Quadravest has announced:
US Financial 15 Split Corp. (the “Company”) is pleased to announce it has extended the termination date of the Company a further six year period from December 1, 2018 to December 1, 2024.
In connection with the extension, the Company will also amend the dividend entitlement of the FTU.PR.B Preferred Shares (“Preferred Shares”) effective December 1, 2018, to pay a cumulative preferential monthly dividend at an annual rate equivalent to 10.00% based on the net asset value per unit as at the end of the preceding month to a maximum of $0.0833 per Preferred Share per month (10.00% of $10.00 original issue price). This represents an increase of 4.75% in the rate from the current annual policy of 5.25% of the preceding month end net asset value.
The dividend policy for the FTU Class A Shares (“Class A Shares”) will remain unchanged.
In connection with the extension, the Company will offer a Special Retraction Right which will allow existing shareholders to tender one or both classes of Shares and receive a retraction price based on the November 30, 2018 net asset value per unit.
Since inception of the Company, Class A Shares have received a total of $3.70 per share and Preferred Shares have received a total of $5.58 per share, for a combined total of $9.28.
US Financial 15 invests in a portfolio consisting of 15 U.S. financial services companies as follows: American Express, Bank of America, Bank of New York Mellon Corp., Citigroup, CME Group Inc., Fifth Third Bancorp, The Goldman Sachs Group, J.P. Morgan Chase & Co., Morgan Stanley, PNC Financial Services Group Inc., Regions Financial Corp., State Street Corp., SunTrust Banks, U.S. Bancorp, and Wells Fargo.
FTU.PR.B is currently backed by a NAVPU of 9.14 as of 2018-09-14 against a par value of 10.00 – the fund is underwater! The fund has total assets of 26-million as of 2018-08-31, all of which is due to the preferred shareholders. The fund got whacked in the Credit Crunch – there has not been a distribution to Capital Unitholders since May, 2008.
According to the 2018 Annual Information Form:
In the event that the Termination Date is extended in any Extension Year, each holder of Preferred Shares or Class A Shares shall have the right to retract such Preferred Shares or Class A Shares effective December 1 of such Extension Year (the “Recurring Special Retraction Right”). The price payable per Preferred Share so retracted shall be equal to (i) the sum of (A) the lesser of (x) $10.00 and (y) the net asset value of the Company calculated on November 30 of such Extension Year, divided by the number of Preferred Shares then outstanding, plus (B) an amount equal to the accrued and unpaid dividends on each Preferred Share to but excluding November 30 of such Extension Year, plus (ii) all Dividends Owing thereon to but excluding November 30 of such Extension Year. The price payable per Class A Share so retracted shall be equal to the greater of (i) the net asset value per Unit calculated on November 30 of such Extension Year less $10.00, and (ii) zero. Holders of Preferred Shares or Class A Shares wishing to take advantage of the Recurring Special Retraction Right must surrender their Preferred Shares or Class A Shares for retraction no later than the close of business on November 1 of such Extension Year (or, if November 1 of such year is not a business day, on the immediately preceding business day). Payment of the retraction price per Preferred Share or Class A Share owing in respect of the exercise of the Recurring Special Retraction Right will be made on or before December 15 of such Extension Year (or, if December 15 of such year is not a business day, on the immediately succeeding business day).
November 1 is a Thursday this year, so the deadline to notify the company of a desire to retract is November 1 (brokerages will set their internal deadlines a few days earlier).
This is important, because it is virtually certain that I will recommend retraction.
In the previous extension, preferred shareholders got warrants – all of the 2014 warrants were exercised, as were many of the 2013 warrants (see SEDAR and search for “US Financial 15 Split Corp. Apr 4 2013 10:25:30 ET News release – English PDF 18 K” and then write your friendly neighborhood regulator and ask why I can’t link this public document directly).
The warrants were not enough to prevent any intelligent person from exercising the Special Retraction Right, but this is the preferred share market.
Look. The NAVPU is below the preferred share par value. This means that every dime, now or in the future, should accrue to the preferred shareholders. But in the event of a miraculous upsurge in the US market, it doesn’t and it won’t. The Capital Units will get all the money over the preferred share par value of $10.00 on liquidation. If things are miraculous enough, they might even get interim distributions. Why? What are they paying preferred shareholders for this privilege? Nuthin’. They will not share any future losses, because they’ve lost everything already, but they may share future profits. Why give them this sweet deal for free? Preferred shareholders will be far better off if they retract for cash and reinvest the proceeds in a US portfolio. As it stands, they are now invested in an expensive mutual fund (MER = 1.53% according to the 18H1 Semi-annual report) with cruddy returns (-1.09% since inception, vs. +3.62% for the S&P 500 Financial Index, according to the 2017 Annual Report).
Why? Why would anybody in his right mind hold this issue, when you can get the full NAVPU with a special retraction?
It closed at $8.85 today, a slight (just over 3%) discount to the September 14 NAVPU of 9.14, so after hedging costs there’s hardly any incentive to try to arbitrage the difference.
So the 10% coupon they’re offering is best characterized as flim-flam. All the money should belong, and can belong, to the preferred shareholders. Retract!
This entry was posted on Thursday, September 27th, 2018 at 8:58 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
FTU.PR.B To Extend Term and Boost Dividend
Quadravest has announced:
FTU.PR.B is currently backed by a NAVPU of 9.14 as of 2018-09-14 against a par value of 10.00 – the fund is underwater! The fund has total assets of 26-million as of 2018-08-31, all of which is due to the preferred shareholders. The fund got whacked in the Credit Crunch – there has not been a distribution to Capital Unitholders since May, 2008.
According to the 2018 Annual Information Form:
November 1 is a Thursday this year, so the deadline to notify the company of a desire to retract is November 1 (brokerages will set their internal deadlines a few days earlier).
This is important, because it is virtually certain that I will recommend retraction.
In the previous extension, preferred shareholders got warrants – all of the 2014 warrants were exercised, as were many of the 2013 warrants (see SEDAR and search for “US Financial 15 Split Corp. Apr 4 2013 10:25:30 ET News release – English PDF 18 K” and then write your friendly neighborhood regulator and ask why I can’t link this public document directly).
The warrants were not enough to prevent any intelligent person from exercising the Special Retraction Right, but this is the preferred share market.
Look. The NAVPU is below the preferred share par value. This means that every dime, now or in the future, should accrue to the preferred shareholders. But in the event of a miraculous upsurge in the US market, it doesn’t and it won’t. The Capital Units will get all the money over the preferred share par value of $10.00 on liquidation. If things are miraculous enough, they might even get interim distributions. Why? What are they paying preferred shareholders for this privilege? Nuthin’. They will not share any future losses, because they’ve lost everything already, but they may share future profits. Why give them this sweet deal for free? Preferred shareholders will be far better off if they retract for cash and reinvest the proceeds in a US portfolio. As it stands, they are now invested in an expensive mutual fund (MER = 1.53% according to the 18H1 Semi-annual report) with cruddy returns (-1.09% since inception, vs. +3.62% for the S&P 500 Financial Index, according to the 2017 Annual Report).
Why? Why would anybody in his right mind hold this issue, when you can get the full NAVPU with a special retraction?
It closed at $8.85 today, a slight (just over 3%) discount to the September 14 NAVPU of 9.14, so after hedging costs there’s hardly any incentive to try to arbitrage the difference.
So the 10% coupon they’re offering is best characterized as flim-flam. All the money should belong, and can belong, to the preferred shareholders. Retract!
This entry was posted on Thursday, September 27th, 2018 at 8:58 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.