratio at the upper end of the 30%-45% range. In the absence of material operating efficiency gains, we believe this ratio improvement would only occur in tandem with strengthening hydrocarbon prices.

Several other ratings actions were taken on Canadian oil companies:

  • Cenovus downgraded one notch to BBB-, Negative Outlook
  • Canadian Natural Resources downgraded one notch to BBB, Stable Outlook
  • Suncor downgraded one notch to BBB+, Stable Outlook
  • Ovintiv Canada LLC downgraded one notch to BBB-, Negative Outlook

Husky remains with its Issuer Rating of BBB, although the Outlook has now turned negative. The preferreds remain at P-3(high).

Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G .

CF.PR.A and CF.PR.C : Trend Negative, says DBRS

Thursday, March 26th, 2020

DBRS has announced that it:

confirmed its rating on Canaccord Genuity Group Inc.’s (CF or the Company) Cumulative Preferred Shares at Pfd-3 (low) and changed the trend to Negative from Stable. The Company has a Support Assessment of SA3, which implies no expected systemic support.

KEY RATING CONSIDERATIONS
The trend change to Negative from Stable accounts for the impact that current stresses to the global economy and significant market volatility are having and will likely continue to have on CF’s business. Global reactions to the Coronavirus Disease (COVID-19) pandemic have caused economic stresses in the capital markets with declining market values across many asset classes. These factors were abrupt and unexpected, giving the Company minimal time to reposition its balance sheet, which will likely translate into headwinds for its earnings.

Specifically, DBRS Morningstar has the following concerns:

(1) While CF’s trading businesses may benefit from increased volatility, its investment banking activities have been largely subdued among significant global uncertainty related to the coronavirus and its ultimate impact. DBRS Morningstar expects this uncertainty to persist, which will likely adversely affect earnings in the coming quarters.

(2) DBRS Morningstar anticipates that the Company’s margin-lending business may be required to liquidate collateral at fire sale prices, as with other global financial institutions, resulting in potential losses for CF.

(3) DBRS Morningstar expects the current environment might create difficulties for CF as it manages the different businesses it has acquired in the U.S., UK, and Australia over the last few years while also paying down associated debt that will come due throughout the year.

This reverses their August, 2018, decision to upgrade the trend to Stable.

Affected issues are CF.PR.A and CF.PR.C.

OSP.PR.A : 70% of Capital Units to Disappear?

Wednesday, March 25th, 2020

Brompton Group has announced:

Brompton Oil Split Corp. (the “Fund”) previously announced a pro-rata redemption of class A shares (the “Class A Shares”) in order to maintain an equal number of preferred shares (the “Preferred Shares”) and Class A Shares outstanding as a result of more Preferred Shares being tendered to the special non-concurrent retraction in connection with the extension of the Fund’s term for an additional three years. As a result of withdrawals from the Preferred Share retraction, the Fund will now be required to redeem 2,259,102 Class A Shares on a pro-rata basis pursuant to the Fund’s constating documents which is a reduction of approximately 70.377% of each Class A shareholders’ holdings. Each Class A shareholder of record on March 31, 2020 will receive a redemption price equal to the greater of: (i) the net asset value per unit (each unit consisting of 1 Class A Share and 1 Preferred Share) minus the sum of $10.00 plus any accrued and unpaid distributions on a Preferred Share, and (ii) nil. The redemption payment, if any, will be made on or before April 15, 2020.

The Fund invests in a portfolio of equity securities of large capitalization North American oil and gas issuers, primarily focused on those with significant exposure to oil.

Given that the NAVPU of the preferred shares as of March 23 is only 3.67 (and the Capital Unit NAV is zero, of course), it currently appears that the redemption price calculated on March 31 will be nil.

