PrefBlog

DBRS has announced:

DBRS Limited (DBRS) discontinued the Issuer Rating, Senior Secured Debt rating and Preferred Shares rating of Aimia Inc. (the Company). The Senior Secured Debt rating is being discontinued because all outstanding debt has been repaid. The Issuer Rating and Preferred Shares rating of BB (low) with a Negative trend and Pfd-5 (high) with a Negative trend, respectively, were Under Review with Developing Implications. DBRS generally tries to resolve Under Review statuses prior to any discontinuation. In this case, however, DBRS does not have sufficient information to resolve the Under Review with Developing Implications status but is nonetheless discontinuing the ratings per the Company’s request.

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

Valener Inc. has announced (on June 11):

that at its special meeting of shareholders held today, June 11, 2019 (the “Meeting“), shareholders approved the acquisition of Valener by Noverco Inc. (“Noverco“) (the “Announced Transaction“) pursuant to the Arrangement Agreement publicly announced on March 27, 2019 (the “Arrangement“).

As provided for in the Arrangement, two resolutions were submitted to a vote at the Meeting, namely the Arrangement resolution to be approved by the holders of common shares and the preferred shareholder resolution to be approved by the holders of preferred shares (hereinafter, the “Resolutions“).

We refer you to the management information circular, available online at www.sedar.com under Valener’s profile, regarding quorum rules and approval threshold that had to be reached at the Meeting.

The Arrangement resolution was approved by 91.92% of the votes cast by holders of common shares, which represented 36.44% of all issued and outstanding common shares of Valener, and by 91.91% of the votes cast by all holders of common shares, excluding common shares beneficially owned or over which control or direction is exercised by interested parties and certain related parties of such interested parties whose votes are required to be excluded in accordance with applicable securities regulation. The preferred shareholder resolution was approved by 99.62% of the votes cast by the holders of the preferred shares, which represented 36.2% of all issued and outstanding preferred shares.

In light of the approval of the Resolutions, counsel for Valener and Noverco will present the application for a final order to approve the Arrangement to the Superior Court of Québec on Friday, June 14, 2019, at 9:00 a.m. (Montréal time). At the hearing, any shareholder or other interested person may intervene in accordance with the procedure set out in item 8 of the management information circular and the interim order of the Superior Court of Québec dated April 17, 2019.

The Announced Transaction remains subject to regulatory approval by the Vermont Public Utility Commission. A public hearing on this matter is scheduled for July 23, 2019.

The proposed acquisition at par was announced in March.

The issue commenced trading 2012-6-6 as a FixedReset, 4.35%+281, after being announced 2012-5-15. It reset to 4.62% effective 2017-10-15. I recommended against conversion and there was no conversion to FloatingResets. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

It will be recalled that EFN.PR.C will reset At 6.210% effective June 30, 2019.

EFN.PR.C was announced 2014-2-26 as a FixedReset, 6.50%+481, but was not added to HIMIPref™ at that time as the company did not have a credit rating. The company received an initial rating from DBRS on 2015-9-24 and HIMIPref™ commenced tracking its four issues then outstanding shortly thereafter. The extension of the issue was announced 2019-5-22. The issue continues to be tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) 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., EFN.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).

Click for Big

The market appears to have lost its fleeting interest in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.54% and +1.01%, 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 EFN.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:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, EFN.PR.C. Therefore, I recommend that holders of EFN.PR.C continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Those who wish to convert are advised that the deadline for notifying the company of such a desire is 5:00 p.m. (Toronto time) on June 17, 2019. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s no time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

Manulife Financial Corporation has announced (on June 5):

that after having taken into account all election notices received by the June 4, 2019 deadline for conversion of its currently outstanding 8,000,000 Non-cumulative Rate Reset Class 1 Shares Series 15 (the “Series 15 Preferred Shares”) (TSX: MFC.PR.L) into Non-cumulative Floating Rate Class 1 Shares Series 16 of Manulife (the “Series 16 Preferred Shares”), the holders of Series 15 Preferred Shares are not entitled to convert their Series 15 Preferred Shares into Series 16 Preferred Shares. There were 148,979 Series 15 Preferred Shares elected for conversion, which is less than the minimum one million shares required to give effect to conversions into Series 16 Preferred Shares.

As announced by Manulife on May 21, 2019, after June 19, 2019, holders of Series 15 Preferred Shares will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on June 20, 2019, and ending on June 19, 2024, will be 3.78600% per annum or $0.236625 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at May 21, 2019, plus 2.16%, as determined in accordance with the terms of the Series 15 Preferred Shares.

Subject to certain conditions described in the prospectus supplement dated February 18, 2014 relating to the issuance of the Series 15 Preferred Shares, Manulife may redeem the Series 15 Preferred Shares, in whole or in part, on June 19, 2024 and on June 19 every five years thereafter.

MFC.PR.L is a FixedReset, 3.90%+216, that commenced trading 2014-2-25 after being announced 2014-2-18. The extension was announced 2019-5-7. MFC.PR.L will reset At 3.78600% effective June 20, 2019. I made no recommendation regarding conversion.

As it is issued by an Insurance Holding Company and is not compliant with the banks’ NVCC rules, I have added a “Deemed Maturity” entry to the call schedule, which was adjusted in December 2018 to 2030-1-31, at 25.00. MFC.PR.L is tracked by HIMIPref™ and assigned to the FixedReset – Insurance Non-NVCC subindex.