Brompton Group has announced:
Life & Banc Split Corp. (“LBS” or the “Fund”) is pleased to announce that its board of directors (the “Board”) has approved granting shareholders an additional option to allow them to continue their investment in the Fund beyond its currently scheduled termination date of November 29, 2013. The proposed extension will not result in any changes to shareholder redemption rights.
Over the last three years, the Class A shares and Preferred shares have traded at an average combined premium to net asset value per share of approximately 4.2%. By approving the extension of the Fund, shareholders will have the opportunity to benefit from potential future trading premiums. In the event that the proposed extension is not approved by shareholders, the Fund will terminate and Class A and Preferred shareholders will receive the net asset value per Class A and Preferred share which are currently less than their trading prices.
LBS invests in a portfolio, on an approximately equal weight basis, of common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank and 4 Canadian life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc. In 2012, the Class A shares and Preferred shares of the Fund had total returns of 46.8% and 5.4%, respectively, as the 6 Canadian banks and 4 Canadian life insurance companies had strong performance over the year.
Under the proposal:
- • The term of LBS may be extended for an additional term of up to 5 years, as determined by the Board. In addition, the termination date may be extended further for successive terms of up to 5 years thereafter, as determined by the Board;
- • Current retraction rights of the Class A shareholders and Preferred shareholders will remain unchanged and shareholders will be provided with an additional special retraction right providing an option to retract either Preferred shares or Class A shares at the end of the term (and each successive term thereafter) and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on November 29, 2013; and
- • The distribution rates on the Preferred shares and Class A shares for the new term will be announced prior to the extension of the term.
LBS will hold a special meeting of holders of Preferred shares and Class A shares on April 11, 2013 to consider and vote upon the proposal. Shareholders of record at the close of business on March 1, 2013 will be provided with the notice of meeting and management information circular in respect of the meeting and will be entitled to vote at the meeting. The proposal is also subject to any required regulatory approvals.
Further details regarding the proposal will be contained in the management information circular. The circular will also be available on www.sedar.com and posted at www.bromptongroup.com.
LBS.PR.A currently has Asset Coverage of 1.7-:1 and Income Coverage of 107% in 2012, so it is of very good credit quality compared to many of its peers. It was downgraded to Pfd-3(low) by DBRS in September 2012.
The Information Circular contains the vital provision:
provide Shareholders who do not wish to continue their investment in LBS with a special retraction right (the “Special Retraction Right”) to enable such holders to retract their shares at the end of the initial term and each extension of the term thereafter (each, a “Special Retraction Date”) on the same terms that would have applied had LBS redeemed all Class A Shares and Preferred Shares as originally contemplated and provide that Shareholders who wish to exercise such Special Retraction Right must give notice that they wish to exercise such right on or prior to October 31, 2013 and for subsequent Special Retraction Rights no later than the last business day of the month prior to the Special Retraction Date of the year of any extension;
… which makes voting in favour of this an extremely low risk proposition, although it should be noted that management has a blank cheque as far as resetting the dividend on LBS.PR.A is concerned:
The Board may change the distribution rate on the Preferred Shares and the distribution target on the Class A Shares at the time of any extension to the redemption date as described above. Any such change will be announced by way of news release issued at least 60 days prior to such extension of the term.
I recommend that LBS.PR.A holders vote in favour of the proposal although it might be prudent to sell prior to the dividend reset.
Thanks to Assiduous Reader AC for bringing this to my attention.
[…] plan was reported on PrefBlog. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit […]
“it might be prudent to sell prior to the dividend reset.”
So that would mean selling on the open market at the end of sept – after the ex-dividend date but before the reset is announced?
It may be impossible to accomplish both goals, depending on the timing of the rate reset announcement. I don’t regard an attempt to capture the last dividend of much importance, since the “accrued dividend” will be largely reflected in the market price. However, there is the risk that the reset will be announced and the market price will decline immediately.
I can’t give any firm answers to this. Holders will have to consider market conditions and expectations for themselves nearer to the critical time.