Archive for the ‘US Pay’ Category

AX Preferred Unit Conversion is (Probably!) a Taxable Event

Wednesday, September 27th, 2017

Assiduous Reader JB writes in and brings to my attention a nuance in the conversion of Artis preferred units that had previously escaped me:

You have probably dealt with this question, so I apologize if that is the case.
I own a small position in Artis Preferred Series C. It is a $US pref. (I own lots of other preferreds.)
In the prospectus it states (I’m paraphrasing) that the CRA would consider conversion to the D shares a taxable event. I’m at a loss to determine why this is the case, since in another 5 years, I could convert back, should that be my choice.
Is this just an anomaly, or is this really the CRA’s position?

Well! First of all, let’s have a look at the prospectuses (not directly linked because rights are owned by the Canadian Securities Administrators, and why would they allow convenient access to public documents of interest to investors?)

Preferred Units, Series A (AX.PR.A) Prospectus on SEDAR under “Artis Real Estate Investment Trust Jul 25 2012 20:10:04 ET Prospectus supplement – English PDF 288 K”

In general, a disposition or deemed disposition of a Series A or Series B Unit will give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of the Series A or Series B Unit, as the case may be, to the Preferred Unitholder. In the Ruling, the CRA expresses the preliminary view that the reclassification of Series A Units as Series B Units (or Series B Units as Series A Units) would likely result in a taxable disposition at that time. In such circumstances, a Preferred Unitholder will generally be considered to have disposed of the reclassified Preferred Units for proceeds of disposition equal to the fair market value of the Preferred Units into which such units are reclassified.

Preferred Units, Series C (AX.PR.U) Prospectus on SEDAR under “Artis Real Estate Investment Trust Sep 11 2012 16:24:11 ET Prospectus supplement – English PDF 287 K”

In general, a disposition or deemed disposition of a Series C or Series D Unit will give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of the Series C or Series D Unit, as the case may be, to the Preferred Unitholder. In the Ruling, the CRA expresses the preliminary view that the reclassification of Series A Units as Series B Units (or Series B Units as Series A Units) would likely result in a taxable disposition at that time and the same consideration will apply on a reclassification of Series C Units as Series D Units (or Series D Units as Series C Units). In such circumstances, a Preferred Unitholder will generally be considered to have disposed of the reclassified Preferred Units for proceeds of disposition equal to the fair market value of the Preferred Units into which such units are reclassified.

Preferred Units, Series E (AX.PR.E) Prospectus on SEDAR under “Artis Real Estate Investment Trust Mar 14 2013 12:50:30 ET Prospectus supplement – English PDF 298 K”

In general, a disposition or deemed disposition of a Series E or Series F Unit will give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of the Series E or Series F Unit, as the case may be, to the Preferred Unitholder. In the Ruling, the CRA expresses the preliminary view that the reclassification of Series A Units as Series B Units (or Series B Units as Series A Units) would likely result in a taxable disposition at that time and the same consideration will apply on a reclassification of Series E Units as Series F Units (or Series F Units as Series E Units). In such circumstances, a Preferred Unitholder will generally be considered to have disposed of the reclassified Preferred Units for proceeds of disposition equal to the fair market value of the Preferred Units into which such units are reclassified.

Preferred Units, Series G (AX.PR.G) Prospectus on SEDAR under “Artis Real Estate Investment Trust Jul 22 2013 13:34:56 ET Prospectus supplement – English PDF 304 K”

In general, a disposition or deemed disposition of a Series G or Series H Unit will give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of the Series G or Series H Unit, as the case may be, to the Preferred Unitholder. In the Ruling, the CRA expresses the preliminary view that the reclassification of Series A Units as Series B Units (or Series B Units as Series A Units) would likely result in a taxable disposition at that time and the same consideration will apply on a reclassification of Series G Units as Series H Units (or Series H Units as Series G Units). In such circumstances, a Preferred Unitholder will generally be considered to have disposed of the reclassified Preferred Units for proceeds of disposition equal to the fair market value of the Preferred Units into which such units are reclassified.

So in each case the company has warned of a preliminary view by the CRA that conversion is a taxable event, which all appears to be based on the view they took when examining the first issue. Of course, it’s only preliminary, but to those of us who are unwilling to spend six figures discussing the matter in tax court, that counts as definitive.

