Archive for the ‘Issue Comments’ Category

EMA.PR.C : Convert or Hold?

Tuesday, July 24th, 2018

It will be recalled that EMA.PR.C will reset at 4.721% effective August 15.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. The extension was announced 2018-07-06 and the reset rate was set 2018-07-16. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-2(low) by S&P. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

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., EMA.PR.C 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).

pairs_fr_180724
Click for Big

The market appears to be relatively uninterested in floating rate product; most of the implied rates until the next interconversion are scattered around the current 3-month bill rate and the averages for investment-grade and junk issues are similar, at +1.37% and +1.20%, respectively – slightly below the market rate. 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.

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 EMA.PR.C 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 (received in exchange for EMA.PR.C) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.75% 1.25% 0.75%
EMA.PR.C 24.05 265bp 23.72 23.22 22.71

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of EMA.PR.C continue to hold the issue and not to convert.

If you do wish to convert, note that the deadline for notifying the company is 5:00 p.m. (EDT) on July 31, 2018.. Brokerages and other intermediaries will normally set their internal deadlines a few days prior to this, so if you want to convert don’t waste any time! Such intermediaries may accept instructions after their internal deadline (but prior to the company deadline, of course) if you grovel in a sufficiently entertaining fashion, but this will only be done on a ‘best efforts’ basis.

I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

EMA.PR.C To Reset At 4.721%

Tuesday, July 17th, 2018

Emera Incorporated has announced:

the applicable dividend rates for its Cumulative Rate Reset First Preferred Shares, Series C (the “Series C Shares”) and Cumulative Floating Rate First Preferred Shares, Series D (the “Series D Shares”), in each case, payable if, as and when declared by the Board of Directors of the Company:
• 4.721% per annum on the Series C Shares ($0.29506 per Series C Share per quarter), being equal to the sum of the Government of Canada bond yield as at July 16, 2018, plus 2.65%, payable quarterly on the 15th of February, May, August and November of each year during the five-year period commencing on August 15, 2018 and ending on (and inclusive of) August 14, 2023; and
• 4.1140% on the Series D Shares of the Company (the “Series D Shares”) for the three-month period commencing on August 15, 2018 and ending on (and inclusive of) November 14, 2018 ($0.25924 per Series D Share for the quarter), being equal to the sum of the three-month Government of Canada treasury bill yield rate as at July 16, 2018, plus 2.65% (calculated on the basis of the actual number of days elapsed during the quarter divided by 365), payable on the 15th of November 2018. The quarterly floating dividend rate will be reset every quarter.

Holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Series D Shares on August 15, 2018 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares. The foregoing conversion right is subject to the following:
• if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and
• alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.

Beneficial owners of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2018 until 5:00 p.m. (EDT) on July 31, 2018.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. The extension was announced 2018-07-06. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-2(low) by S&P. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

Note that the July 31 notification deadline is that of the company; brokers will normally set their internal deadlines a day or two in advance of this date – so check, well in advance! If you miss the brokers’ deadline, but still have time to make the company deadline, brokers will usually attempt the conversion on a ‘best efforts’ basis, provided you grovel in a sufficiently entertaining fashion.

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., EMA.PR.C 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).

pairs_fr_180716
Click for Big

The market appears to be relatively uninterested in floating rate product; the implied rates until the next interconversion are approximately equal to the current 3-month bill rate and the averages for investment-grade and junk issues reflect this, at +1.49% and +1.21%, 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.

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 EMA.PR.C 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 (received in exchange for EMA.PR.C) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.00% 1.50% 1.00%
EMA.PR.C 23.60 265bp 23.53 23.02 22.51

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of EMA.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the July 31 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

BMO.PR.M, BMO.PR.R To Be Redeemed

Friday, July 6th, 2018

Bank of Montreal has announced (on June 28):

its intention to redeem all of its 6,267,391 outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 16 (“Series 16”) for an aggregate total of approximately $157 million and all of its 5,732,609 outstanding Non-Cumulative Floating Rate Class B Preferred Shares, Series 17 (“Series 17”) for an aggregate total of approximately $143 million on August 25, 2018. The redemption has been approved by the Office of the Superintendent of Financial Institutions.

