Category: Issue Comments

S&P has announced:

• •We are lowering our long-term corporate credit rating on Montreal-based Aimia Inc. to ‘BB+’ from ‘BBB-‘, reflecting our view of the risks to the company’s business and cash flow prospects following Air Canada’s notice to not renew its contract with Aimia when the current agreement expires June 30, 2020.
• •We are also lowering our global scale rating to ‘B+’ from ‘BB’ and our Canada scale rating to ‘P-4(High)’ from ‘P-3’ on the company’s preferred shares.
• •The ‘BBB-‘ issue-level rating on the company’s C$450 million senior secured debt outstanding is unchanged, reflecting our expectation of substantial recovery (70%-90%, rounded estimate 80%) in a default scenario. As such, we are assigning a ‘2’ recovery rating to the secured notes.
• •At the same time, we are placing all our ratings on Aimia on CreditWatch with negative implications.
• •The CreditWatch listing reflects the potential that we could lower the ratings on the company by one or more notches. We expect to resolve the CreditWatch placement within the next couple of months following our review of Aimia’s plans.

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The Aeroplan program drives a significant portion of Aimia’s EBITDA and cash flow, and we believe the announcement increases the risk that gross billings will decline and redemptions increase through 2020. We believe this structural change could materially weaken the company’s medium-term cash flow and growth, and raise significant uncertainty about the company’s long-term outlook for sustained growth and profitability, factors that do not support an investment-grade rating, in our opinion.

The CreditWatch listing reflects the risk that we could lower our ratings on Aimia by one or more notches. We expect to resolve the CreditWatch placement within the next couple of months following our review of Aimia’s plans to manage potentially rising reward redemptions; mitigate potentially lower attractiveness of the Aeroplan program to its members; and, more important, demonstrate sufficient liquidity, financial flexibility, and capital market access to support Aimia’s debt obligations and address investments required to transition the business.

On May 11, DBRS announced that it:

has today placed Aimia Inc.’s (Aimia or the Company) Issuer Rating and Senior Secured Debt rating of BBB (low) as well as its Preferred Shares rating of Pfd-3 (low) Under Review with Negative Implications. The action follows the Company’s announcement that it has received a notice of contract non-renewal from Air Canada after the agreement’s expiration in June 2020. DBRS notes that the existing agreement and Air Canada’s purchasing commitments to Aimia remain in place until June 2020.
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The Under Review with Negative Implications status reflects Air Canada’s importance to Aimia as a coalition partner and DBRS’s previous expectation that the agreement with Air Canada would be renewed, albeit on less favourable terms to Aimia. Furthermore, consumers’ reaction to this announcement, including the potential for lower engagement in the Aeroplan program and accelerated reward redemption, creates additional uncertainty going forward regarding the Company’s revenue, adjusted EBITDA and free cash flow profile (particularly with a lack of clarity on future dividend payments). Consequently, there is an increased risk in the ability to repay and/or refinance the $250 million of Senior Secured Notes due May 2019 as well as amounts outstanding on the revolving credit facility, which matures in April 2020. As such, DBRS believes that Aimia’s credit risk profile may no longer be consistent with an investment-grade rating, even if current credit metrics are maintained.

While a negative rating action is likely required, the degree of such an action will follow DBRS’s ongoing review with management, which will focus on (1) the potential impact on the business risk profile following the loss of Air Canada as a coalition partner; (2) the Company’s longer-term business strategy, including plans to maintain customer engagement and find a new airline partner(s), (3) the Company’s liquidity, including refinancing of upcoming 2019 and 2020 maturities; and (4) Aimia’s financial management intentions and dividend policy going forward. DBRS notes that in today’s release Aimia stated that going forward dividends would be linked to free cash flow. DBRS will seek greater insight on these issues to resolve the Under Review status of the ratings as soon as possible.

Affected issues are AIM.PR.A, AIM.PR.B and AIM.PR.C.