As to why this should be the case … I simply don’t know. I suspect it has a lot to do with the idea that (from the AX.PR.G prospectus):

The Canadian federal income tax considerations that may arise in connection with the acquisition, holding, disposition or reclassification of preferred units of a trust are, in some respects, materially different from the acquisition, holding, disposition or exchange of preferred shares of a corporation.

“REIT Exception” means the exception from the SIFT Rules available to a SIFT trust which satisfies a series of conditions relating to the nature of a SIFT’s revenue and property, as more particularly described below under “Principal Canadian Federal Income Tax Considerations – SIFT Rules and REIT Exception”;

“SIFT Rules” means the amendments to provisions of the Tax Act proclaimed in force on June 22, 2007, as amended, that implement the changes announced as part of the Tax Fairness Plan proposed by the Minister of Finance (Canada) on October 31, 2006 which modify the tax treatment of “specified investment flow-throughs”, including publicly traded income trusts and limited partnerships, and the tax treatment of their unitholders in the manner described below under “Principal Canadian Federal Income Tax Considerations – SIFT Rules and REIT Exception”;

The balance of this summary assumes that Artis qualifies as a mutual fund trust and will continue to so qualify at all material times. If Artis were not to qualify as a mutual fund trust, the income tax considerations described below would, in some respects, be materially different.

… but this is getting into arcane interpretations of tax law in which a simple Portfolio Manager such as myself should take the view that anything he says will be wrong. However, I must say that I am surprised that Artis did not highlight this unusual nuance in its notice of extension for AX.PR.A.

ALA.PR.U To Reset At 5.29%

Thursday, August 31st, 2017

AltaGas Ltd. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series C (the “Series C Shares”) (TSX:ALA.PR.U) on September 30, 2017. As a result, subject to certain conditions, the holders of the Series C Shares have the right to convert all or part of their Series C Shares on a one-for-one basis into Cumulative Redeemable Floating Rate Preferred Shares, Series D of AltaGas (the “Series D Shares”) on September 30, 2017. Holders who do not exercise their right to convert their Series C Shares into Series D Shares will retain their Series C Shares.

The foregoing conversion right is subject to the conditions that: (i) if AltaGas determines that there would be less than 1,000,000 Series C Shares outstanding after September 30, 2017, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on September 30, 2017; and (ii) alternatively, if AltaGas determines that there would be less than 1,000,000 Series D Shares outstanding after September 30, 2017, no Series C Shares will be converted into Series D Shares. There are currently 8,000,000 Series C Shares outstanding.

With respect to any Series C Shares that remain outstanding after September 30, 2017, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, fixed cumulative preferential cash dividends, payable quarterly. The new annual dividend rate applicable to the Series C Shares for the five-year period commencing on September 30, 2017 to, but excluding, September 30, 2022 will be 5.29 percent, being equal to the five-year United States Government bond yield of 1.71 percent determined as of today plus 3.58 percent.

With respect to any Series D Shares that may be issued on September 30, 2017, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, quarterly floating rate cumulative preferential cash dividends. The dividend rate applicable to the Series D Shares for the three-month floating rate period commencing on September 30, 2017 to, but excluding, December 31, 2017 will be 4.62 percent, based on the annual rate on three-month United States Government treasury bills for the most recent treasury bills auction of 1.04 percent plus 3.58 percent (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series C Shares who wish to exercise their right of conversion during the conversion period, which runs from August 31, 2017 until 5:00 p.m. (Toronto time) on September 15, 2017, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after this deadline will not be valid.

Subject to the terms and conditions of the Series C Shares and Series D Shares and AltaGas’ right to redeem such shares, holders of the Series C Shares and the Series D Shares will have the opportunity to convert their shares again on September 30, 2022, and every five years thereafter as long as the Series C and Series D Shares remain outstanding.

ALA.PR.U was issued FixedReset, US-Pay, 4.40%+358, that commenced trading 2012-6-6 after being announced 2012-5-29.

As this is a USD-denominated issue it is not tracked by HIMIPref™ and there will be no recommendation regarding converting or holding.