The Series 16 and Series 17 are redeemable at Bank of Montreal’s option on August 25, 2018, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on August 27, 2018, the first business day following the redemption date, upon surrender of the Series 16 and Series 17.

On May 30, 2018, Bank of Montreal announced that dividends of $0.211875 per share for Series 16 and $0.179589 per share for Series 17 had been declared. These will be the final dividends on Series 16 and Series 17, and will be paid in the usual manner on August 27, 2018 to the shareholders of record on August 1, 2018, separately from the payment of the redemption price.

Notice will be delivered to holders of the Series 16 and Series 17 in accordance with the terms outlined in the Series 16 and 17 prospectus supplement.

Series 16 is BMO.PR.M, a Fixed Reset +165bp that commenced trading 2008-6-23 at 5.20% after being announced 2008-6-12 and was reset to 3.39% in August, 2013.

Series 17 is BMO.PR.R, a FloatingReset, +165bp, that resulted from the 2013 conversion from BMO.PR.M at the time of reset.

EMA.PR.C To Be Extended

Friday, July 6th, 2018

Emera Incorporated has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Rate Reset First Preferred Shares, Series C of the Company (the “Series C Shares”) on August 15, 2018. There are currently 10,000,000 Series C Shares outstanding.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 31, 2012, to the amended and restated short form base shelf prospectus dated February 18, 2011, relating to the issuance of the Series C Shares, the holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series D of the Company (the “Series D Shares”) on August 15, 2018 (the “Conversion Date”).

On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares.

The foregoing conversion right is subject to the following:

1. if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and

2. alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.

In either case, Emera will give written notice to that effect to holders of Series C Shares no later than August 8, 2018.

The dividend rate applicable for the Series C Shares for the five-year period commencing on August 15, 2018 and ending on (and inclusive of) August 14, 2023, and the dividend rate applicable to the Series D Shares for the 3-month period commencing on August 15, 2018 and ending on (and inclusive of) November 14, 2018, will be determined on July 16, 2018 and notice of such dividend rates shall be provided to the holders of the Series C Shares on that day.

Beneficial owners of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2018 until 5:00 p.m. (EDT) on July 31, 2018.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29.

I will have more commentary once the reset dividend rate is known.

ENS.PR.A Strong on Good Volume

Friday, June 29th, 2018

Middlefield Group has announced:

Middlefield Group, on behalf of E Split Corp. (the “Company”), is pleased to announce the Company has completed its initial public offering of 3,200,000 class A shares and 3,200,000 preferred shares for total gross proceeds of $80 million. The Class A and Preferred shares are listed on the Toronto Stock Exchange under the symbols ENS and ENS.PR.A, respectively.

The Company will invest in common shares of Enbridge Inc., a North American oil and gas pipeline, gas processing and natural gas distribution company.

The Company’s investment objectives for the:
Class A shares are to provide holders with:
(i) non-cumulative monthly cash distributions; and
(ii) the opportunity for capital appreciation through exposure to the portfolio
Preferred shares are to:
(i) provide holders with fixed cumulative preferential quarterly cash distributions; and
(ii) return the original issue price of $10.00 to holders upon maturity.

The initial target distribution yield for the class A shares is 8% per annum based on the original subscription price (or $0.10 per month or $1.20 per annum).

The initial target distribution yield for the preferred shares is 5.25% per annum based on the original subscription price (or $0.13125 per quarter or $0.525 per annum).

Middlefield Capital Corporation, the advisor, will provide investment management advice to the Company.

The syndicate of agents was co-led by CIBC Capital Markets and RBC Capital Markets, and included BMO Capital Markets, Scotiabank, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., National Bank Financial Inc., Raymond James Ltd., Industrial Alliance Securities, Manulife Securities Incorporated, Desjardins Securities Inc., Mackie Research Capital Corporation, and Middlefield Capital Corporation.

