Brookfield Soundvest Capital Management Ltd., manager of Brookfield Soundvest Split Trust (the “Trust” in the following extract, also referred to in this post as “BSD”) has announced (emphasis added):
that the board of directors of the Manager has approved proposed extraordinary resolutions (the “Extraordinary Resolutions”), one relating to the preferred securities (the “Preferred Securities”) of the Trust and one relating to the trust units (the “Units”) of the Trust, to be presented to the holders of the Preferred Securities (the “Preferred Securityholders”) and the holders of the Units (the “Unitholders”), as the case may be, at a special meeting of the Preferred Securityholders and the Unitholders (the “Meeting”).
The Extraordinary Resolution relating to the Preferred Securities will allow the Trust to implement the following:
- •extend the term of the Preferred Securities for additional five-year renewal terms following the scheduled maturity date of March 31, 2015;
- •determine the interest rate on the Preferred Securities for each subsequent extended five-year renewal term of the Preferred Securities, and set the interest rate for the first renewal term at 6.0% per annum; and
- •provide the Preferred Securityholders with the right to retract and receive repayment of their Preferred Securities on March 31, 2015, and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Preferred Special Repayment Right”).
The Extraordinary Resolution relating to the Units will allow the Trust to implement the following:
- •provide the Unitholders with the right to retract, in the aggregate, a number of Units not exceeding the number of Preferred Securities tendered under the Preferred Special Repayment Right on March 31, 2015 and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Unit Special Retraction Right”), and receive redemption proceeds equal to the net asset value per Unit as of such dates, and to the extent that more Units are tendered for retraction under the Unit Special Retraction Right than Preferred Securities tendered for repayment under the Preferred Special Repayment Right, Units so tendered will be redeemed on a pro rata basis;
Even though the Meeting will not be held until March 27, 2015 and the outcome of the vote will not be known until then, (i) Preferred Securityholders who wish to exercise the Preferred Special Repayment Right must give notice to the Trust through their advisor no later than 5:00 p.m. (Eastern time) on March 13, 2015, and (ii) Unitholders who wish to exercise the Unit Special Retraction Right must give notice to the Trust through their advisor no later than 5:00 p.m. (Eastern time) on March 20, 2015.
Assiduous Readers will remember this company for its press release criticized in the post BSD.PR.A to Allow Retractions. They have a long history of downplaying to the point of invisibility the fact that retractions were suspended in October 2008 due to their exercise of their discretion. This discretion was utilized again in October, 2011 (again using obfuscatory language to disguise the fact that this was an exercise of discretion) and has not yet been reversed.
But are they competent money managers? Well, according to the 2013 Management Report of Fund Performance, the total return of the Capital Units from inception (March 16, 2005) to December 31, 2013, net of issuance costs, was -6.8%. Total Return of the S&P/TSX Composite Return Index, which they chose as their benchmark, was +6.1%. So the Capital Units underperformed by 12.9% … ANNUALIZED. ‘Nuff said? They did not publish Whole Unit performance for the period, and I certainly can’t be bothered to work it out.
However, in this particular case they have outdone themselves by requiring that notice of exercise of the Preferred Special Repayment Right be served on the company before this right actually exists.
Brookfield Asset Management is a fine company. I find it very difficult to understand why they are mixed up in this:
To the knowledge of the directors and executive officers of the Trust, the only person or company that beneficially owns, directly or indirectly, or exercises control or direction over the Preferred Securities or the Units carrying more than 10% of the voting rights attached to all outstanding Preferred Securities or Units, as the case may be, as at February 19, 2015, is Brookfield Asset Management Inc., which holds 455,045 Units, representing 11.29% of the outstanding Units.
The Manager, 50% owned by Brookfield Asset Management Inc. and 50% owned by entities controlled by Kevin Charlebois, has been the Trust’s manager as well as its investment advisor since its inception. The Manager is located at 100 Sparks Street, 9th Floor, Ottawa, Ontario, K1P 5B7.
So who are the directors of the manager who have approved the proposed extraordinary resolutions and “that the Preferred Securityholders and the Unitholders vote in favour of their Extraordinary Resolution to be considered at the Meeting.” I’m sure they’re all very proud of their roles, so let’s highlight their names:
|Name and Municipality||Position with the Manager||Principal Occupation|
|Director, President, Chief Executive Officer, Chief Investment Officer and
|Director, Chairman||President and Chief Executive Officer, Partners Value Fund Inc.|
|Director||President, Chief Executive Officer and Managing Director, Brookfield Investment Management (Canada) Inc.|
|Chief Financial Officer and Controller||Same|
Note that, “Partners Value Fund Inc.” is a different company from “Partners Value Split Inc., the preferreds of which I often recommend as a SplitShare investment. Mr. Myhal is not an officer of PVS, thank God, and neither is Gail Cecil. Regrettably, however, Partners Value Fund Inc. holds all the Junior Preferred shares and all the capital units and all the Class A voting shares in PVS, so they certainly have influence. In turn Partners Limited controls approximately 49% of Partners Value Fund (SEDAR, Partners Value Fund Inc. (formerly BAM Investments Corp.) Oct 16 2014 18:08:14 ET Issuer bid circular – English PDF 518 K, I am not permitted to link directly, sorry). And then, of course, we get into the depressing world of Brookfield Asset Management governance.
Brookfield Soundvest Split Trust (BSD) ain’t cheap, either! According to the 2013 Management Report of Fund Performance:
The MER before interest expense for the years ended December 31, 2013 and 2012 on the combined units was 1.8% and 1.8%, respectively.
This is ridiculous. A MER of about 1.8% and Asset Coverage of a miserable 1.3-:1 on the preferreds. I’m not even going to bother doing a proper Split Share Credit Quality analysis of the Preferreds. It’s not worth it. I know it will be awful, whatever the precise numbers are, and this fund and this sponsor make me sick.
I recommend that holders of BSD.PR.A: (i) Vote NO on the Special Resolution, and (ii) serve notice of exercise of the Preferred Special Repayment Right.
… or you could just sell the garbage, of course. It’s trading near par.
There may be problems with your brokerage with respect to the exercise of the Preferred Special Retraction Right; I have been advised that TD Direct Investing had no idea of how to process it, but it seems quite likely that any broker will be scratching their heads over how to exercise a right that will not exist until two weeks after the deadline. Please let me know in the comments of how you fare in jumping through these ridiculous, abusive hoops. And don’t waste any time on this! The deadline for notification of the company is only a week hence!