RY.PR.B To Be Redeemed

Wednesday, August 23rd, 2017

Royal Bank of Canada has announced:

its intention, subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI), to redeem all of its issued and outstanding Non-Cumulative First Preferred Shares Series AB (the “Series AB shares”) on September 27, 2017, for cash at a redemption price of CDN $25.00 per share, together with all declared and unpaid dividends. Royal Bank of Canada also announced its intention, subject to the approval of OSFI, to redeem all of its issued and outstanding Non-Cumulative Perpetual First Preferred Shares Series C-1 (the “Series C-1 shares”) on November 13, 2017, for cash at a redemption price of U.S. $1,000 per share (equivalent to U.S. $25.00 per related depositary share), together with all declared and unpaid dividends. The NYSE-listed Series C-1 depositary shares, each of which represents a 1/40th interest in a Series C-1 share will be redeemed concurrently with the redemption of the Series C-1 shares.

In addition, the Bank has also declared a 34-day dividend of CDN $0.109452 per Series AB share covering the period from August 24, 2017 (the date of the last dividend payment), up to but excluding the redemption date of September 27, 2017. This results in a total amount of CDN $25.109452 per Series AB share to be paid upon surrender of the Series AB shares.

The final quarterly dividend of U.S. $13.75 per share for the Series C-1 shares (equivalent to U.S. $0.34375 per related depositary share) will be paid in the usual manner on November 13, 2017 to shareholders of record on November 3, 2017.

There are 12,000,000 Series AB shares and 82,050 Series C-1 shares outstanding. The redemption of the Series AB and C-1 shares will be financed out of the general corporate funds of Royal Bank of Canada.

Please visit http://www.rbc.com/investorrelations/share-information.html to view tax Questions & Answers relating to the redemption of the Series C-1 shares.

RY.PR.B is a 4.7% Straight Perpetual that was issued shortly after I started this blog; it commenced trading 2006-7-20.

The Series C-1 shares were issued in exchange for City National Corporation’s preferred shares as part of the takeover consideration in November 2015.

The decision to redeem RY.PR.B has attracted some comment on PrefBlog with respect to the timing. Assiduous Reader Brian noted:

In the past, when a bank had several prefs in this group, they always seemed to redeem the issue with the lowest dividend first (eg. Bank of Nova Scotia redeemed BNS.pr.M [4.5%] and BNS.pr.N [5.25%] before finally redeeming BNS.pr.O [5.6%]). That made no sense and I’m hoping that someone can explain this backward thinking to me!

We can resolve this with a little help from PrefInfo. BNS.PR.O was redeemed 2017-4-26, which was the first day of its par call. BNS.PR.N was redeemed 2017-1-27, the first day of its par call. And BNS.PR.M was redeemed 2016-7-27, the first day of its par call.

The explanation is rather neat and not immediately obvious. In fact, long ago I had a contest about this explanation which was won by Assiduous Reader adrian2. Straight Preferreds will, as a rule, have a redemption price which declines from $26 during the sixth year after issue to $25 (the par value) after it has been in existence for nine years. The decline is at a rate of $0.25 p.a. Therefore, if you are an issuer deciding which of several issues to redeem, you should account for the fact that waiting a while will reduce the price – and $0.25 p.a. is fairly substantial compared with the differences in dividend between two issues!

So if we consider BNS’ position in mid-2016, it had a choice of three issues to call:

  • BNS.PR.M, paying $1.125 p.a.
  • BNS.PR.N, paying 1.3125, or
  • BNS.PR.O, paying 1.40

So, as Brian comments, one would normally expect that BNS.PR.O would be redeemed first. However, by waiting until 2017-4-26, they saved $0.25 on the redemption price, so the net cost to them of waiting was only three dividends (October, January, April) totalling $1.05, less the $0.25 reduction in premium, net $0.80. The reduction in premium was not applicable to BNS.PR.M, so it would have cost them the full amount of three dividends, or $0.84375, to have left it outstanding until April. I’m sure that as well there are operational considerations, like making people all confused about their taxes and angry at the redemption as well, but doing the redemptions in reverse order was cheaper, albeit not by much.

So full marks to Assiduous Reader LD for his explanation.

However, what makes this very interesting is the fact that RY.PR.W has not been redeemed, although it is currently callable at par (and has been since 2014-2-24) and pays more ($1.225 p.a.) than RY.PR.B ($1.175). As was noted a long time ago RY.PR.W is convertible into common at the option of the issuer, a feature which has been used to give NVCC status to preferred shares without the necessity of holding a shareholder vote on a change of terms. All that is necessary is an assignment of the conversion trigger right to OSFI. So, the redemption of RY.PR.B instead of the higher-paying RY.PR.W can be taken as an indication – not a guarantee, but an indication – that Royal Bank will be seeking NVCC status for RY.PR.W in the future … or at least wants to keep its options open for a little longer!