ENS.PR.A is a Split-Share, 5.25%, 5-Year, that commenced marketing 2018-5-18. It will be tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

DBRS has assigned a rating of Pfd-3(high):

DBRS Limited (DBRS) finalized the provisional rating of Pfd-3 (high) assigned to the Preferred Shares issued by E Split Corp. (the Company). The Company issued an equal number (3,200,000) of the Preferred Shares and the Class A Shares at an issue price of $10.00 per Preferred Share and $15.00 per Class A Share. The Preferred Shares and the Class A Shares are issued on the basis that an equal number of Preferred Shares and Class A Shares are outstanding at all material times. Thus, one Preferred Share and one Class A Share will comprise one unit (the Unit). The Maturity Date will be on June 30, 2023. The term of the Company may be extended beyond the maturity date for additional terms of five years each as determined by the Company’s board of directors.

No distributions will be paid on the Class A Shares if (1) the distributions payable on the Preferred Shares are in arrears or (2) in respect of a cash distribution by the Company, the net asset value (NAV) per Unit is less than $15.00.

Net proceeds from the offering will be used to invest in a portfolio which will comprise primarily common shares of Enbridge Inc. (the Portfolio) in accordance with the Company’s investment objectives, strategy and restrictions. Up to 10% of the Portfolio may be invested in securities of any other issuer as determined by the manager.

Holders of the Preferred Shares are expected to benefit from a strong asset coverage of approximately 2.4 times (x) and sufficient dividend coverage of 2.4x. Based on the asset coverage, the net asset value of the Company after the issuance would have to fall by approximately 58% for the holders of the Preferred Shares to be in a loss position.

The issue traded 348,717 shares today in a range of 10.03-14 before closing at 10.14-15. Vital statistics are:

ENS.PR.A SplitShare YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2023-06-30
Maturity Price : 10.00
Evaluated at bid price : 10.14
Bid-YTW : 4.96 %

CPX.PR.E : No Conversion to FloatingReset

Tuesday, June 19th, 2018

Capital Power Corporation has announced (on June 18):

that after having taken into account all Election Notices following the June 15, 2018 conversion deadline, in respect of the Cumulative Rate Reset Preference Shares, Series 5 (Series 5 Shares) tendered for conversion into Cumulative Floating Rate Preference Shares, Series 6 (Series 6 Shares), the holders of Series 5 Shares were not entitled to convert their shares. There were approximately 236,824 Series 5 Shares tendered for conversion, which was less than the required one million shares required for conversion into Series 6 Shares.

There are eight million Series 5 Shares listed on the Toronto Stock Exchange (TSX) under the symbol CPX.PR.E. Effective June 30, 2018, the Annual Fixed Dividend Rate for the next five-year period has been reset to 5.23800%.

For more information on the terms of, and risks associated with an investment in the Series 5 Shares, please see Capital Power’s prospectus supplement dated March 7, 2013 which is available on sedar.com or on Capital Power’s website at capitalpower.com.

It will be recalled that CPX.PR.E will reset to 5.238% effective 2018-6-30 and will hence be referred to as a FixedReset, 5.238%+315.

CPX.PR.E is a FixedReset, 5.238%+315, that commenced trading 2013-3-14 at 4.50% after being announced 2013-3-5. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It will be further recalled that I recommended against conversion.

LBS.PR.A To Get Bigger

Tuesday, June 19th, 2018

Brompton Group has announced:

Life & Banc Split Corp. (TSX:LBS) (TSX:LBS.PR.A) (the “Company”) is pleased to announce it is undertaking an overnight treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively).

The sales period for this overnight offering will end at 9:00 a.m. (ET) on Wednesday, June 20, 2018. The offering is expected to close on or about July 4, 2018 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Class A Shares will be offered at a price of $9.80 per Class A Share for a distribution rate of 12.2% on the issue price, and the Preferred Shares will be offered at a price of $10.00 per Preferred Share for a yield to maturity of 4.9%.(1) The closing price on the TSX for each of the Class A and Preferred Shares on June 18, 2018 was $9.99 and $10.18, respectively. The Class A and Preferred Share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company (calculated as at June 18, 2018), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

The Company invests in a portfolio (the “Portfolio”) consisting of common shares of the six largest Canadian banks and the four major publicly traded Canadian life insurance companies:

The Bank of Nova Scotia Royal Bank of Canada
National Bank of Canada Industrial Alliance Insurance and Financial Services Inc.
The Toronto-Dominion Bank Great-West Lifeco Inc.
Canadian Imperial Bank of Commerce Manulife Financial Corporation
Bank of Montreal Sun Life Financial Inc.