Standard & Poor’s has announced:

•We believe Montreal-based Laurentian Bank of Canada’s funding metrics have weakened, as reliance on unsecured wholesale funding has increased because loan growth has accelerated in the past couple of years more than for peers.
• •We are revising our outlook on Laurentian Bank to negative from stable, to account for the bank’s higher dependence on short-term wholesale funding (as we define it), which we view as a riskier and less-reliable funding source.
• •The negative outlook also reflects the potential risks we believe could materialize from the bank’s aggressive business growth (both organic and acquisitive), particularly in Business Services, which includes specialty lending to commercial segments such as equipment finance as well as lending to small- and medium-size enterprises (SMEs) and B2B Bank, its broker and third-party advisor channel, in the next two years.
• •We are also affirming our ‘BBB/A-2’ long- and short-term issuer credit ratings on Laurentian Bank.

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“The outlook revision reflects our assessment of the bank’s weakening funding metrics due to management’s increased appetite for unsecured wholesale funding, with a higher emphasis on short-term wholesale funding (as we define it), which we view as a riskier and less reliable funding source” said Michael Leizerovich S&P Global Ratings credit analyst. By our calculation, Laurentian Bank’s short-term wholesale percentage of funding base has meaningfully risen from 14.6% at year-end 2012 to 25.4% at first-quarter 2017 (versus the peer average of 23.8%). As of first-quarter 2017, the bank’s stable funding ratio (which measures the company’s ability to fund long-term assets with long-term funding) was about 87.8%, which is below the Canadian bank peer average of 98.0%. By our estimate, this ratio, which was 95.4% at year-end 2013, has steadily declined for several years as the company has sought to diversify its funding sources to fund its loan growth.

The outlook is negative, reflecting the bank’s weakening funding profile and heightened risks associated with aggressive business growth. We will continue monitoring the bank’s progress against its ambitious seven-year transformation plan and remain vigilant regarding any changes in asset performance.

Affected issues are LB.PR.F, LB.PR.H and LB.PR.J.

Moody’s Investors Service has announced that it:

has today downgraded the Baseline Credit Assessments (BCAs), the long-term ratings and the Counterparty Risk Assessments (CRAs) of six Canadian banks and their affiliates, reflecting Moody’s expectation of a more challenging operating environment for banks in Canada for the remainder of 2017 and beyond, that could lead to a deterioration in the banks’ asset quality, and increase their sensitivity to external shocks.

The banks affected are: Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Canada, National Bank of Canada, and Royal Bank of Canada.

The BCAs, long-term debt and deposit ratings and CRAs of the banks and their affiliates were downgraded by 1 notch, excepting only Toronto-Dominion Bank’s CRA, which was affirmed. The short term Prime-1 ratings of the Canadian banks were affirmed. All relevant ratings for these banks continue to have negative outlooks, reflecting the expected introduction of an operational resolution regime in Canada.

“Today’s downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future. Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” said David Beattie, a Moody’s Senior Vice President.
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Moody’s considers that weakening credit conditions in Canada — including an increase in private-sector debt to GDP to 185.0% as of the end of 2016, up from 179.3% for 2015 — present increasing risk to Canadian banks’ asset quality and profitability. This increase has been led by household debt, which is now at a record high of 167.3% of disposable income (as at Q4 2016) and accompanying house price appreciation. Despite macro-prudential measures put into place by Canadian policymakers in recent years — which have had some success in moderating the rate of housing price growth — house prices and consumer debt levels remain historically high. Business credit, the other component of private-sector debt, has also grown rapidly, at a 6.2% CAGR over the past 3 years. We do note that the Canadian banks maintain strong buffers in terms of capital and liquidity. However, the resilience of household balance sheets, and consequently bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness.

Specifically:

Toronto-Dominion Bank (TD, Aa2/Aa2 negative, a1); TD’s strong ratings are attributable to its very strong domestic retail franchise — which generates stable and recurring profitability and its business mix. This strength is due to leading market share positions in many personal & commercial financial services products, where TD typically has market shares in the high teens and holds first or second positions.

