PrefBlog

Faircourt Asset Management has announced (although not yet on their websit):

Faircourt Asset Management Inc., the manager of Faircourt Split Trust (the “Trust”) (TSX: FCS.UN; FCS.PR.B), is pleased to announce that the Trust has completed a public offering (the “Offering”) of 1,500,000 6.00% preferred securities due June 30, 2019 (the “Preferred Securities”) at a price of $10.00 per Preferred Security. The Offering raised gross proceeds of $15,000,000.

The Preferred Securities commence trading today on the Toronto Stock Exchange under the symbol “FCS.PR.C”.

The syndicate of agents for the Offering was co-led by National Bank Financial Inc. and CIBC, and includes Canaccord Genuity Corp., GMP Securities L.P. and Raymond James Ltd.

The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014 (the “6.25% Preferred Securities”). As the Offering has been completed without any matched Preferred Securities and trust units of the Trust being issued, there are insufficient proceeds to fully repay the aggregate principal amount of the outstanding 6.25% Preferred Securities (the “6.25% Outstanding Principal”) from the proceeds of the Offering. The balance of the 6.25% Outstanding Principal will be funded by the Trust through cash currently held by the Trust and the sale of securities from the portfolio of securities held by the Trust. Payment of the 6.25% Outstanding Principal will be made to holders of the 6.25 Preferred Securities in accordance with the provisions of the trust indenture and first supplemental indenture governing the 6.25% Preferred Securities.

For further information about the Offering, please contact: Faircourt Asset Management Inc. at (416) 364-8989 or 1-800-831-0304 or visit our website at www.faircourtassetmgt.com.

This issue has been rated Pfd-3(low) by DBRS:

The Trust has advised DBRS that the initial downside protection available to holders of the 6.00% Preferred Securities is expected to be approximately 36.7% after the payment of all issuance expenses. The downside protection is provided by the Trust Units. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of December 17, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.02 times.

According to the terms of the Trust’s Declaration of Trust, the Trust has the ability to borrow up to 10% of Total Assets (as defined in the Declaration of Trust) under a loan facility in order to meet its investment objectives. Under the terms of the Company’s Trust Indenture, the loan facility is considered Senior Indebtedness, and all amounts owing under the loan facility will be paid in priority to the 6.00% Preferred Securities. There is currently no loan facility in place and therefore, there are currently no amounts owing under a loan facility; however, to the extent that the Trust borrows under a loan facility, the rating on the 6.00% Preferred Securities could be negatively impacted. DBRS will continue to monitor the situation in connection with the ongoing surveillance of the rating on the 6.00% Preferred Securities, and will take appropriate ratings action as necessary.

The DBRS release is largely a copy-paste of their provisional release reported on PrefBlog.

FCS.PR.C will be tracked by HIMIPref™ but assigned to the Scraps index on credit concerns.

There are two items of particular interest in the prospectus, which Faircourt cannot be bothered to publish on their website and which is available on SEDAR via “Faircourt Split Trust Dec 22 2014 12:50:39 ET Final short form prospectus – English PDF 382 K”. A direct link is not permitted because the Alberta Securities Commission does not believe retail scum should have convenient access to public documents.

Asset Coverage Test

The Trust Indenture and the Declaration of Trust provide that the Trust may not make any cash distributions on the Units if, after giving effect to the proposed distribution, the Total Assets less the amount outstanding under the Loan Facility equals less than 1.4 times the principal amount of the 6.00% Preferred Securities then outstanding.
…
Redemption of 6.00% Preferred Securities by the Trust

6.00% Preferred Securities may be redeemed in whole or in part by the Trust upon notice to 6.00% Preferred Securityholders in accordance with the Trust Indenture at any time that the aggregate principal amount outstanding of the 6.00% Preferred Securities exceeds 40% of the Total Assets. All 6.00% Preferred Securities then outstanding will be redeemed by the Trust at maturity or immediately prior to the termination of the Trust, if earlier. The 6.00% Preferred Securities would, in any such case, be redeemed at par, plus any accrued but unpaid interest.

So that’s a NAV Test of 1.4x, inferior to the more usual 1.5x; given that the 36.7% downside protection referred to by DBRS (quoted above) is Asset Coverage of only 1.6-:1, Faircourt might have felt that there wasn’t enough danger space available with a 1.5x NAV Test.

The other highly significant item is that these shares can be redeemed at any time at par; there’s no capital gains potential for these shares at all given current conditions and in general a little more symmetricallity in potential returns is preferred. It will be noted in the vital statistics, below, that the YTW scenario after its first day of trading in an immediate call.

The issue traded 76,995 shares today (consolidated exchanges) in a range of 9.99-09 before closing at 10.01-05. Vital statistics are:

This entry was posted on Wednesday, December 31st, 2014 at 4:07 am 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.