The investment objectives for the Class A Shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per Class A Share and to provide the opportunity for growth in the net asset value per Class A Share.

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.11875 per Preferred Share, and to return the original issue price plus accrued dividends (if any) to holders of Preferred Shares on November 29, 2018.

On September 25, 2017 the Company’s board of directors approved an extension of the maturity date of the Class A and Preferred Shares of the Company for an additional term to October 30, 2023. The Preferred Share dividend rate for the extended term will be announced at least 60 days prior to the original November 29, 2018 maturity date. The new dividend rate will be determined based on market yields for Preferred Shares with similar terms.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial and Scotiabank.

LBS.PR.A also had a treasury offering last September.

LBS / LBS.PR.A had an NAVPU of 19.15 on June 14, so the offering price of 19.80 per Whole Unit is a premium of 3.9% – certainly not as big as we’ve ever seen, but any kind of premium at all for a mutual fund is good business!

Update, 2018-6-20 They raised just over $50-million:

Life & Banc Split Corp. (the “Company”) is pleased to announce a successful overnight treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively). Gross proceeds of the offering are expected to be approximately $50.1 million. The offering is expected to close on or about July 4, 2018 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (the “TSX”). The Company has granted the Agents (as defined below) an over-allotment option, exercisable for 30 days following the closing date of the offering, to purchase up to an additional 15% of the number of Class A Shares and Preferred Shares issued at the closing of the offering.

GDV.PR.A Steady on Good Volume

Friday, June 15th, 2018

Brompton Group has announced (on June 7):

Global Dividend Growth Split Corp. (the “Company”) has determined the exchange ratios for the exchange option (the “Exchange Option”) with respect to its initial public offering. Under the Exchange Option, prospective purchasers could purchase Class A shares or Units (consisting of one Class A and one Preferred share) of the Company by an exchange of freely tradable equity securities (“Exchange Securities”) of the issuers listed below (the “Exchange Eligible Issuers”). The Exchange Option deadline was 5:00 p.m. on May 24, 2018.

The following table indicates the adjusted volume weighted average trading price (“Adjusted VWAP”) and exchange ratio for the Exchange Securities of each Exchange Eligible Issuer as calculated in the manner described in the Company’s prospectus dated May 23, 2018. The adjusted volume weighted average trading price and exchange ratios are rounded to four decimal places. Fractional Class A shares/Units will not be issued.