ENB.PF.U To Reset at 4.959% (USD)

Wednesday, August 2nd, 2017

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series L (Series L Shares) (TSX: ENB.PF.U) on September 1, 2017. As a result, subject to certain conditions, the holders of the Series L Shares have the right to convert all or part of their Series L Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series M of Enbridge (Series M Shares) on September 1, 2017. Holders who do not to exercise their right to convert their Series L Shares into Series M Shares will retain their Series L Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series L Shares outstanding after September 1, 2017, then all remaining Series L Shares will automatically be converted into Series M Shares on a one-for-one basis on September 1, 2017; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series M Shares outstanding after September 1, 2017, no Series L Shares will be converted into Series M Shares. There are currently 16,000,000 Series L Shares outstanding.

With respect to any Series L Shares that remain outstanding after September 1, 2017, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series L Shares for the five-year period commencing on September 1, 2017 to, but excluding, September 1, 2022 will be 4.959 percent, being equal to the five-year United States Government treasury bond yield of 1.809 percent determined as of today plus 3.15 percent in accordance with the terms of the Series L Shares.

With respect to any Series M Shares that may be issued on September 1, 2017, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series M Shares for the three-month floating rate period commencing on September 1, 2017 to, but excluding, December 1, 2017 will be 1.055 percent, based on the annual rate on three-month United States Government treasury bills for the most recent treasury bills auction of 1.08 percent plus 3.15 percent in accordance with the terms of the Series M Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series L Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2017 until 5:00 p.m. (EST) on August 17, 2017, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after this deadline will not be valid.

The four ENB USD-denominated issues have a very narrow range of spreads, limiting the utility of Implied Volatility Analysis for FixedResets, but for what it’s worth:

impvol_enb_usd_170803
Click for Big

As I do not track USD issues, there will be no recommendation regarding whether holders should convert or hold their ENB.PR.U shares.

BPO.PR.U To Be Redeemed

Friday, May 5th, 2017

Brookfield Office Properties Inc. has announced:

that it intends to:
  • •Redeem all 4,123,863 of its outstanding Class AAA Preference Shares, Series G (TSX: BPO.PR.U) (the “Series G Shares”), all of which are beneficially held by CDS & Co., as nominee of CDS Clearing and Depositary Services Inc., for cash on June 5, 2017. The redemption price for each such share will be US$25.00 plus accrued and unpaid dividends thereon (which as of June 5, 2017 will be US$0.2337), representing a total redemption price of US$25.2337.

Notices of Redemption for both series have been sent to CDS & Co. Payment of the redemption price will be made on or after June 5, 2017 through the facilities of CDS & Co. to all beneficial holders of the Series G Shares and Series J Shares.

BPO.PR.U was partially exchanged for BPS.PR.U following a reorganization in 2014.

BPO.PR.U has not been tracked by HIMIPref™ since it is a US-pay issue.

New Issue: Two Series of RY Preferreds, USD, Issued As Merger Consideration

Tuesday, November 3rd, 2015

Royal Bank of Canada has announced:

it has completed the acquisition of City National Corporation (“City National”).

Based on the closing price on the New York Stock Exchange of RBC’s common shares on October 30, 2015 of US$ 56.83, the total transaction value is US$ 5.0 billion and will be paid with US$ 2.6 billion in cash and 41.6 million RBC common shares. In addition, RBC will issue US$ 275 million of RBC first preferred shares in exchange for all outstanding shares of City National preferred stock. The transaction is expected to reduce the Q1/2016 Common Equity Tier 1 ratio of RBC by approximately 70 basis points. RBC continues to forecast a strong capital position going forward.

There are two issues of City National preferreds that have been converted. The first is CYN.PRC, a 5.50% Straight Perpetual USD:

We will pay dividends on the Preferred Stock, when, as, and if declared by our board of directors or a duly authorized committee of the board. If declared, dividends will accrue and be payable on the liquidation preference amount, on a non-cumulative basis, from the date of issuance at a rate of 5.50% per annum, payable quarterly, in arrears. See also “Dividend Payment Dates” on page S-9. Upon the payment of any dividends on the Preferred Stock, holders of depositary shares will receive a related proportionate payment.

