Category: Issue Comments

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.
…
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.

Brookfield Asset Management Inc. has announced:

that after having taken into account all election notices received by the March 16, 2017 deadline for the conversion of the Cumulative Class A Preference Shares, Series 26 (the “Series 26 Shares”) (TSX: BAM.PR.T) into Cumulative Class A Preference Shares, Series 27 (the “Series 27 Shares”), the holders of Series 26 Shares are not entitled to convert their Series 26 Shares into Series 27 Shares. There were 183,036 Series 26 Shares tendered for conversion, which is less than the one million shares required to give effect to conversions into Series 27 Shares.

Assiduous Readers will remember that I recommended against conversion after the reset to 3.471% for BAM.PR.T.

So BAM.PR.T is now a FixedReset, 3.471%+231. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex.

Brookfield Office Properties Inc. has announced:

that after having taken into account all election notices following the March 16, 2017 conversion deadline for the Class AAA Preference Shares, Series P (the “Series P Shares”) (TSX: BPO.PR.P) tendered for conversion into Class AAA Preference Shares, Series Q (the “Series Q Shares”), the holders of Series P Shares are not entitled to convert their Series P Shares into Series Q Shares. There were 488,396 Series P Shares tendered for conversion, which is less than the 1,000,000 shares required to give effect to conversions into Series Q Shares.

The Series P Shares will pay on a quarterly basis, for the five-year period beginning on April 1, 2017, as and when declared by the board of directors of Brookfield, a fixed dividend based on an annual dividend rate of 4.161% per annum (C$0.260063 per share per quarter).

Assiduous Readers will remember that I recommended against conversion after the reset to 4.161% for BPO.PR.P.

So BPO.PR.P is now a FixedReset, 4.161%+300. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

BCE Inc. has announced:

that none of its fixed-rate Cumulative Redeemable First Preferred Shares, Series AO (Series AO Preferred Shares) will be converted into floating-rate Cumulative Redeemable First Preferred Shares, Series AP (Series AP Preferred Shares) on March 31, 2017.

On March 1, 2017, BCE notified holders of Series AO Preferred Shares that they could elect to convert their shares into Series AP Preferred Shares subject to the terms and conditions attached to those shares. Only 104,631 of BCE’s 4,600,000 Series AO Preferred Shares were tendered for conversion on March 31, 2017 into Series AP Preferred Shares. As this would result in there being less than one million Series AP Preferred Shares outstanding, no Series AO Preferred Shares will, as per the terms and conditions attached to those shares, be converted on March 31, 2017 into Series AP Preferred Shares.

The Series AO Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbol BCE.PR.O. The Series AO Preferred Shares will pay on a quarterly basis, for the 5-year period beginning on March 31, 2017, as and when declared by the Board of Directors of BCE, a fixed quarterly cash dividend based on an annual dividend rate of 4.260%.

Assiduous Readers will remember that I recommended against conversion after the reset to 4.26% for BCE.PR.O.

Canoe EIT Income Fund has announced:

that it has closed the previously announced offering of 4.80% Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”). The Series 1 Preferred Units were offered to the public through a syndicate of underwriters led by Scotiabank and RBC Capital Markets which also included BMO Capital Markets, CIBC Capital Markets, National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., Industrial Alliance Securities Inc. and Manulife Securities Incorporated.

The Fund issued 4,900,000 Series 1 Preferred Units at a price of $25.00 per Series 1 Preferred Unit for gross proceeds of $122,500,000. The Fund has also granted the underwriters an option, exercisable at the offering price for a period of 30 days from today’s date, to purchase up to an additional 735,000 Series 1 Preferred Units to cover over-allotments, if any. Holders of the Series 1 Preferred Units will be entitled to fixed cumulative preferential cash distributions of $1.20 per Series 1 Preferred Unit per annum, as and when declared, which will accrue from the date of issue and will be payable quarterly on the 15th day of March, June, September and December in each year with the initial distribution, if declared, payable on June 15, 2017. The Series 1 Preferred Units are listed for trading on the Toronto Stock Exchange under the symbol EIT.PR.A.

The proceeds from the Offering will be invested by the Fund in accordance with its investment objectives and strategies. The Offering is expected to ensure the sustainability of the Fund by increasing the earning capacity of the units. The Series 1 Preferred Units are rated Pfd – 2 (high) by Dominion Bond Rating Service Limited.

The Fund’s regular monthly distribution of $0.10 per unit for unitholders of EIT.UN units remains unchanged. The Fund has maintained the $0.10 per unit monthly distribution since August 2009, through varying market conditions.

The Fund’s annual voluntary redemption feature for unitholders of EIT.UN units remains unchanged. Once a date has been set for the 2017 annual redemption, the Fund will issue a news release with the details.