Company Name (Exchange Ticker Symbol) CUSIP ISIN Adjusted VWAP
(C$ Equiv.)
Exchange
Ratio Per Class A Share
Exchange Ratio Per Unit
Global Equities
APPLE INCORPORATED (AAPL) 37833100 US0378331005 $249.4883 20.7734 11.3404
BCE (BCE) 05534B760 CA05534B7604 $54.4520 4.5339 2.4751
CARNIVAL CORPORATION (CCL) 143658300 PA1436583006 $79.9122 6.6538 3.6324
CISCO SYSTEMS INCORPORATED (CSCO) 17275R102 US17275R1023 $56.6722 4.7188 2.5760
ENBRIDGE (ENB) 29250N105 CA29250N1050 $40.3859 3.3627 1.8357
HSBC HOLDINGS (HSBC) 404280406 US4042804066 $63.6714 5.3015 2.8942
IBM CORPORATION (IBM) 459200101 US4592001014 $186.5488 15.5328 8.4795
INTEL CORPORATION (INTC) 458140100 US4581401001 $73.4187 6.1131 3.3372
JOHNSON & JOHNSON (JNJ) 478160104 US4781601046 $158.4643 13.1944 7.2029
JP MORGAN CHASE & CO. (JPM) 46625H100 US46625H1005 $141.7487 11.8026 6.4431
MANULIFE FINANCIAL (MFC) 56501R106 CA56501R1064 $24.6940 2.0561 1.1225
NOVARTIS AG (NVS) 66987V109 US66987V1098 $97.7830 8.1418 4.4447
PFIZER INCORPORATED (PFE) 717081103 US7170811035 $47.2153 3.9313 2.1462
PROCTER & GAMBLE CO. (PG) 742718109 US7427181091 $96.5067 8.0355 4.3867
SANOFI SA (SNY) 80105N105 US80105N1054 $50.0553 4.1678 2.2752
SUN LIFE FINANCIAL INCORPORATED (SLF) 866796105 CA8667961053 $54.4145 4.5308 2.4734
TELUS CORPORATION (T) 87971M103 CA87971M1032 $45.4713 3.7861 2.0669
TEXAS INSTRUMENTS INCORPORATED (TXN) 882508104 US8825081040 $151.1907 12.5887 6.8723
TORONTO-DOMINION BANK (TD) 891160509 CA8911605092 $75.2690 6.2672 3.4213
Other
ALIMENTATION COUCHE-TARD INCORPORATED (ATD) 01626P403 CA01626P4033 $55.1488 4.5919 2.5068
ARC RESOURCES LIMITED (ARX) 00208D408 CA00208D4084 $13.0453 1.0862 0.5930
BARRICK GOLD CORPORATION (ABX) 67901108 CA0679011084 $16.8209 1.4006 0.7646
BLACKBERRY LIMITED (BB) 09228F103 CA09228F1036 $15.6563 1.3036 0.7117
CRESCENT POINT ENERGY CORPORATION (CPG) 22576C101 CA22576C1014 $10.0508 0.8369 0.4569
EMERA INCORPORATED (EMA) 290876101 CA2908761018 $40.1965 3.3469 1.8271
ENCANA CORPORATION (ECA) 292505104 CA2925051047 $15.9743 1.3301 0.7261
FIRST QUANTUM MINERALS LIMITED (FM) 335934105 CA3359341052 $21.5054 1.7906 0.9775
FRANCO-NEVADA CORPORATION (FNV) 351858105 CA3518581051 $91.7520 7.6396 4.1705
INTER PIPELINE FUND (IPL) 45833V109 CA45833V1094 $24.4985 2.0398 1.1136
KINROSS GOLD CORPORATION (K) 496902404 CA4969024047 $4.6261 0.3852 0.2103
PEMBINA PIPELINE CORPORATION (PPL) 706327103 CA7063271034 $44.7449 3.7256 2.0339
SHAW COMMUNICATIONS INCORPORATED (SJR.B) 82028K200 CA82028K2002 $26.5114 2.2074 1.2051
TRANSCANADA CORPORATION (TRP) 89353D107 CA89353D1078 $53.9139 4.4891 2.4506
VALEANT PHARMACEUTICALS INTERNATIONAL INCORPORATED (VRX) 91911K102 CA91911K1021 $30.8004 2.5646 1.4000
Exchange-Traded Funds
ISHARES CORE S&P 500 INDEX ETF (XUS) 46434R109 CA46434R1091 $44.7166 3.7233 2.0326
ISHARES CORE S&P/TSX CAPPED COMPOSITE INDEX ETF (XIC) 46430J101 CA46430J1012 $25.7062 2.1404 1.1685
ISHARES MSCI EAFE INDEX ETF (XIN) 46428L100 CA46428L1004 $26.7373 2.2263 1.2153
ISHARES MSCI EUROPE IMI INDEX ETF (XEU) 46434W108 CA46434W1086 $24.9395 2.0766 1.1336
ISHARES MSCI WORLD INDEX ETF (XWD) 46430Y108 CA46430Y1088 $50.5080 4.2055 2.2958
ISHARES S&P/TSX 60 INDEX ETF (XIU) 46428D108 CA46428D1087 $23.9088 1.9907 1.0868
VANGUARD S&P 500 INDEX ETF (VFV) 92205Y105 CA92205Y1051 $63.4257 5.2811 2.8830

The Toronto Stock Exchange has conditionally approved the listing of the Class A and Preferred shares, subject to the Company fulfilling all customary requirements. Trading under the symbols GDV and GDV.PR.A is expected to commence on the closing date, June 15, 2018.