The second is CYN.PRD, a 6.75%+405.2 FixedFloater USD:

We will pay dividends on the Preferred Stock, when, as, and if declared by our board of directors or a duly authorized committee of the board, out of funds legally available to pay dividends, (i) from the date of issuance of the Preferred Stock to, but excluding November 7, 2023, at an annual rate of 6.750% on the liquidation preference amount of $1,000 per share of Preferred Stock, quarterly in arrears, on February 7, May 7, August 7 and November 7 of each year (each, a “dividend payment date”), beginning on February 7, 2014, and (ii) from, and including, November 7, 2023, at an annual rate equal to three-month LIBOR plus 4.052% on the liquidation preference amount of $1,000 per share of Preferred Stock, quarterly in arrears, on each dividend payment date, beginning on February 7, 2024. Upon the payment of any dividends on the Preferred Stock, holders of depositary shares will receive a related proportionate payment.

Neither new series is yet listed on RY’s preferred share page. If they are listed, they will be known as Series C-1 and Series C-2:

In addition, upon the consummation of the Merger, each outstanding share of City National’s 5.5% Non-Cumulative Perpetual Preferred Stock, Series C will be cancelled and RBC will issue to the former holder, in respect of each such outstanding share of preferred stock, one 5.50% Non-Cumulative Perpetual Preferred share, Series C-1 (“Series C-1 Preferred Share”) of RBC and each outstanding share of City National’s 6.75% Fixed Rate/Floating Rate Non-Cumulative Preferred Stock, Series D will be cancelled and RBC will issue to the former holder, in respect of each such outstanding share of preferred stock, one 6.75% Fixed Rate/Floating Rate Non-Cumulative Preferred Share, Series C-2 (“Series C-2 Preferred Share”) of RBC. In consideration for the issuance of Series C-1 Preferred Shares and Series C-2 Preferred Shares, Holdco will issue to RBC a number of shares in the capital stock of Holdco for each Series C-1 Preferred Share and Series C-2 Preferred Share, respectively, having a fair market value equal to the fair market value of a Series C-1 Preferred Share and a Series C-2 Preferred Share, respectively, on the date of issuance.

As is typical with take-overs, various matters of great pith and moment are not spelled out, but it appears that the new series C-1 and C-2 are not NVCC-compliant:

Conversion Rights. New RBC Preferred Shares are not convertible into or exchangeable for any other class or series of shares or securities of, or any other interests in, RBC.

In addition I can find no mention in RY’s definitive filing with the SEC a discussion of tax considerations for Canadian residents; there is no such description in any of the various attachments, either. However, given that DBRS has assigned a bond-style rating to these new series … :

DBRS Limited (DBRS) has today assigned a rating of A (low) with a Stable trend to Royal Bank of Canada’s (RBC or the Bank) 5.50% Non-Cumulative Perpetual First Preferred Shares, Series C-1 (Preferred Shares, Series C-1) and 6.750% Fixed Rate/Floating Rate Noncumulative Perpetual First Preferred Shares, Series C-2 (Preferred Shares, Series C-2).

RBC has closed its acquisition of City National Corporation (City National) and will issue $275 million of RBC First Preferred Shares in exchange for all outstanding shares of City National’s Preferred Stock. RBC will issue $175 million of Preferred Shares, Series C-1 and $100 million of Preferred Shares, Series C-2. These new RBC preferred shares rank pari passu with all existing preferred shares of the Bank.

… I strongly suspect that Canadian shareholders will not receive benefit of the Dividend Tax Credit and Gross-Up; i.e., that these things are preferred securities not, by my definition, preferred shares.

These things are listed on NASDAQ with the symbols RY.PRS and RY.PRT.

S&P Revises Outlook on ENB to Negative

Saturday, November 22nd, 2014

Standard & Poor’s has announced:

  • •We are revising our outlook on Calgary, Alta.-based Enbridge Inc. and Enbridge Pipelines Inc. (EPI), and Toronto-based Enbridge Gas Distribution Inc. (EGD) to negative from stable.
  • •We are also affirming our ‘A-‘ corporate credit rating on the companies.
  • •The negative outlook on Enbridge reflects our assessment of weak forecast financial metrics at the parent level.
  • •We assess EPI and EGD to be “core” under our group rating methodology, so the negative outlook on the companies reflects that on Enbridge.


