Allbanc Split Corp. II has announced:
that it has completed its public offering of 2,175,956 Class B Preferred Shares, Series 1 (“Series 1 Preferred Shares”), raising approximately $47.4 million. The Series 1 Preferred Shares were offered to the public by a syndicate of agents led by Scotia Capital Inc. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 2,315,664 of its Class A Capital Shares.
The Series 1 Preferred Shares were offered in order to maintain the leveraged “split share” structure of the Company following the successful reorganization of the Company approved at a special meeting of holders of Class A Capital Shares on December 7, 2010, which among other things, extended the redemption date of the Class A Capital Shares for an additional five year term. At the close of business on February 28, 2011 there will be 4,351,912 Class A Capital Shares and 2,175,956 Series 1 Preferred Shares issued and outstanding.
Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.B respectively.
The new issue has a par value of 21.80 and is redeemable at that price every February 28 until 2016-2-28, when it matures at par.
There is no NAV test on the capital unit distributions, but the prospectus (available via SEDAR dated 2011-2-18) states:
Series 1 Preferred Share distributions will be funded from the dividends received on the Portfolio Shares. If necessary, any shortfall in the distributions on the Series 1 Preferred Shares will be funded by proceeds from the sale of, or, if determined appropriate by the Board of Directors, premiums earned from writing covered call options on, the Portfolio Shares. Based on the current dividends paid on the Portfolio Shares, it is not expected that the Company would have to sell any Portfolio Shares to fund the Series 1 Preferred Share distributions.
As reported in February 2009, the board has a distribution policy for the Capital Units that states these distributions will not be paid when Asset Coverage is less than unity, but this is a company policy, not a contracual provision specified in the prospectus.
There is a monthly retraction privilege:
The Series 1 Preferred Shares may be surrendered for retraction at any time. Provided the Series 1 Preferred Shares have been surrendered for retraction at least five business days before the 15th day of a month, such shares will be retracted on the 15th day of such month (the ‘‘Valuation Date’’). Payment for such shares will be made on the last day of such month or, where such day is not a business day, on the preceding business day (a ‘‘Retraction Payment Date’’).
A holder retracting Series 1 Preferred Shares will receive a cash price per Series 1 Preferred Share retracted equal to the amount, if any, by which 95% of the Unit Value exceeds the aggregate of: (i) the average cost to the Company, including commissions, of purchasing two Class A Capital Shares in the market; and (ii) $1.00. See ‘‘Retraction and Redemption of Series 1 Preferred Shares’’.
Asset Coverage as of February 24 was 2.1-:1, based on the situation with ALB.PR.A still outstanding and ALB.PR.B not issued. This will have changed a little due to issue expenses, but not to any great extent.
The prospectus claims a provisional rating of Pfd-2(low) from DBRS, but this cannot be confirmed on the DBRS website at time of writing.
Update: DBRS has announced:
a rating of Pfd-2 (low) to the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) issued by Allbanc Split Corp. II (the Company) and discontinued the rating assigned to the Class A Preferred Shares, which have been repaid. The Company has issued approximately 2.18 million Class B Preferred Shares at $21.80 each as part of a share reorganization, whereby all of the Class A Preferred Shares were redeemed and a portion of the Class A Capital Shares were redeemed. The Class B Preferred Shares were issued to maintain the leveraged split share structure of the Company so that the amount of issued and outstanding Class A Capital Shares is twice the amount of issued and outstanding Class B Preferred Shares.
The Portfolio provides initial downside protection of approximately 55% to the holders of the Class B Preferred Shares (after reorganization expenses).
The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution of $0.2316 per share to holders of the Class B Preferred Shares, yielding approximately 4.25% annually on the initial issue price. The current yield on the Portfolio shares fully covers the Class B Preferred Share dividends, providing dividend coverage of approximately 1.6 times. The Class A Capital Shares are expected to receive all excess dividend income after the Class B Preferred Share distributions and other expenses of the Company have been paid.
The Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.
The main constraints to the rating are the following:
(1) The downside protection provided to holders of the Class B Preferred Shares is dependent on the value of the shares in the Portfolio.
(2) Volatility of price and changes in the dividend policies of the Canadian banks may result in significant reductions in downside protection from time to time.
(3) The entire Portfolio is concentrated in the Canadian financial services industry.
The Class B Preferred Shares will be redeemed by the Company on February 28, 2016
Update: ALB.PR.A will be tracked by HIMIPref™. The issue traded 122,044 shares today in a range of 21.85-00 before closing at 21.90-92, 1×13.
Vital statistics are:
Maturity Type : Call
Maturity Date : 2012-03-29
Maturity Price : 21.80
Evaluated at bid price : 21.90
Bid-YTW : 3.81 %
The issue has been assigned to the HIMIPref™ SplitShare index.