The Company will invest in a diversified portfolio (the “Portfolio”) of equity securities of large capitalization global dividend growth companies selected by the Manager. In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing of the Portfolio, each global dividend growth company included in the Portfolio must (i) have a market capitalization of at least US$10 billion; and (ii) have a history of dividend growth or, in the Manager’s view, have high potential for future dividend growth.

The Manager expects that at least 20 global dividend growth companies will comprise the Portfolio. The indicative portfolio includes: Airbus SE, Apple Inc., AstraZeneca plc, BCE Inc., Carnival Corporation, Cisco Systems Inc., Deutsche Post AG, Enbridge Inc., HSBC Holdings plc, Intel Corporation, IBM Corporation, Johnson & Johnson, JP Morgan Chase & Co., Manulife Financial Corporation, Novartis AG, Pfizer Inc., Proctor & Gamble Co., Sanofi SA, Siemens AG, Sun Life Financial Inc., TELUS Corporation, Texas Instruments Inc., Toronto-Dominion Bank, UBS Group AG, and Vinci SA.

The investment objectives for the Class A shares are to provide their holders with regular monthly non-cumulative cash distributions and the opportunity for capital appreciation through exposure to the Portfolio. The monthly cash distribution is targeted to be $0.10 per Class A share representing a yield on the issue price of the Class A shares of 10.0% per annum.

The investment objectives for the Preferred shares are to provide their holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders on June 30, 2021, subject to extension for successive terms of up to five years as determined by the board of directors of the Company. The quarterly cash distribution will be $0.1250 per Preferred share ($0.50 per annum, or 5.0% per annum on the issue price of $10.00 per preferred share), until June 30, 2021. The Preferred shares have been provisionally rated Pfd-3 (high) by DBRS Limited.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and includes BMO Capital Markets, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Echelon Wealth Partners., Industrial Alliance Securities Inc., Desjardins Securities Inc., and Mackie Research Capital Corporation.

Today, Brompton announced:

Brompton Funds Limited (the “Manager”) is pleased to announce that Global Dividend Growth Split Corp. (the “Company”) has completed its initial public offering of 3,550,000 Class A shares and 3,550,000 Preferred shares for total gross proceeds of $78.1 million. The Class A and Preferred shares will commence trading today on the Toronto Stock Exchange under the symbols GDV and GDV.PR.A, respectively.

The Company will invest in a diversified portfolio (the “Portfolio”) of equity securities of large capitalization global dividend growth companies selected by the Manager. In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing of the Portfolio, each global dividend growth company included in the Portfolio must (i) have a market capitalization of at least US$10 billion; and (ii) have a history of dividend growth or, in the Manager’s view, have high potential for future dividend growth.
The investment objectives for the Class A shares are to provide their holders with regular monthly non-cumulative cash distributions and the opportunity for capital appreciation through exposure to the Portfolio. The monthly cash distribution is targeted to be $0.10 per Class A share representing a yield on the issue price of the Class A shares of 10.0% per annum.

The investment objectives for the Preferred shares are to provide their holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders on June 30, 2021, subject to extension for successive terms of up to five years as determined by the board of directors of the Company. The quarterly cash distribution will be $0.1250 per Preferred share ($0.50 per annum, or 5.0% per annum) on the issue price of $10.00 per Preferred share, until June 30, 2021. The Preferred shares have been provisionally rated Pfd-3 (high) by DBRS Limited.

Brompton Funds Limited acts as the manager and portfolio manager of the Company. The Manager currently manages five split share corporations with combined assets of over $1.3 billion.

The syndicate of agents for the offering was led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and includes BMO Capital Markets, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Echelon Wealth Partners., Industrial Alliance Securities Inc., Desjardins Securities Inc., and Mackie Research Capital Corporation.

DBRS has finalized the Pfd-3(high) rating:

DBRS Limited (DBRS) finalized the provisional rating of Pfd-3 (high) assigned to the Preferred Shares issued by Global Dividend Growth Split Corp. (the Company). The Company issued an equal number (3,550,000) of the Preferred Shares and the Class A Shares at an issue price of $10.00 per Preferred Share and $12.00 per Class A Share. From to time or during the events of issuance and redemption, the number of the Class A Shares outstanding may exceed the number of the Preferred Shares outstanding. It is expected that such excess will not be more than 10% and the excess of over 10% should not be outstanding for more than 15 days. Both classes of shares are scheduled to mature on June 30, 2021. The term of the Company may be extended beyond the maturity date for additional terms of five years each as determined by the Company’s board of directors.