We view Enbridge’s financial risk profile as “significant.” The continuing large capital program to expand existing and build new liquids pipelines will continue to pressure financial metrics for the next several years. We forecast that financial metrics could dip below our 13% adjusted funds from operations (AFFO)-to-debt downgrade threshold under our forecast capital expenditures and financing plans. The company has brought large scale capital projects in service on time and on budget, and we expect this to continue. Financial policy has generally been credit supportive, although growing capital expenditures from new projects, and the parents support of subsidiary companies with internal equity financing, have shifted to what we believe is a more neutral stance.

The negative outlook on Enbridge reflects our view that forecast credit metrics appear to be weak, and more indicative of an “aggressive” financial risk policy than the current significant. The company has been working through an extremely large capital program in 2014, and while 2015-2016 capex is not as large, we still expect it to continue stressing financial metrics, leaving little room for larger capital programs, or potential delays to project in-service dates. We will continue to monitor Enbridge’s financial policy in the next year. The negative outlook on the subsidiaries reflects that on the parent.

Maintaining AFFO-to-debt below 13% would likely result in a downgrade. Deterioration in the business risk or a failure to deliver the capital program on time and budget could also result in a lower rating.

An outlook revision to stable would require AFFO-to-debt to stay above 13% consistently during our forecast period.

Enbridge Inc. is the issuer of (deep breath) ENB.PR.A (Straight Perpetual), ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y, ENB.PF.A, ENB.PF.C, ENB.PF.E and ENB.PF.G (FixedResets) and ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V (US-Pay FixedResets).

All told, I believe that total issuance comprises roughly 10% of the Canadian preferred share market, virtually all of which has come out since the issue of ENB.PR.B just over three years ago. A downgrade to junk would certainly make the market a bit more interesting for a while!

Massive Liquidity Premium in BPO vs. BPS Preferred Shares

Monday, July 28th, 2014

Assiduous Reader JQ writes in and says:

Hi, James,

I am your long time loyal reader and have learned a lot from you. Thank you very much.

Would you please to answer the following questions about BPO and BPS preferred shares:
BPO.PR._ and BPS.PR._ are both listed, are they same? Why the price difference is so big? Will BPO.PR._ be delisted?

Thank you.

Well, JQ, flattery will get you everywhere! I checked out the last bids for Friday:

BPO vs. BPS Retractible Preferred Shares
BPO Ticker Shares
Outstanding
Quote
2014-7-25
BPS Ticker Shares
Outstanding
Quote
2014-7-25
BPO.PR.H 7.0-million 25.40-57 BPS.PR.A 1.0-million 25.11-25
BPO.PR.J 7.0-million 25.26-35 BPS.PR.B 1.0-million 24.75-76
BPO.PR.K 5.0-milllion 25.70-94 BPS.PR.C 1.0-million 24.63-90
BPO.PR.U
[US Pay]
3.4-million 25.33-47 BPS.PR.U
[US Pay]
1.0-million 24.95-00

Assiduous Readers will recall that BPS preferred shares commenced trading on June 11. Readers will also recall that after reviewing the terms of the organization I concluded that I was more or less indifferent to the choice between the old BPO preferred and the equivalent BPS preferred share:

I make no recommendation. The decision will depend on each holders desire for a (miniscule) extra amount of credit protection (with the early retraction privilege) vs. what could potentially be a very severe loss of liquidity.

However, the difference in price between the equivalent issues is currently fairly large; I urge holders of the BPO preferred shares to review very carefully their need for liquidity and determine whether or not a swap is indicated in their particular situation.

Regrettably, Brookfield Properties Split Corp. still does not have a website, from which we may deduce that the directors (see SEDAR, Brookfield Property Split Corp. Jun 27 2014 14:34:52 ET Security holders documents – English; direct links are not permitted, since the (indirectly) bank-owned SEDAR has a monopoly granted by the securities regulators which they grossly abuse; the competition bureau has given the banks huge exemptions from competition laws in exchange for large regular payments to the regulators):

  • Saul Shulman
  • Bryan Kenneth Davis
  • Robert Stelzl, and
  • Denis Andre Turcotte

are morons. Fortunately, not much brainpower is required to operate a Split Share Corporation with a single issue portfolio.

