PrefBlog

Global Champions Split Corp. has announced:

its intention to redeem all of its outstanding Class A Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) (TSX: GCS.PR.A) for cash on August 20, 2018 the “Redemption Date”) in accordance with the terms of the Series 1 Preferred Shares.

The redemption price per Series 1 Preferred Share will be equal to C$25.25 plus accrued and unpaid dividends as of the Redemption Date of C$0.1374 per share, representing a total redemption price of C$25.3874 per Series 1 Preferred Share (the “Redemption Price”).

Notice will be delivered to holders of Series 1 Preferred Shares in accordance with the terms of the Series 1 Preferred Shares.

From and after the Redemption Date the Series 1 Preferred Shares will cease to be entitled to dividends or any other participation in any distribution of the assets of the Company and the holders thereof shall not be entitled to exercise any of their other rights as shareholders in respect thereof except to receive the Redemption Price (less any tax required to be deducted and withheld by the Company). It is expected that the Toronto Stock Exchange will halt trading on the Series 1 Preferred Shares at the opening of business on the Redemption Date and delist such Series 1 Preferred Shares at the close of business on the Redemption Date.

Although this press release was dated 2018-8-2, it does not yet appear on their website; nor is there anything on their website to suggest that anything unusual is happening with the company. The press release is available only – as far as I can tell – on SEDAR, which (as I’m sure everybody remembers) prohibits direct linking to these public documents as the Canadian Securities Administrators appear to believe that dissemination of material investment information should be made as difficult as possible. So interested parties will have to search for “Global Champions Split Corp. Aug 2 2018 17:25:19 ET News release – English PDF 309 K”

This is an appalling example of non-existent communication by the company.

The directors are the following clowns:Frank N.C. Lochan, Brian D. Lawson, John P. Barratt, James L.R. Kelly.

The following idiots are officers of the company:

• Brian D. Lawson, Chairman and President
• Adil Mawani, Chief Financial Officer
• Loretta M. Corso, Corporate Secretary

Assiduous Readers with good memories will single out the following dolts for special scorn:

• Frank N.C. Lochan
• Brian D. Lawson
• John P. Barratt
• James L.R. Kelly

… who were also directors of Partners Value Split Inc. when it did a completely shitty job of reporting to shareholders. Loretta M. Corso was also an officer of PVS at that time.

Pretty crap work, guys. Incompetent scum.

Assiduous Reader TS writes in and says:

James, first of all I do want to say that I check your prefblog regularly and do enjoy your content.

Attaboy, TS! That’s how you get your eMails answered!

With DC.A trading at 1.30 now I get a current value of 16.4125 for the series 5 prefs (DC.PR.E)

Thats assuming that Dundee would actually trigger the conversion option at $2.

From what I calculate they can trigger that option anytime prior to jun 30, 2019 at a pref price of

25.25/2 = 12.625 shares of DC.A per DC.PR.E pref

There are 3.29mil prefs outstanding so if they exercised that option they would issue

3.29×12.625=41.5mil shares of DC.A

There are 55.9mil shares of DC.A outstanding so my real question is…

Would they dilute themselves that much???

So let’s back up a little …

Dundee made an initial proposal in November 2015 to exchange its DC.PR.C shares for DC.PR.E, which would pay a little higher dividend and defer the soft-retraction privilege for three years; the proposal attracted some press coverage and an exhortation to consider exercising dissent rights. This led to reconsideration by Dundee despite a rather peculiar endorsement from a proxy advisor and led to a sweeter offer that attracted further commentary.

… and finally, the company announced a ringing endorsement from the shareholders … or perhaps it would be better to say “the shareholders’ advisors”, since the proxy solicitation fee was so high!

The proposal succeeded and DC.PR.E commenced trading on 2016-2-12. Some investors retracted on 2016-6-30, after filing the paperwork. A further 300,000-odd shares were redeemed on 2018-1-31 which comprised only about 8.4% of the total outstanding:

Dundee Corporation (TSX: DC.A and DC.PR.E) today completed the redemption of 303,265 first preference shares, series 5 (the “Series 5 Preferred Shares”), being all such shares tendered for redemption in accordance with the previously announced mandatory redemption provisions of the Series 5 Preferred Shares. The Series 5 Preferred Shares were redeemed at a price of $25.00 per share, or $7,581,625 in aggregate, plus accrued and unpaid dividends of $48,965. Following completion of the partial redemption, a total of 3,294,938 Series 5 Preferred Shares with a par value of $82.4 million remain issued and outstanding.