Based on the initial asset coverage of 2.1x, the net asset value of the Company would have to fall by approximately 53% for the holders of the Preferred Shares to be in a loss position. The initial dividend coverage ratio is 0.6x.

GDV.PR.A commenced marketing in late April and issued a final prospectus on May 24. It is a 5% three-year SplitShare and will be tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

The issue traded 154,447 shares today in a range of 9.90-00 before closing at 10.00-01. Vital statistics are:

GDV.PR.A SplitShare YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-06-30
Maturity Price : 10.00
Evaluated at bid price : 10.00
Bid-YTW : 4.98 %

NA.PR.G Holds Its Own on Decent Volume

Monday, June 11th, 2018

National Bank of Canada has announced:

that it has closed its domestic public offering of non-cumulative 5-year rate reset first preferred shares series 42 (non-viability contingent capital (NVCC)) (the “Series 42 Preferred Shares”). National Bank issued 12 million Series 42 Preferred Shares at a price of $25.00 per share to raise gross proceeds of $300 million.

The offering was underwritten by a syndicate led by National Bank Financial Inc.

The Series 42 Preferred Shares will commence trading on the Toronto Stock Exchange today under the ticker symbol NA.PR.G.

The Series 42 Preferred Shares were issued under a prospectus supplement dated June 4, 2018 to National Bank’s short form base shelf prospectus dated November 21, 2016.

NA.PR.G is a FixedReset, 4.95%+277, NVCC compliant, announced 2018-05-31. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 711,342 shares today in a range of 24.85-96 before closing at 24.94-95. The slight discount to par isn’t bad, given that TXPR is down about 0.25% from the close immediately prior to the announcement date. Vital statistics are:

NA.PR.G FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-06-11
Maturity Price : 23.12
Evaluated at bid price : 24.94
Bid-YTW : 4.85 %

The new issue is ridiculously expensive according to Implied Volatility Analysis:

impvol_na_180611
Click for Big

According to this analysis, the fair value of the new issue on June 11 is 23.86.

AIM Preferreds Have Defaulted, says S&P

Monday, June 11th, 2018

Standard & Poor’s has announced:

S&P Global Ratings today said it has lowered its global scale and Canada scale issue-level ratings on Aimia Inc.’s preferred shares to ‘D’ from ‘B-‘ and ‘P-4(Low)’, respectively, on the company’s continued deferral of preferred dividend payments. The company’s ability to meet the dividend payments in full and on schedule remains restricted by Aimia’s inability to pass the capital impairment test set forth under the CBCA (Canada Business Corporations Act). S&P Global Ratings views this as a breach of the “imputed promise” on the preferred shares’ timely payment of dividends, and characterize it as a payment default.

Aimia had suspended the dividend payments on its preferred and common shares almost a year ago, on June 14, 2017, due to its inability to satisfy the capital impairment test as set forth under the CBCA. As per our criteria (see “Use Of ‘C’ And ‘D’ Issue Credit Ratings For Hybrid Capital And Payment-In-Kind Instruments,” published Oct. 24, 2013, on RatingsDirect), we lower the issue-level ratings on a hybrid capital instrument to a ‘D’ if the company is unable to repay the dividends within one year of the deferral date and is unable to pay future dividend payments in full and on time.

The above rating action does not have any impact on our corporate credit rating on Aimia (BB-/Negative/–) or our ‘BB’ issue-level rating on the company’s senior secured debt, because the deferral of payments on the preferred shares is allowed in the instrument’s terms and conditions.

Affected issues are AIM.PR.A, AIM.PR.B and AIM.PR.C.

DBRS has muttered darkly about AIMIA after downgrading the preferreds to Pfd-5(high) in August 2017, following the suspension of preferred share dividends by the company and the subsequent downgrade to P-4(high) by S&P.