BPO.PR.U, BPO.PR.H, BPO.PR.J, BPO.PR.K Partially Exchanged for BPS.PR.U, BPS.PR.A, BPS.PR.B and BPS.PR.C

Friday, June 13th, 2014

Brookfield Property Partners L.P. has announced:

that Brookfield Property Partners has completed its previously announced acquisition of the remaining common shares of BPO. The acquisition was completed by way of a plan of arrangement (the “Arrangement”) pursuant to which Brookfield Property Partners, and its indirect subsidiaries Brookfield Office Properties Exchange LP and Brookfield Property Split Corp. (“BOP Split”), acquired all of the remaining common shares of BPO.

The 38,183,084 additional BPO common shares taken up pursuant to the Arrangement represent approximately 7.5% of the BPO common shares. Brookfield Property Partners now owns 100% of the issued and outstanding common shares of BPO.

The BPO common shares are expected to be de-listed from the Toronto Stock Exchange (“TSX”) at market close on June 10, 2014 and from the New York Stock Exchange at market close on June 20, 2014.

Based on shareholder elections received as of the election deadlines, holders of BPO securities will receive the consideration described below. Shareholders will receive their consideration shortly.

Pursuant to the terms of the Arrangement, holders of outstanding BPO preference shares series G, H, J and K, which are convertible into BPO common shares, were able to exchange a portion of their shares for BOP Split preferred shares. Based on shareholder elections, 92.9% of the BPO preference shares series G that holders elected (or are deemed to have elected) to exchange for BOP Split preferred shares were exchanged, 56.8% of the BPO preference shares series H that holders elected (or are deemed to have elected) to exchange for BOP Split preferred shares were exchanged, 62.7% of the BPO preference shares series J that holders elected (or are deemed to have elected) to exchange for BOP Split preferred shares were exchanged and 77.1% of the BPO preference shares series K that holders elected (or are deemed to have elected) to exchange for BOP Split preferred shares were exchanged. In aggregate, $25 million of each of the four series of BOP Split preferred shares were issued. BPO preference shares series G, H, J and K which were not exchanged will remain outstanding with modified share conditions to make them exchangeable into BPY units rather than convertible into BPO common shares.

Preferred shares of BOP Split will begin trading on the TSX at market open on June 11, 2014. The Class A senior preferred shares, Series 1 will trade under the symbol BPS.PR.U. The Class A senior preferred shares, Series 2 will trade under the symbol BPS.PR.A. The Class A senior preferred shares, Series 3 will trade under the symbol BPS.PR.B. The Class A senior preferred shares, Series 4 will trade under the symbol BPS.PR.C.

Pursuant to the Arrangement, BPO Class A preference shares held by the public were redeemed by BPO under the Arrangement for C$1.11111 per share, plus any accrued and unpaid dividends.

This reorganization was discussed in the post BPO.PR.U, BPO.PR.H, BPO.PR.J, BPO.PR.K Reorg.

Brookfield Property Split Corp. does not appear to have a website at this time. None of the preferred shares issued will be tracked by HIMIPref™ as they are all too small; in addition, BPS.PR.U is Us Pay.

BPO.PR.U, BPO.PR.H, BPO.PR.J, BPO.PR.K Reorg

Tuesday, May 27th, 2014

The captioned series of Brookfield Properties Corp. Cl AAA Preferred shares will be voting on June 3 on a Plan of Arrangement. The company has published the Management Proxy Circular.

BPO.PR.U is USD denominated. We won’t worry about that.

In a nutshell:

The BPO Convertible Preferred Shares (being the BPO Preferred Shares, Series G, H, J and K) are currently convertible at the option of BPO into BPO Common Shares and redeemable for cash. In addition, starting on September 30, 2015, December 31, 2015, December 31, 2014 and December 31, 2016, respectively, each of the four series of BPO Convertible Preferred Shares will be convertible at the option of the holders into BPO Common Shares. If a holder exercises its conversion right, BPO has the overriding right to exercise its redemption right and redeem the shares for cash. In connection with the acquisition of the remaining BPO Common Shares and delisting from the TSX and NYSE, holders of outstanding BPO Convertible Preferred Shares are being given the option to elect either:

(a) to exchange their BPO Convertible Preferred Shares for BOP Split Senior Preferred Shares, subject to minimum listing requirements and a maximum of 1,000,000 BOP Split Senior Preferred Shares issued per series, pro-rated as set out in herein, or

(b) to continue holding their BPO Convertible Preferred Shares, the conditions of which will be modified in order to provide for the BPO Convertible Preferred Shares to be exchangeable into BPY Units rather than convertible into BPO Common Shares.

