Brookfield Funds has announced:
In accordance with its Declaration of Trust, and because the net asset value is currently below the required 1.4 times coverage ratio, the monthly distribution on the Capital Units of the Brascan SoundVest Rising Distribution Split Trust will not be paid this month. The Declaration of Trust prohibits the Trust from paying a cash distribution on its Capital Units if, after giving effect to the proposed distribution, the net asset value per unit of its Capital Units would be less than approximately $4.00 and as of October 17, 2008 this amount was $nil. The Trust will continue to monitor its net asset value per Capital Unit to determine if it will be able to make monthly distributions in the future.
These announcements do not affect the quarterly distributions payable on the Preferred Securities of Brascan SoundVest Rising Distribution Split Trust.
The Brascan SoundVest Rising Distribution Split Trust also announced that it is temporarily suspending the annual redemption rights that would have arisen in November in respect of both its Capital Units and Preferred Securities. The Declaration of Trust provides for the suspension of redemptions when the same 1.4 times coverage ratio mentioned above cannot be maintained. The Trust will monitor its net asset value to determine when it will be able to resume redemptions. Further details of the redemption procedure to be followed will be announced if and when the suspension is lifted.
The suspension of retractions is something of a surprise, although their right to do so is indeed spelled out in the prospectus. This is not the greatest problem in the world for the preferred securityholders, however, since they always had to buy a capital unit before retracting anyway:
Commencing in 2005, Preferred Securities may be surrendered together with an equal number of Capital Units for redemption in the month of November of each year for redemption on the last Business Day (any day on which the Toronto Stock Exchange is open for trading is hereinafter referred to as a ‘‘Business Day’’) in November of that year (a ‘‘Redemption Date’’), subject to the Trust’s right to suspend redemptions in certain circumstances. A Securityholder who surrenders Preferred Securities together with Capital Units for redemption at least 15 Business Days prior to a Redemption Date will receive payment for each Combined Security equal to the Combined Value determined as of the Redemption Date, less redemption costs. Redemption proceeds will be payable on or before the fifteenth Business Day after the applicable Redemption Date. See ‘‘Details of the Offering — Certain Provisions of the Preferred Securities— Concurrent Annual
On October 17, BSD.UN closed at $1.50; BSD.PR.A closed at $7.40; given a NAV of $9.98 retraction would have been quite profitable. The prospectus language, by the way is (bolding added):
The Trust may suspend the redemption of Capital Units and the repayment of Preferred Securities or postpone repayment of redemption proceeds:
(iii) if, after giving effect to redemptions, the Combined Value would be less than 1.4 times the Repayment Price,
… so the language in the press release …
The Declaration of Trust provides for the suspension of redemptions when the same 1.4 times coverage ratio mentioned above cannot be maintained.
… is a bit of a stretch. To me, it looks like they just want to hang on to their assets. Inquiries and complaints may be directed to:
Director, Investor Relations and Communications – Public Funds
My own eMail says:
I note that BSD has suspended retractions and have commented on this on my blog at http://www.prefblog.com/?p=3565
Given that the prospectus gives the Trust the option of suspending retractions, without making this an obligation, what motivation is there for the suspension other than a desire to retain assets?
May I publish your response?