Brompton Group has announced (although not yet on their website):
As previously announced, the board of directors of Brompton Oil Split Corp. (the “Fund”) determined that it would extend the maturity date of the class A and preferred shares of the Company for a period of up to five years beyond the current maturity date of March 31, 2020. Today, the board of directors announces that the new term of the Fund will be 3 years to March 30, 2023. In addition, the distribution rate for the preferred shares (the “Preferred Shares”) for the new 3 year term from April 1, 2020 to March 30, 2023 has been increased to $0.65 per Preferred Share per annum (6.5% on the original issue price of $10) payable quarterly. The new Preferred Share distribution rate was determined considering current market rates for preferred shares with similar terms, as well as the current Preferred Share coverage level of the Fund. Based on the net asset value of the portfolio holdings as of January 29, 2020, in order to meet the new Preferred Share distribution rate and maintain the net asset value per unit, the Fund’s portfolio requires capital appreciation of approximately 4.0% per annum. In addition, the Fund confirmed that it will maintain the targeted monthly Class A Share distribution rate of at least $0.10 per Class A Share which will become payable when the net asset value per unit (consisting of one Class A Share and one Preferred Share) is greater than $15.00, after taking into consideration the payment of the Class A Share distribution.
The Fund invests in a portfolio of equity securities of large capitalization North American oil and gas issuers, primarily focused on those with significant exposure to oil.
In connection with the extension, shareholders who do not wish to continue their investment in the Fund, may retract their Preferred Shares and Class A Shares on March 31, 2020 pursuant to a special retraction right and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on March 31, 2020. Pursuant to this option, the retraction price may be less than the market price if the security is trading at a premium to net asset value. To exercise this retraction right shareholders must provide notice to their investment dealer by their dealer’s deadline which in any event cannot be later than February 28, 2020 at 5:00 p.m. (Toronto time). Alternatively, shareholders may sell their shares through their securities dealer for the market price at any time, potentially at a higher price than would be achieved through retraction, or shareholders may take no action and continue to hold their shares.
In the event that more Class A Shares than Preferred Shares have been redeemed pursuant to the non-concurrent retraction right, the Company may redeem Preferred Shares on a pro rata basis in a number to be determined by the Company reflecting the extent to which the number of Preferred Shares outstanding following the non-concurrent retraction exceeds the number of Class A Shares outstanding following the non-concurrent retraction. Conversely, in the event that more Preferred Shares than Class A Shares have been redeemed pursuant to the non-concurrent retraction right, the Company may redeem Class A Shares on a pro rata basis in a number to be determined by the Company reflecting the extent to which the number of Class A Shares outstanding following the non-concurrent retraction exceeds the number of Preferred Shares outstanding following the non-concurrent retraction.
The extension was announced in March, 2019.
Increasing the dividend rate to 6.5% is just the usual investment manager flim-flam, as the NAVPU of the fund (determined by adding the Capital Unit NAV of 0.00 to the preferred share NAV of 10.01) is basically equal to the preferred share obligations. Therefore, preferred share holders currently have an investment in which they are fully exposed to declines in the market value of the underlying portfolio, but their upside is capped.
All the value of this fund, every single penny of current and future value, rightfully belongs to the preferred shareholders. They could raise the dividend rate to 20% and downside exposure would still be equal to that of a straight-out investment in the underlying portfolio and the upside would still be capped. I strongly recommend that preferred shareholders exercise their Special Retraction rights, although the more hopeful among us may wish to delay notification until closer to the February 28, 2020 at 5:00 p.m. (Toronto time) notification deadline, just in case the fund does really well in February and the preferred shares become an attractive investment again.
As noted, the Special Retraction notification deadline is February 28, 2020 at 5:00 p.m. (Toronto time); brokers and other intermediaries will generally have internal deadlines a day or two in advance of this date, although they will generally accept instructions until the last minute on a ‘best efforts’ basis.
This entry was posted on Thursday, January 30th, 2020 at 10:51 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
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OSP.PR.A Extension Details Announced
Brompton Group has announced (although not yet on their website):
The extension was announced in March, 2019.
Increasing the dividend rate to 6.5% is just the usual investment manager flim-flam, as the NAVPU of the fund (determined by adding the Capital Unit NAV of 0.00 to the preferred share NAV of 10.01) is basically equal to the preferred share obligations. Therefore, preferred share holders currently have an investment in which they are fully exposed to declines in the market value of the underlying portfolio, but their upside is capped.
All the value of this fund, every single penny of current and future value, rightfully belongs to the preferred shareholders. They could raise the dividend rate to 20% and downside exposure would still be equal to that of a straight-out investment in the underlying portfolio and the upside would still be capped. I strongly recommend that preferred shareholders exercise their Special Retraction rights, although the more hopeful among us may wish to delay notification until closer to the February 28, 2020 at 5:00 p.m. (Toronto time) notification deadline, just in case the fund does really well in February and the preferred shares become an attractive investment again.
As noted, the Special Retraction notification deadline is February 28, 2020 at 5:00 p.m. (Toronto time); brokers and other intermediaries will generally have internal deadlines a day or two in advance of this date, although they will generally accept instructions until the last minute on a ‘best efforts’ basis.
This entry was posted on Thursday, January 30th, 2020 at 10:51 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.