TD is the most retail oriented of its Canadian peers, with approximately 90% of earnings coming from retail (combined Canadian personal & commercial, wealth management and US personal & commercial, excluding corporate). While CM income has increased over recent quarters and capital allocated to the wholesale business is rising, we expect that reliance on this inherently volatile source of income will remain relatively modest.

Through acquisition and organic growth, TD has increased its exposure to unsecured Canadian consumer credit risk in recent years. In our view, however, the strength and stability of the earnings from TD’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings. The ratings of TD’s US affiliates benefit from support from the parent, and as such are also affected by this action.

TD’s preferred shares have been downgraded to Baa1(hyb). Issues affected are: TD.PF.A, TD.PF.C, TD.PF.D, TD.PF.E, TD.PF.F, TD.PF.G, TD.PF.H, TD.PR.S, TD.PR.T, TD.PR.Y, TD.PR.Z

BMO:

Bank of Montreal (BMO A1/A1 negative, a3); BMO is one of the six major banks in Canada which benefit from the protection of significant barriers to entry and the stability of a prudent regulatory environment. Although its Canadian retail market shares are towards the lower end of the Canadian peer group, BMO has double digit market shares across all significant retail financial services and products, providing scale and recurring earnings power in its home market. In our view, however, the strength and stability of the earnings from BMO’s Canadian personal and commercial (P&C) banking franchise remain the primary credit strength supporting its ratings. BMO has a strong and improving US regional banking presence through BMO Harris, which adds important diversification away from reliance on Canadian P&C earnings. However, BMO does not enjoy the same franchise strength and pricing power in the more competitive US market that it does in Canada. The ratings of BMO Harris and affiliates benefit from support from the parent, and as such are also affected by this action.

BMO’s preferred shares have been downgraded to Baa3(hyb). Issues affected are: BMO.PR.A, BMO.PR.B, BMO.PR.C, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.Q, BMO.PR.R, BMO.PR.S, BMO.PR.T, BMO.PR.W, BMO.PR.Y, BMO.PR.Z.

BNS:

Bank of Nova Scotia (BNS A1/A1 negative, a3); BNS is the most internationally active of the Canadian banks with approximately half of its earnings generated outside of Canada. BNS has taken significant measures to increase its profitability that signal a fundamental shift away from the bank’s traditionally low risk appetite. While the bank’s strategic actions are intended to enhance current profitability — in 2016, BNS reported domestic net interest margin lower than the six largest Canadian banks’ average- in our view, they increase the prospect of future incremental credit losses.

While BNS had strategically grown its credit card and auto finance portfolios – both of which are particularly prone to deterioration during an economic downturn and exhibit higher defaults and loss severities than mortgage portfolios — in recent years, growth in 2016 was flat. In addition, the bank has made a series of acquisitions away from its strong domestic franchise towards higher-growth but less stable international markets. BNS has aspirations to continue to grow its international earnings, which in Moody’s view adds to bondholder risk.

BNS’ preferreds have been downgraded to Baa3(hyb). Issues affected are: BNS.PR.A, BNS.PR.B, BNS.PR.C, BNS.PR.D, BNS.PR.E, BNS.PR.F, BNS.PR.G, BNS.PR.H, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.Y and BNS.PR.Z.

CM:

Canadian Imperial Bank of Commerce (CIBC A1/A1 negative, a3); CIBC is the most reliant of the Canadian banks on domestic P&C earnings, which generate approximately 65% of total earnings, excluding Corporate. In our view, however, the strength and stability of the earnings from CIBC’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings. CIBC has the second lowest proportionate exposure to unsecured and non-real estate secured consumer debt as a percentage of domestic consumer assets (roughly 11.5%), reflective of its very large book of insured mortgages.

CIBC is one of the six major banks in Canada that benefit from the protection of significant barriers to entry and the stability of a prudent regulatory environment. Although its Canadian retail market shares are mid-range relative to its Canadian peers, CIBC has solid double digit market shares across all significant retail financial services and products, providing scale and recurring earnings.