DBRS Mass Review of SplitShares

Wednesday, March 25th, 2020

DBRS has announced:

DBRS Limited (DBRS Morningstar) placed certain preferred shares issued by various split share companies Under Review with Negative Implications. Each of these split share companies invests in a portfolio of securities funded by issuing two classes of shares: dividend-yielding preferred shares or securities (the Preferred Shares) and capital shares or units (the Capital Shares). In such structure, the Preferred Shares normally benefit from the downside protection provided by the net asset value (NAV) of the Capital Shares. Following the stock market sell-off in response to the worldwide spread of Coronavirus Disease (COVID-19) and various geopolitical news, the Preferred Shares experienced substantial declines in their downside protection. As a result, DBRS Morningstar placed the Preferred Shares listed below Under Review with Negative Implications. DBRS Morningstar will take final rating action on these Preferred Shares once a longer-term trend has been established for the NAVs of the affected split share companies.

Affected issues, with my estimates of the current (as of the close, March 24) Net Asset Value of the Whole Units, are:

Ticker Current
Rating
Estimated
NAV
DGS.PR.A Pfd-3 11.28
LBS.PR.A Pfd-3 11.77
PDV.PR.A Pfd-3(high) Not
Tracked
SBN.PR.A Pfd-3 11.54

BBD Preferreds Downgraded to CC by S&P

Tuesday, March 24th, 2020

Standard & Poor’s has announced:

  • In the weaker macroeconomic environment we anticipate, in large part because of the COVID-19 outbreak, Bombardier Inc.’s capital structure appears to be unsustainable in the long term.
  • As a result, S&P Global Ratings lowered its ratings on Bombardier by one notch, including its issuer credit rating on the company to ‘CCC+’ from ‘B-‘.
  • At present, we don’t believe Bombardier will face a near-term liquidity crisis given the ample cash on its balance sheet at the beginning of the year.
  • The negative outlook reflects the possibility of another downgrade if macroeconomic conditions further deteriorate from our expectations leading to our view that Bombardier is likely to consider a distressed exchange offer or sub-par redemption in the near term.


In our Feb. 19, 2020, research update on Bombardier, we were expecting S&P Global Ratings’ adjusted debt-to-EBITDA of 6x-7x in 2021. However, we now believe leverage is likely to be higher given our view that earnings and free cash flow prospects for the company’s business jet division have deteriorated, at least over the next couple of years. While we recognize that large cabin business jets, which will make up the majority of Bombardier’s sales in future will see less downward pressure than small cabin jets, we expect demand will be lower than previously expected. Given Bombardier’s high debt load and our expectation for lower earnings and free cash flow generation, we Bombardier’s financial commitments appear unsustainable in the long term. We acknowledge that our forecast is highly uncertain at this time and the company has yet to provide updated guidance.

The negative outlook reflects our view that Bombardier could pursue a distressed exchange or other debt restructuring in the next 12 months to reduce its debt obligations, which we consider unsustainable in the long-term. In our view, key risks include weaker-than-expected demand from a global recession, and operating disruptions that could lead to a meaningful free cash flow deficit.

We could lower our rating on Bombardier if the company announces a distressed exchange or we consider such an event to be highly likely. This could occur if macroeconomic conditions further deteriorate from our expectations, contributing to a weaker outlook for business jet demand, and a large free cash flow deficit. It could also occur if we believe the acquisition of the company’s Bombardier Transportation (BT) segment by Alstom S.A. is unlikely to close as proposed.

We could revise the outlook to stable if we see a lower likelihood that Bombardier could pursue a distressed exchange or debt restructuring in the next twelve months. This could be the case if we expect a strong recovery in the second half of this year, leading us to believe that Bombardier’s capital structure is sustainable in the long-term.

The rating on these preferreds is now so low that S&P doesn’t offer a ‘Canadian National Scale’ equivalent with a “P” prefix … all the preferreds get is a straight transcription to CC.

Affected issues are BBD.PR.B, BBD.PR.C and BBD.PR.D.