On August 14, the company announced some pretty awful operating results:

During the second quarter of 2018, the Corporation incurred a net loss attributable to owners of Dundee Corporation of $76.9 million, or a loss of $1.34 per share, compared to a net loss of $24.5 million or $0.45 per share generated in the second quarter of the prior year. Operating results in the second quarter of 2018 include losses from discontinued operations of $1.9 million, compared with earnings from discontinued operations of $4.3 million during the same quarter of the prior year.
…
• During the second quarter of 2018, loss from investments was $16.1 million, compared with loss from investments of $24.8 million in the same period of the prior year.
• Consolidated revenues were $43.5 million during the second quarter of 2018, compared with revenues of $51.4 million in the same quarter of the prior year.
• During the current quarter, the Corporation recognized a loss from its equity accounted investments of $38.6 million, compared with a gain of $0.1 million in the second quarter of 2017.
• On a year-to-date basis, the Corporation incurred a loss attributable to owners of the Corporation of $101.7 million, compared with net earnings attributable to owners of the Corporation of $5.0 million in the same period of 2017.
…
As previously disclosed, and as a result of a transfer out of $134.0 million of AUM to an external manager in May 2018, Goodman & Company, Investment Counsel Inc. (“GCIC”) reported its AUM of $66.9 million at June 30, 2018, compared with $194.1 million at December 31, 2017.

This news was not met with applause by holders of the Subordinate Voting Shares, DC.A:

Click for Big

… with holders of DC.PR.E being rather disapproving:

Click for Big

At today’s DC.A close of 1.23, the 12.5 DC.A shares to be received on shareholder-initiated conversion next June will be worth $15.375, and there will (maybe!) be four dividend payments in the interim totalling (maybe!) 1.875, for a total Future Value of $17.25, so the ratio is out of whack, given that the VWAP today was 20.46 on volume of 10,660.

So, basically, the company has three options:

• Pull a miracle out of its hat – ideally, of course, this miracle would be something along the lines of “earning a boat-load of money” or “attracting a takeover bid made of gold”, but they could always try to get another extension on their commitment and maybe get another rather peculiar endorsement from a proxy advisor, or
• Redeem DC.PR.E for cash – I suppose this is technically a separate option, but realistically I think it’s a detail of the ‘miracle’ option, above, or
• Allow DC.PR.E shareholders to convert to DC.A and thereby suffer enormous dilution of their subordinated shares.

In connection with the last option, we can review their 2017 Annual Information Form, which states in part:

The Company’s business and affairs are controlled by Mr. Ned Goodman, who directly or indirectly, owns shares representing approximately 99% of the votes attached to the Class B Common Shares and approximately 85% of the votes attached to all of the Company’s shares in aggregate. Accordingly, Mr. Goodman may be able to control the board of directors or to cause or prevent a change of control of the Company. Under Canadian law, an offer to purchase the Common Shares, depending on the offered price, would not necessarily result in an offer to purchase the Subordinate Voting Shares.

So he doesn’t care. Ned Goodman will continue to control the corporation and preside over important personnel decisions, such as whether Jonathan Goodman should continue as Executive Chairman and Director, whether David Goodman should continue as Chief Executive Officer and Director, whether Mark Goodman should continue as President and, perhaps most importantly, how to convince the market that the published book value per share of the company of $8.70 is entirely reasonable.

We shall see! However, I suspect that one very important scenario is that this plays out much along the lines of the saga of Quebecor World … in which repeated heavy conversions of the preferreds into common ultimately ended with a devastating restructuring.

Standard & Poor’s has announced:

•In the past few years, Bank of Montreal (BMO) has demonstrated good risk management with historically low loan losses and increased diversity in revenue streams and loan exposures, and has followed a conservative organic growth strategy.
•We are revising our stand-alone credit profile (SACP) on BMO to ‘a’ from ‘a-‘, to reflect improvements in its risk position. We are also revising our SACP on BMO Financial Corp. (BFC) to ‘bbb+’ from ‘bbb’, to reflect the substantial improvement in non-accruals and modest credit loss experience over the past several years.
•Given the improved stand-alone creditworthiness, we are raising our issue-level ratings on BMO’s non-viability contingent capital (NVCC) and non-NVCC subordinated and hybrid securities. We are affirming our ‘A+/A-1’ long- and short-term issuer credit ratings on BMO and its operating subsidiaries, including BFC.
•The stable outlook on BMO and its operating subsidiaries reflects our expectations that the bank’s financial performance and capitalization will remain stable, and its risk position will remain conservative with measured loan growth, stable credit metrics, and limited acquisition activity.