CM’s preferreds have been downgraded to Baa3(hyb). Affected issues are CM.PR.O, CM.PR.P and CM.PR.Q.

NA:

National Bank of Canada (NBC A1/A1 negative, baa1); NBC’s dominant position in commercial banking and strong second place share of market in retail banking in Québec are the primary credit strengths supporting its high ratings. The stability of the recurring earnings power of NBC’s regional retail franchise is, in Moody’s view, highly unlikely to be challenged. That being said, NBC’s asset base (CAD234 billion as of Q1 2017) and national deposit share (roughly 4%) are small relative to the other large Canadian banks whose branch systems are more national in scale. In our view, however, the strength and stability of the earnings from NBC’s Canadian personal and commercial banking franchise remain the primary credit strength supporting its ratings.

While each of the major Canadian banks enjoys the benefits of superior pricing power due to sustainable large market shares in many significant retail and commercial products and services, this is true for NBC only in the context of its regional market, the province of Québec. As such, the challenges in geographic diversification and earnings stability and the Québec credit concentrations offset partially the strength in local market share and sustainability. NBC is the Canadian bank most reliant upon inherently less stable capital markets earnings, which generated 38% of total earnings, excluding Corporate for 2016 (38% for 2015.)

NA’s preferreds have been downgraded to Ba1(hyb). Affected issues are NA.PR.A, NA.PR.Q, NA.PR.S, NA.PR.W and NA.PR.X

RY:

Royal Bank of Canada (RBC A1/A1 negative, a3 ); RBC’s ratings reflect its profile as a strong and diversified universal bank with sustainable leading market shares across many retail products and services in its home market. The stable earnings from RBC’s domestic Personal and Commercial franchise are a key credit strength. RBC has had very low earnings volatility, supported by the stabilizing effect of the recurring profitability of RBC’s solid domestic retail banking franchise.

However, over the past four years RBC has demonstrated rapid growth in its Capital Markets business, led by growth in its US corporate loan book and the repo and securities finance business. We believe that RBC’s US-focused Capital Markets growth strategy increases its exposure to risks that could more rapidly erode its creditworthiness in volatile or adverse market conditions, and is therefore negative for the credit. To date, this risk has been well managed and its performance has been very stable. Maintaining this performance through more volatile markets will be key to RBC’s longer term risk management track record. We do not expect that this business will continue on this growth trajectory, and, in fact, that capital committed to the Capital Markets business will be more constrained.

Management plans to substantially grow the earnings of its recently acquired, California-based private and commercial bank, City National Bank, (deposits Aa3 stable, a2) both organically and through targeted acquisitions. Growth in the City National business presents less credit risk than continued growth in the Capital Markets area, in our view.

RY’s preferreds have been downgraded to Baa3(hyb). Affected issues are RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G, RY.PR.H, RY.PR.I, RY.PR.J, RY.PR.K, RY.PR.L, RY.PR.M, RY.PR.N, RY.PR.O, RY.PR.P, RY.PR.Q, RY.PR.R, RY.PR.W and RY.PR.Z.

RioCan Real Estate Investment Trust has announced:

that it will exercise its right to redeem all of its 5,980,000 outstanding Cumulative Rate Reset Preferred Trust Units, Series C (the “Series C Units”) on June 30, 2017 at the cash redemption price of $25.00 per Series C Unit, for total redemption proceeds of $149.5 million.

The regular quarterly distribution of $0.29375 per Series C Unit for the quarter ending June 30, 2017 (the “Final Distribution”) will be payable to holders of the Series C Units of record on June 30, 2017. Payment of the redemption proceeds and the Final Distribution will be made to CDS & Co., as sole registered holder, on or prior to June 30, 2017. Payment to beneficial holders will be made through the facilities of CDS & Co. on or about July 4, 2017 in respect of the redemption proceeds and July 6, 2017 in respect of the Final Distribution, respectively.