EMA Downgraded to P-3(high) by S&P

Tuesday, March 24th, 2020

Standard & Poor’s has announced:

  • Halifax, Nova Scotia-based utility holding company Emera Inc. has closed on the sale of its Emera Maine subsidiary to ENMAX Corp.
  • Although we expect the sale to improve Emera Inc.’s consolidated financial measures in the near term, the transaction does not fully mitigate other factors that weigh on the company’s credit quality, including our expectation that the company’s funds from operation (FFO) to debt will be consistently above 12%.
  • As a result, we no longer expect Emera to maintain its financial measures at the upper end of its financial risk category, removing support for our use of a positive comparable ratings analysis modifier.
  • Therefore, we are lowering our issuer credit rating on Emera to ‘BBB’ from ‘BBB+’. The outlook is stable.
  • At the same time, we are lowering the senior unsecured debt rating to ‘BBB-‘ from ‘BBB’, subordinated notes rating to ‘BB+’ from ‘BBB-‘, and preferred shares rating to ‘BB+’ from ‘BBB-‘ on the global scale and to ‘P-3 (High)’ from ‘P-2 (Low)’ on the Canada National Scale ratings.
  • We are also downgrading intermediate holding company TECO Energy Inc. (TECO) and financing company TECO Finance Inc. to ‘BBB’ from ‘BBB+’.
  • We also reviewed our ratings on operating subsidiaries Nova Scotia Power Inc. (NSPI) and Tampa Electric Co. (TEC) and conclude that the cumulative value of the structural protections in place between these two operating companies and parent Emera are sufficient to insulate our issuer credit rating on both entities for up to one notch from the group credit profile of parent Emera.
  • As such, we are affirming our ratings on NSPI and TEC, including the ‘BBB+’ issuer credit ratings.
  • For NSPI, we are affirming the A-1 (Low) Canadian National Scale Commercial Paper Ratings.
  • For TEC, are affirming the ‘A-2’ short-term ratings.
  • The stable outlook on all these entities largely reflects our expectation that Emera will maintain its financial measures, including FFO to debt at about 11% over the next two years.


We could downgrade Emera over the next 12-24 months if the company’s financial measures deteriorates with FFO to debt of below 10% with no prospect for improvement. This could happen if there are material adverse regulatory outcomes, a material delay in the completion of capital projects, or if the COVID-19 pandemic persists and has a material long-term impact on the company’s financial measures.

We could raise ratings on Emera if its financial measures improve with FFO to debt approaching 13% on a sustained basis, indicative of the higher end of the financial risk profile category.

Affected issues are EMA.PR.A, EMA.PR.B, EMA.PR.C, EMA.PR.E, EMA.PR.F and EMA.PR.H.

LBS.PR.A : Semi-Annual Report, 19H1

Sunday, March 22nd, 2020

Brompton Life & Banc Split Corp. has released its Semi-Annual Report to June 30, 2019.

Figures of interest are:

MER: “The MER per unit, excluding Preferred share distributions (which were covered by the portfolio’s dividend income and issue costs), was 0.92% for the first six months of 2019, compared to 0.91% for 2018.”

Average Net Assets: We need this to calculate portfolio yield. There was issuance of units on April 4, 2019, so our first estimate is calculated as [412.0-million (NAV at beginning of period) + 470.4-million (NAV at end of period)] / 2 = 441.2-million. The second estimate is based on total preferred share dividends of 7.246-million divided by 0.2725/share, implies 26.590-million units outstanding, with an initial NAVPU of 15.91 and a final NAVPU of 17.23, average 16.57, implies average assets of 440.6-million, which is surprisingly good agreement! Call it average Net Assets of $440.9-million.

Underlying Portfolio Yield: (9.886-million dividends + negligible securities income) times two because it’s only half a year divided by average net assets of 440.9-million is 4.48%

Income Coverage: Net Investment Income (excluding capital gains and issuance costs; and after expenses) of 7.766-million divided by Preferred Share Distributions of 7.246-million is 107%.