EIT.PR.A is a 4.80% Seven Year Retractible that was announced 2017-3-8 after marketting began 2017-2-22. It will be tracked by HIMIPref™ and has been assigned to the Split Share subindex.

Note that according to the prospectus, to which I am not permitted to link because Canadian Securities Administrators take the view that you are all stupid, filthy, ignorant investor scum and do not deserve the slightest consideration whatsoever. You will have to go to SEDAR and look for “Canoe EIT Income Fund Mar 8 2017 14:21:01 ET Final short form prospectus – English PDF 266 K”.

Distributions in any given period may consist of net income, net capital gains and/or returns of capital.

The issue traded 213,320 shares today in a range of 24.90-25 before closing at 25.25-30, 5×10. Vital statistics are:

EIT.PR.A is rated Pfd-2(high) by DBRS:

DBRS Limited (DBRS) has today finalized its provisional rating of Pfd-2 (high) on the Cumulative Redeemable Series 1 Preferred Units (the Series 1 Preferred Units) issued by Canoe EIT Income Fund (the Fund).

The Fund is a closed-end investment trust focused on a broad range of income-producing investments in various industries and geographic regions. The Fund can issue an unlimited number of capital units (the Units) and can also issue in-series Preferred Units up to a maximum aggregate amount equal to 25% of the Fund’s total assets after giving effect to the proposed offering of the Preferred Units. The Series 1 Preferred Units were issued at a price of $25.00 per Series 1 Preferred Unit. The Series 1 Preferred Units are retractable for cash at the option of the holder on or after March 15, 2024.

The Fund has a credit facility (the Credit Facility) with a Tier 1 Canadian bank, but is restricted by its Declaration of Trust from borrowing in excess of 20% of the Fund’s total assets at the time of borrowing, after giving effect to the borrowing. The Credit Facility is secured by all of the Fund’s present and after-acquired personal property, undertaking and assets as well as all proceeds thereof. Distributions on the Series 1 Preferred Units are restricted if a default or event of default occurs under the Credit Facility or if the outstanding amount borrowed exceeds the available credit at any time.

Net proceeds from the offering of the Series 1 Preferred Units, after deducting the fees and expenses incurred as a result of the offering, are expected to be invested by the Fund to grow its portfolio in accordance with its investment objectives and investment strategies.

The Series 1 Preferred Unit holders will be entitled to receive quarterly cumulative preferential cash distributions of $0.30 (or $1.20 annually), representing a 4.80% per annum return on the issue price of $25.00. The holders of the Units currently receive targeted monthly cash distributions amounting to $1.20 per annum. In addition, up to 10% of the aggregate outstanding Units may be redeemed at the option of the Unit holders each calendar year on a date determined by the Fund.

The risks relating to the Unit distributions and redemptions are partially mitigated by restrictions on distributions, purchases and redemptions in the Fund’s Declaration of Trust as the Fund cannot pay or declare payable any distribution amount to the Unitholders (other than amounts that are paid solely through the issuance of additional Units, which would not affect the downside protection, or annual redemption amounts at the option of the holders of Units as described above), purchase for cancellation or otherwise redeem the Units, unless and until the distribution entitlements of the Series 1 Preferred Units have been paid in full or moneys are set aside for such payment.

The Fund’s portfolio initially provides downside protection of approximately 84% to holders of the Series 1 Preferred Unit and an asset coverage of approximately 10.0 times (x). The Series 1 Preferred Unit distributions are expected to be mainly funded through income received from the income-generating securities in the Portfolio. The Fund may also engage in writing covered call options to supplement the income. The Series 1 Preferred Units dividend coverage is expected to be approximately 1.7x.

The Pfd-2 (high) rating assigned by DBRS is based on the level of downside protection available to holders of the Series 1 Preferred Units, the distribution coverage ratio and the diversification of the Fund’s portfolio. In addition, DBRS has taken into account the potential grind on the portfolio arising from (1) distributions to the Units and redemption rights, (2) potential foreign-exchange risk because some investments in foreign currencies are not hedged and (3) the fact that lenders under the Credit Facility have priority over the Fund’s assets up to the amount of credit outstanding. Considering the Credit Facility amount compared with the current total assets, DBRS does not view the latter risk to be significant.

Update, 2017-3-22: Canoe Financial has announced:

Canoe EIT Income Fund (the “Fund”) (TSX – EIT.UN, EIT.PR.A) announced today that the syndicate of underwriters for the offering (the “Offering”) of 4.80% Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”) of the Fund has fully exercised its over-allotment option. As a result of the exercise of the over-allotment option, the Fund raised additional gross proceeds of $18,375,000 from the sale of 735,000 Series 1 Preferred Units. Inclusive of the over-allotment option, the Fund raised gross proceeds of $140,875,000 from the sale of 5,635,000 Series 1 Preferred Units. The Series 1 Preferred Units are listed on the Toronto Stock Exchange under the symbol EIT.PR.A.