From and after June 30, 2017, the Series C Units will cease to be entitled to distributions and the only remaining rights of holders of such units will be to receive payment of the cash redemption price.

Beneficial holders who are not directly the registered holder of Series C Units should contact the financial institution, broker or other intermediary through which they hold these units to confirm how they will receive their redemption proceeds. Instructions with respect to receipt of the redemption amount will be set out in the redemption notice to be mailed to the registered holder of the Series C Units shortly. Inquiries should be directed to our Registrar and Transfer Agent, CST Trust Company, at 1-800-387-0825 (or in Toronto 416-682-3860).

REI.PR.C is an interest-bearing FixedReset, 4.70%+318, that commenced trading 2011-11-30 after being announced 2011-11-17. It has been a member of the Scraps subindex throughout its existence due to credit concerns.

The spread is very low for a redeemed issue, particularly since it is paying interest rather than dividends, but the company’s intent to redeem has been clear since the shocking redemption of REI.PR.A, which boosted the price of that share by 50%+ on announcement day. While the CFO made a case that the funding was not cost-effective in current conditions (even when having to redeem at par) no case was ever made as to why a tender offering and Normal Course Issuer Bid was ever pursued.

Pembina Pipelines and Veresen have announced:

they have entered into an arrangement agreement to create one of the largest energy infrastructure companies in Canada with a pro-forma enterprise value of approximately $33 billion (the “Transaction”).
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Under the terms of the arrangement agreement, Pembina is offering to acquire all the issued and outstanding shares of Veresen by way of a plan of arrangement under the Business Corporations Act (Alberta). The Transaction is valued at approximately $9.7 billion including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares.

Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of approximately 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion. Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share.
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Furthermore, Veresen will be seeking approval of holders of outstanding Veresen preferred shares to effect the exchange of such shares for Pembina preferred shares with the same terms and conditions as the outstanding Veresen preferred shares. For such exchange to occur at closing of the Transaction, approval of at least 662/3 percent of holders of Veresen’s preferred shares is required, voting as one class, represented in person or by proxy at a special meeting of Veresen preferred shareholders to be called to consider the Transaction. Closing of the Transaction is not conditional on the approval of the holders of Veresen’s preferred shares.
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The cash consideration associated with the Transaction will be initially funded through the company’s $2.5 billion unsecured credit facility. Subsequently, Pembina expects to refinance this with a combination of internally generated cash flows and the issuance of Medium Term Notes and preferred shares.

In addition, a special meeting of the holders of preferred shares of Veresen will be called to approve the Transaction. If the holders of Veresen preferred shares, voting together as a single class, approve the Transaction, each preferred share of Veresen would be exchanged, on a one for one basis, for a new preferred share of Pembina having the same terms and conditions as the Veresen preferred shares. Completion of the Transaction is not conditional upon the approval of the Transaction by holders of Veresen’s preferred shares.

If the holders of Veresen’s preferred shares do not approve the Transaction, voting as a single class but separate from common shares, the Veresen preferred shares will remain outstanding following completion of the Transaction.

DBRS immediately gave its blessing to the transaction:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Pembina Pipeline Corporation (Pembina or the Company) at BBB and the Company’s Preferred Shares at Pfd-3. All trends remain Stable. The confirmations follow Pembina’s announcement that it has entered into an agreement to acquire Veresen Inc. (Veresen) for $9.7 billion, including the assumption of Veresen’s debt (the Acquisition or the Transaction). The confirmations reflect DBRS’s expectation that the Acquisition would not have a material impact on the Company’s current credit profile. On March 3, 2017, DBRS confirmed all of Pembina’s ratings with Stable trends reflecting its solid financial performance in 2016 and the continued improvement of its business risk profile. Veresen was rated BBB by DBRS. However, On August 4, 2016, DBRS placed the ratings of Veresen Under Review with Negative Implications pending the completion of the sales of its power generation assets.
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With respect to the potential impact of the Acquisition on Pembina’s financial risk profile, DBRS has reviewed Pembina’s financing plan and performed a pro forma analysis and is of the view that the Acquisition would modestly weaken Pembina’s credit metrics in the near term but would not have a material impact over the medium term.