…
Our stable outlook on BMO and its operating subsidiaries reflects our assumption that, over the next two years financial performance and capitalization will remain stable, and asset quality will remain relatively good, reflecting conservative risk management, measured loan growth, and limited acquisition activity. In addition, we expect that BMO will continue to demonstrate conservative underwriting and improving operating efficiency. We expect the bank’s capital ratios will remain stable with no outsize capital-intensive acquisitions. We expect our S&P Global Ratings RAC ratio for BMO will remain in the middle of the 7%-10% capital range, which we deem adequate.

We could lower our assessment of BMO’s stand-alone creditworthiness if we were to see signs of an elevated risk appetite (for example, double-digit loan growth in the U.S.). We would also lower our SACP on BMO if credit quality weakens materially (particularly in mid-market U.S. commercial lending), or if the bank were to undertake aggressive capital actions (such that the RAC ratio declined below 7% on a sustained basis). Nevertheless, given BMO’s high systemic importance in Canada, we would lower our ratings only if its stand-alone creditworthiness were to decline by more than two notches. An upgrade is unlikely over our two-year outlook horizon because our current ratings already factor in an expectation of continued improvement in operating expenses, consistently strong asset quality, and stable operating performance in BMO’s P&C and capital market segments.

Affected issues are:
NVCC-compliant (to P-2(low)): BMO.PR.B, BMO.PR.C, BMO.PR.D, BMO.PR.S, BMO.PR.T, BMO.PR.W, BMO.PR.Y, BMO.PR.Z

NVCC-non-compliant (to P-2): BMO.PR.A*, BMO.PR.M (called for redemption), BMO.PR.Q, BMO.PR.R* (called for redemption)

BMO.PR.A and BMO.PR.R, both FloatingResets that came into existence through partial exchange from BMO.PR.Q and BMO.PR.M, respectively, are not explicitly listed by S&P on their rating list. This is almost certainly merely sloppiness on S&P’s part.

Fortis Inc. has declared:

NOTICE OF ANNUAL FIXED DIVIDEND RATE

CUMULATIVE REDEEMABLE FIVE-YEAR FIXED RATE RESET

FIRST PREFERENCE SHARES, SERIES G

NOTICE IS HEREBY GIVEN that Fortis Inc. (the “Corporation”) has calculated the annual fixed dividend rate (the “Annual Fixed Dividend Rate”) for the five-year period from and including September 1, 2018 to but excluding September 1, 2023 (the “Subsequent Fixed Rate Period”) for the Corporation’s Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series G (the “Series G First Preference Shares”) in accordance with the terms of the Series G First Preference Shares incorporated in the provisions of its articles.

The Annual Fixed Dividend Rate for the Subsequent Fixed Rate Period shall be equal to 4.393% per annum, being equal to the 2.263% yield to maturity of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on August 2, 2018 on the display designated as page “GCAN5YR Index” on the Bloomberg Financial L.P. service, plus 2.13%.

During the Subsequent Fixed Rate Period, dividends on the Series G First Preference Shares shall, if, as and when declared by the directors of the Corporation, be payable quarterly at the Annual Fixed Dividend Rate.
Dated the 2nd day of August, 2018.

BY ORDER OF THE BOARD OF DIRECTORS
[signed]
James R. Reid
Executive Vice President, Chief Legal Officer and Corporate Secretary

This information is not on the Fortis website, nor is it on SEDAR. I obtained the document from Investor Relations. Presumably the company sent the notice to its only registered shareholder, CDS, with the hope that CDS would notify the brokerages and the brokerages would notify their clients. Ha-ha! We all know how careful the brokerages are to pass on every scrap of relevant information, don’t we?

FTS.PR.G commenced trading 2008-5-23 after being announced 2008-5-6 as a FixedReset, 5.25%+213. It reset to 3.883% in 2013.

Note that this issue does not have an option to convert into FloatingResets – the structure was very new at the time of issue and provisions had not yet standardized although, of course, there is nothing stopping a new issuer from coming out with an equivalent issue.