The BOP Split Senior Preferred Shares have been structured to provide a holder thereof with economic terms that are substantially equivalent to those of the BPO Convertible Preferred Shares. The four series of BOP Split Senior Preferred Shares will each have the same dividend and redemption rights as the corresponding series of BPO Convertible Preferred Shares. However, in lieu of being convertible into BPO Common Shares, the BOP Split Senior Preferred Shares will be retractable at any time by the holder. For further information on the BOP Split Senior Preferred Shares, see ‘‘— BOP Split Senior Preferred Shares’’.

With respect to the BPO Split Senior Preferred Shares, conversion will take place for each series only if at least 80,000 shares are converted, and only up to a limit of 1,000,000 shares. The following share numbers are now outstanding:

BPO Shares Outstanding
Ticker Shares
BPO.PR.U 4,400,000
BPO.PR.H 8,000,000
BPO.PR.J 8,000,000
BPO.PR.K 6,000,000

Clearly, therefore, most of the shares will be modified, as in option (b), above, and be convertible into BPY Units rather than convertible into BPO Common Shares.

So what’s interesting is option (a): should holders seek conversion into the Split Corp?

The interesting part of the deal is that

Each BOP Split Senior Preferred Share will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors, including BPO, as to (i) the payment of dividends, as and when declared, on the BOP Split Senior Preferred Shares, (ii) the payment of amounts due on redemption of the BOP Split Senior Preferred Shares, and (iii) the payment of the amounts due on BOP Split Senior Preferred Shares on the liquidation, dissolution and winding-up of BOP Split (the ‘‘BOP Split Senior Preferred Share Guarantee’’). The BOP Split Senior Preferred Share Guarantee will be subordinated to all of the respective senior and subordinated debt of the Guarantors that is not expressly stated to be pari passu with or subordinate to the BOP Split Senior Preferred Share Guarantee and will rank senior to the equity securities of the Guarantors.

… and the Split Corp Preferred will be retractible:

Retraction

Subject to the restrictions imposed by applicable law, each series of the BOP Split Senior Preferred Shares is retractable by the holder at any time for the following amounts:

Series 1 [was BPO.PR.U]: $23.75 per share if redeemed before September 30, 2015 and $25.00 per share if redeemed thereafter;
Series 2 [was BPO.PR.H]: C$23.75 per share if redeemed before December 31, 2015 and C$25.00 per share if redeemed thereafter;
Series 3 [was BPO.PR.J]: C$23.75 per share if redeemed before December 31, 2014 and C$25.00 per share if redeemed thereafter;
Series 4 [was BPO.PR.K]: C$23.75 per share if redeemed before December 31, 2016 and C$25.00 per share if redeemed thereafter;

together with all accrued and unpaid dividends to the applicable retraction date. Retraction payments will be made on or before the last day of each month provided that the certificate(s) representing the BOP Split Senior Preferred Shares have been surrendered for retraction at least one business day before the last day of the preceding month.

What to decide? Holders of the split-shares will have the option of retraction prior to the scheduled date at 23.75, which will be a loss, but might conceivably come in useful if the company gets into extremely serious trouble in the extremely short term. This isn’t too likely, but the protection doesn’t cost any money. So that’s a plus.

It will likely cost liquidity, though, since a maximum of 1-million shares of each series will be outstanding – these things are going to trade by appointment only; therefore, those to whom liquidity is important should retain their BPO Convertible Preferred Shares. Additionally, those with small holdings and high transaction costs should also retain their BPO Convertible Preferred Shares, since there is a good chance they will be left holding some of each issue if the maximum conversion amount is reached. So these are minuses.

I make no recommendation. The decision will depend on each holders desire for a (miniscule) extra amount of credit protection (with the early retraction privilege) vs. what could potentially be a very severe loss of liquidity.