DBRS later added:

DBRS Limited (DBRS) today notes that Veresen Inc. (Veresen or the Company; BBB, Under Review with Negative Implications) and Pembina Pipeline Corporation (Pembina; rated BBB, Stable trend) have announced that they have agreed to combine to create one of the largest energy infrastructure companies in Canada (the Transaction). Under the Transaction, valued at approximately $9.7 billion, including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares, Pembina has offered to acquire all the issued and outstanding shares of Veresen. The Transaction is subject to approval by Veresen’s common shareholders, as well as regulatory approvals, and is expected to close late in the third quarter or early Q4 2017.

DBRS placed Veresen’s ratings Under Review with Negative Implications following the Company’s announcement that it would sell its power generation business. Please refer to the DBRS press releases “DBRS Places Veresen Inc.’s Ratings Under Review with Negative Implications,” dated August 4, 2016, and “DBRS Comments on Veresen’s Sale of Power Business,” dated February 21, 2017. Today’s announcement does not have an immediate impact on the credit profile of Veresen as the Transaction is expected to close later this year. Consequently, DBRS is maintaining the Under Review with Negative Implications status on Veresen’s ratings. DBRS will review the Under Review with Negative Implications status after the sale of Veresen’s remaining power assets has closed in Q2 2017 and as more details become available with respect to the Transaction.

Veresen preferred shares immediately leapt upwards, although early gains did not hold, as illustrated by this chart of the day’s trading in VSN.PR.A:

Click for Big

VSN.PR.E saw very heavy trading (368,192 shares) but simply rose to a modest premium over par and stayed there.

The price movement left the PPL and VSN preferreds trading as equivalents:

Click for Big

The results of this Implied Volatility analysis are a little puzzling. The near-par price for an issue with a spread of 427bp (VSN.PR.E) does not seem unreasonable in light of last week’s issuance of BPO FixedReset 4.85%+374M485 and EFN FixedReset 5.75%+464M575, but the Implied Volatility of 39% is ludicrously high; much higher than can be expected even assuming a huge market appetite for low-spread issues (in anticipation of GOC-5 yields). Thus, I would expect the higher-spread issues to outperform the lower spread issues over the next … period. (Predictions are one thing – predictions with a time frame are quite another!).

Affected issues are VSN.PR.A, VSN.PR.C and VSN.PR.E.

Outstanding PPL issues are PPL.PR.A, PPL.PR.C, PPL.PR.E, PPL.PR.G, PPL.PR.I, PPL.PR.K and PPL.PR.M.

Brompton Oil Split Corp. has released its Annual Report to December 31, 2016.

Figures of interest are:

MER: 1.37% of the whole unit value, excluding one time initial offering expenses.

Average Net Assets: We need this to calculate portfolio yield. NAV of 52.2-million in 2016, 47.7-million in 2015, average is 50.0-million.

Underlying Portfolio Yield: Dividends received (net of withholding) of 1.243-million divided by average net assets of 50-million is 2.49%

Income Coverage: Net Investment Income (dividends, withholding, expenses) of 0.502-million divided by Preferred Share Distributions of 1.331-million is 38%.

Standard & Poor’s has announced:

• •TransAlta Corp.’s (TAC) reduction of contractedness via the expiry of Alberta power purchase agreements in 2018 and 2020 increases the company’s business risk.
• •TAC’s financial metrics, although improving, may not sufficiently offset the potential increase in business risk.
• •As a result, we are revising our outlook on the company to negative from stable.

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“The outlook revision reflects our view that although TAC’s financial metrics have improved, they might not sufficiently offset the potential increase in business risk as a result of the reduction of contractedness via the expiry of the Alberta power purchase agreements in 2018 and 2020,” said S&P Global Ratings credit analyst Stephen Goltz.

