Archive for the ‘US Pay’ Category

ENB : DBRS Nervous, Market Nervouser

Wednesday, March 21st, 2018

DBRS has announced (on March 20) that it:

notes the impact of the announcement by the Federal Energy Regulatory Commission (FERC) that it will no longer allow master limited partnership (MLP) interstate natural gas and oil pipelines to recover an income tax allowance in cost of service (COS) rates on the following ratings of Enbridge Energy Partners, L.P. (EEP):

— Issuer Rating of BBB, Stable trend
— Senior Unsecured Notes rating of BBB, Stable trend
— Junior Subordinated Notes rating of BB (high), Stable trend
— Commercial Paper rating of R-2 (middle), Stable trend

DBRS estimates that the potential financial impact of the FERC decision and U.S. Tax Reform noted below would likely reduce EEP’s financial risk profile (on a DBRS modified-consolidated basis) to the low end of the BBB range in the absence of corrective measures. However, DBRS’s current business risk assessment of EEP as well as Enbridge Inc.’s (ENB; rated BBB (high) with a Stable trend by DBRS) history of supporting EEP through various measures are both supportive of the current ratings.

As an MLP, EEP’s credit metrics would be negatively affected by the implementation of the FERC decision, as some of the rates applicable to its expansion projects are tolled annually on a COS basis via the Lakehead Facility Surcharge Mechanism (FSM). EEP has indicated that, should FERC’s new policy be announced with an assumed implementation date of March 31, 2018, the 2018 financial impact to EEP is expected to be an approximate $100 million reduction in revenues and a $60 million reduction to distributable cash flow (DCF), net of non-controlling interests. Consequently, EEP has adjusted its 2018 DCF guidance range to $650 million — $700 million and 2018 total distribution coverage to approximately 1.0 times (x) from approximately 1.15x.

DBRS notes that the current 2018 Guidance adjustments follow previous 2018 Guidance adjustments announced on February 15, 2018 (concurrently with the Q4 2017 results announcement). In that case, as a result of U.S. Tax Reform, EEP adjusted its 2018 DCF guidance range to $720 million – $770 million from $775 million – $825 million and 2018 total distribution coverage to approximately 1.15x from approximately 1.2x.

On a combined basis, the impact of these 2018 Guidance adjustments would be to reduce mid-point 2018 DCF guidance by approximately 15.6%, eliminate the approximate 20% cushion on 2018 total distribution coverage (or, stated differently, to increase EEP’s payout ratio to 100% from 80%) and, in the absence of corrective measures, significantly weaken EEP’s key credit metrics. This would eliminate a significant portion of the remaining cushion currently embedded in EEP’s ratings. Please see DBRS’s rating report on EEP dated September 29, 2017, for further information.

This commentary has been picked up by the Financial Post:

Credit ratings agency DBRS Ltd. is warning that one of Enbridge Inc. subsidiary’s revenues could tumble by $100 million this year and its credit ratings hurt by new policies in the U.S., which have led to a sector-wide stock selloff.

DBRS said in a note Tuesday that said a recent decision by the U.S. Federal Regulatory Commission could “significantly weaken” the key credit metrics of Enbridge Energy Partners L.P. (EEP), a subsidiary of Calgary-based Enbridge.

Last week, the FERC announced that master limited partnerships (MLPs) — a tax-friendly corporate structure popular with pipeline firms — would no longer be able to recover an income tax allowance in certain pipeline service contracts.

… which printed a Canadian Press story on last week’s damage to the common after the ruling was announced:

Shares in Canadian pipeline companies Enbridge Inc. and TransCanada Corp. failed to recover fully Friday [March 16] from a steep sell-off on Thursday [March 15] after the U.S. said it would eliminate a tax break for owners of certain interstate pipelines.

Both Calgary-based companies hold such pipelines in the United States through master limited partnerships or MLPs.

The decision by the U.S. Federal Energy Regulatory Commission to no longer allow MLPs to recover an income tax allowance from cost of service tariffs came in response to a 2016 court ruling that found its long-standing tax policy could result in double recovery of costs.

Enbridge shares fell by 4.2 per cent to $41.06 on Thursday but recovered to close at $41.28 on Friday, up 22 cents, after it issued a statement that says it is not expecting a “material change” to its financial guidance over the next three years because of the FERC ruling.

The Globe also printed the CP story, and published three different perspectives on ENB common following the drop:

Enbridge Inc. shares skidded 4.2 per cent Thursday, adding to the frustration of shareholders who have seen more than a quarter of the company’s market capitalization wiped out in just the past year.

Investors have been worried about Enbridge’s high debt load – which sits at around $60-billion after the $37-billion acquisition of Spectra Energy Corp. that closed last year. The stock has also been pressured by a move out of dividend-paying stocks in a rising interest rate environment.

The Globe and Mail earlier this month talked to three portfolio managers with different views of Enbridge, as well as with the company about investors’ concerns.

ENB.PR.H (to pick one of their issues at random) has significantly underperformed the TXPR index in the past while:

enbprh_txpr_180321
Click for Big

The fall in ENB preferreds generally has attracted comment on PrefBlog.

This is significant, because Enbridge’s issuance frenzy of about five years ago made them a very significant part of the market … they have about $7.25-billion (face value) of preferreds outstanding (including USD issues), call it about $5.8-billion market value, compared to a total estimated market capitalization of $76.1-billion. Their issues have a weight of just under 10% of the BMO-CM “50” Preferred Share Index (as of February, 2018) and just under 9% of TXPR (as of 2017-7-31).

Affected issues are (deep breath): ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PF.I, ENB.PF.K, ENB.PR.A, ENB.PR.B, ENB.PR.C, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y and the USD-denominated issues, ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V.

AX.PR.U Redemption Becomes Official

Sunday, February 25th, 2018

Artis Real Estate Investment Trust has announced (on 2018-2-22):

that it has delivered formal notice to the holder(s) of its Preferred Units, Series C (the “Series C Units”) that, on March 31, 2018, the Trust will redeem all of the 3,000,000 outstanding Series C Units at a price of US$25.328125 (the “Redemption Price”) for each Series C Unit, being US$25.00 plus US$0.328125 in accrued and unpaid distributions thereon up to but excluding March 31, 2018.

The Redemption Price will be payable upon presentation and surrender of the Series C Units called for redemption at the corporate trust offices of AST Trust Company (Canada) at 1 Toronto Street, Suite 1200, Toronto, Ontario, M5C 2V6, Attention: Corporate Actions.

The intention to redeem, but not a commitment, was announced in January.

AX.PR.U is a FixedReset, 5.25%+446, US Pay, ROC, that commenced trading 2012-9-18 after being announced 2012-9-11. It is callable at par on March 31. The issue has not been tracked by HIMIPref™ as it is US-Pay.

AX.PR.U : Probable Call 2018-3-31

Tuesday, January 23rd, 2018

When announcing today’s new issue, Artis Real Estate Investment Trust stated:

Artis intends to use the net proceeds from the Financing to redeem its existing U.S. dollar denominated cumulative redeemable preferred trust units, Series C and for general trust purposes.

This intention (not yet a formal commitment!) was repeated in a later announcement.

AX.PR.U is a FixedReset, 5.25%+446, US Pay, ROC, that commenced trading 2012-9-18 after being announced 2012-9-11. It is callable at par on March 31. The issue has not been tracked by HIMIPref™ as it is US-Pay.

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!