Connor Clark & Lunn has announced:
ROC Pref Corp. (the “Company”) announced today the implementation of restructuring initiatives by Connor, Clark & Lunn Capital Markets Inc. (the “Manager”) and Connor, Clark & Lunn Investment Management Ltd. (the “Investment Manager”) which acts as investment manager to Credit Trust IV. Credit Trust IV owns the credit linked note issued by Scotiabank to which the Company has exposure. The initiatives have been undertaken in order to increase the likelihood that the Company will be able to repay the $25.00 preferred share issue price at maturity.
In this regard:
1. For the next three quarters the underlying coupons payable under the credit linked note have been sold to The Bank of Nova Scotia to buy additional subordination (additional subordination increases the “safety cushion” by increasing the number of defaults the reference portfolio can withstand before principal and interest payments on the credit linked note are adversely affected). As a result of these changes, the dividends on the preferred shares of the Company have been suspended commencing with the December 31, 2008 dividend.
Regular quarterly dividends are expected to be reinstituted in respect of the quarter ending September 30, 2009. As a result of these actions, the Manager will ask Standard & Poors to withdraw its rating on the preferred shares as the rating applies to the payment of all dividends.
2. The deferred management fee has been made available for the benefit of the preferred shareholders.
As a result of the purchase of additional subordination approximately 0.5 additional defaults have been added to the number of defaults the note can sustain before payments of coupon and principal are affected. As a result, a total of 5.4 defaults among the companies in the credit linked note’s reference portfolio can be sustained before payments under the credit linked
note are impacted.
The following payout table, which assumes a recovery rate on default of 40%, is provided:
|5.0 or less||$25.00|
|7.0 or more||$0.00|
According to Connor Clark, there were 138 names in the portfolio as of September 30, with the following (truncated) credit distribution:
|RPQ.PR.A Underlying Credit Distribution
(Truncated by JH)
Preferred Shares may be surrendered for retraction at any time but will be
retracted only on the last day of the month (a ‘‘Valuation Date’’) commencing August 31, 2004. Preferred Shares surrendered for retraction by a Holder at least five (5) Business Days prior to a Valuation Date will be retracted on such Valuation Date and such holder will receive payment on or before the tenth Business Day following such Valuation Date. On a retraction, Holders will be entitled to receive a retraction price per share (the ‘‘Preferred Share Retraction Price’’) equal to 95% of the net asset value per Preferred Share determined as of the relevant Valuation Date less $0.25. As this Preferred Share Retraction Price may be less than $25.00 and will vary
depending on the net asset value at the time of retraction, the S&P rating of the Preferred Shares does not extend to the amount payable on a retraction. See ‘‘Details of the Offering — Certain Provisions of the Preferred Shares — Retraction’’ and ‘‘Details of the Offering — Suspension of Redemption or Retractions of Preferred Shares’’.
According to the latest semi-annual report:
No Preferred Shares were retracted or redeemed during the period from June 2, 2004 (inception date) to March 31, 2008.
RPQ.PR.A closed today on the TSX at 3.31-4.35, 4×10. Drooling arbitrageurs should check for themselves whether retractions have been suspended, or under what conditions they might be!
RPQ.PR.A was last mentioned on PrefBlog with respect to S&P’s Credit-Watch-Negative. The issue is not tracked by HIMIPref™.