Underpinning TAC’s strong business risk profile is the strength of the company’s contractual framework, in particular Alberta coal PPAs, which currently cover approximately 50% of TAC’s total capacity. The PPAs’ structure has mitigated Alberta’s volatile electricity prices, particularly in the past two years.
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The company has made strong inroads into deleveraging its balance sheet amid Alberta’s very difficult power market. For the outlook period we forecast adjusted funds from operations (AFFO)-to-debt to improve to around 20%. However, while financial metrics have improved and are forecast to continue to do so, we see some headwinds that might impede the company’s ability to further raise them to a level that would mitigate the PPAs’ loss. We believe that the difficult operating environment will persist through the outlook period, with power prices likely to remain at their current depressed levels.
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The negative outlook reflects our expectation that TAC’s business risk may increase as the company’s Alberta PPAs mature without TAC having an offsetting replacement mechanism that provides equivalent support to business risk or without continued improvement to financial metrics. We forecast that FFO-to-debt will be in the 18%-20% range and that contractedness will fall to about 73% in 2018 and to approximately 35% at the end of 2020 absent replacement contracts.

We could take a negative rating action if we believe that the factors that support a positive comparable rating assessment modifier will not continue. This could result from a reduction of contractedness without the replacement equivalent mechanisms and adjusted FFO-to-debt remaining at about 20%.

Affected issues are TA.PR.D, TA.PR.E, TA.PR.F, TA.PR.H and TA.PR.J.

This announcement follows last’s week’s downgrade to Pfd-3(low) by DBRS.

Brompton Group has announced (although not yet on their website and they didn’t send me the usual eMail):

Dividend Growth Split Corp. (the “Company”) is pleased to announce it is undertaking an overnight treasury offering of class A and preferred shares.

The sales period of this overnight offering will end at 9:00 a.m. (ET) tomorrow, March 28, 2017. The offering is expected to close on or about April 6, 2017 and is subject to certain closing conditions including approval by the TSX.

The class A shares will be offered at a price of $8.00 for a distribution rate of 15.0% on the issue price, and the preferred shares will be offered at a price of $10.00 for a yield to maturity of 5.45%. The closing price on the Toronto Stock Exchange (“TSX”) for each of the class A and preferred shares on March 24, 2017 was $8.26 and $10.33, respectively. The class A and preferred share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company (calculated as at March 24, 2017), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC and Scotiabank.

The Company invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Currently, the portfolio consists of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	CI Financial Corp.	Shaw Communications Inc.
Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce	IGM Financial Inc.	TELUS Corporation
Manulife Financial Corporation	National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	BCE Inc.	Enbridge Inc.
Bank of Montreal	The Toronto-Dominion Bank	Rogers Communications Inc.	TransCanada Corporation

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share and to provide the opportunity for growth in the net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.13125 per preferred share, and to return the original issue price to holders of preferred shares on the Company’s maturity date (November 28, 2019).

It’s getting to be quite the size, with assets of $415-million as of February month-end. Their previous treasury offering was in September 2016.

Update, 2017-03-29: The offering was very successful:

Dividend Growth Split Corp. (the “Company”) is pleased to announce a successful overnight treasury offering of class A and preferred shares. Gross proceeds of the offering are expected to be approximately $86 million. The offering is expected to close on or about April 6, 2017 and is subject to customary closing conditions including approval from the Toronto Stock Exchange (the “TSX”). The Company has granted the Agents (as defined below) an over-allotment option, exercisable for 30 days following the closing date of the offering, to purchase up to an additional 15% of the number of class A and preferred shares issued at the closing of the offering.

The class A shares were offered at a price of $8.00 for a distribution rate of 15.0% on the issue price, and the preferred shares were offered at a price of $10.00 for a yield to maturity of 5.45%. The class A and preferred share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company (calculated as at March 24, 2017), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

Update, 2017-04-06: The offering was very successful:

Dividend Growth Split Corp. (the “Company”) is pleased to announce that it has completed the previously announced treasury offering of class A shares and preferred shares for aggregate gross proceeds of approximately $86 million.