Category: Issue Comments

DBRS has announced:

DBRS, Inc. (DBRS) has today upgraded the ratings of Element Fleet Management Corporation (Element or the Company), including its Issuer Rating to BBB (high) from BBB. The trend on all ratings is Stable. Concurrently, DBRS has changed the name of Element Financial Corporation to Element Fleet Management Corporation on its website, reflecting the change in the Company’s legal name effective today following the legal separation of Element from its former commercial businesses which are now housed within ECN Capital Corporation. Today’s rating action concludes the Under Review with Positive Implications, where the ratings were placed on February 17, 2016.
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From DBRS’s perspective, Element’s below-average risk profile is a positive and a key factor in the ratings. The Company’s risk profile is supported by its conservative credit risk appetite and its well-designed risk management framework. Credit risk, which is derived from the Company’s corporate client base, is Element’s primary risk exposure. However, with more than 60% of the client base investment grade corporates, historical credit losses in Element’s fleet management business have been very low, averaging approximately 0.03% of book value annually. Moreover, Element’s overall risk profile benefits from minimal exposure to asset risk, given the lease structure of the majority of the leasing portfolio.

DBRS considers Element’s funding and liquidity profile as appropriately managed and aligned with the asset base. However, DBRS views the reliance on secured forms of wholesale funding as limiting financial flexibility and a constraint on the ratings. Liquidity is largely comprised of unrestricted cash and capacity under its bank facilities, supported by solid cash flow from operations, which as of June 30, 2016, on a pro-forma basis, was more than sufficient to fund expected originations over the next year. DBRS views capitalization as solid given the credit risk profile, limited residual value exposure and strengthening ability to generate organic capital. On a pro-forma basis, tangible leverage is in line with industry peers at 7.5x, at June 30, 2016, and within maximum covenant limits.

I previously reported on the Review-Positive when it was announced by DBRS in February, 2016.

Affected issues are EFN.PR.A, EFN.PR.C, EFN.PR.E and EFN.PR.G.

S&P Global Ratings has announced:

• •Bombardier Inc. has cut its 2016 delivery forecast for the C-Series due to jet engine delivery delays by Pratt & Whitney.
• •In addition, the business and commercial jet portfolios continue to be pressured due to softer end markets, leading us to revise the business risk profile to weak from fair.
• •As a result, we are lowering our long-term corporate credit and issue ratings on Bombardier to ‘B-‘ from ‘B’.
• •We are lowering our global scale and Canada scale ratings on the company’s preferred stock to ‘CCC-‘ and ‘P-5(Low)’
• •The stable outlook reflects our view that the company’s liquidity provides significant financial flexibility to cover cash flow deficits and any unexpected underperformance through 2017.

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“The downgrade primarily reflects our view of the company’s increased sensitivity to protracted weakness in its end markets and future delays to its C-Series program,” said S&P Global Ratings credit analyst Aniki Saha-Yannopoulos.
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The ratings on Bombardier reflect what we view as the company’s weak business risk profile and highly leveraged financial risk profile. Our ratings take into consideration the company’s competitive market position in the transportation and business aircraft segments, as well as Bombardier’s product diversity. These positives are offset, in part we believe, by the continued risk associated with Bombardier’s production ramp-up of the C-Series jet, high leverage, weakness in the business jet space, and declining cash flow from both the aerospace and transportation divisions.

The stable outlook reflects our view that even though the company faces multiple risks, it has ample liquidity resources to manage its operations.

The most recent news regarding Bombardier’s core competency is:

Canadian government officials should “make up their minds” on a financial aid request by struggling aircraft maker Bombardier Inc., Quebec Finance Minister Carlos Leitao says.

Quebec announced an aid package for the C Series program late last year, which helped stabilize the Montreal-based company and allowed it to secure sales for the jet, Mr. Leitao said at the Bloomberg Canadian Fixed Income Conference in New York. Quebec finalized the deal in June.

Bombardier also sought federal help late last year, though Prime Minister Justin Trudeau’s government has since sought corporate-governance concessions in exchange for any aid package. Bombardier and the federal government remain locked in a standoff over the matter. Mr. Leitao says federal funding would allow the company to start developing new products.
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Philip Proulx, a spokesman for federal Innovation Minister Navdeep Bains, who is leading talks with Bombardier on behalf of Mr. Trudeau’s government, declined to comment directly on whether a decision on the aid request is imminent.

“We want to be part of the solution to help set the company up for long term success,” Mr. Proulx said by e-mail. “That is why we continue to be engaged with the company. For us, the priority is to ensure good quality jobs, R&D investments and head office remains in Canada.”

Affected issues are BBD.PR.B, BBD.PR.C and BBD.PR.D.

Element Financial Corporation has announced:

that the previously announced separation transaction (the “Separation Transaction”), to be implemented by way of plan of arrangement (the “Arrangement”) has received the requisite shareholder approval at Element’s special meeting of shareholders held on September 20, 2016 (the “Meeting”). As a result of the Separation Transaction, shareholders will hold one new common share of Element Fleet Management Corp. and one common share of ECN Capital Corp. (“ECN Capital”) for each common share of Element held. The results of the ballot were 313,993,690 common shares (99.52%) voted at the meeting in favour of the resolution.

According to the Management Information Circular:

On February 16, 2016, we announced that our Board of Directors unanimously approved in principle the reorganization of Element into two separate publicly-traded companies (the “Spin-Out Transaction”) that Element believes will be better able to pursue independent strategies and opportunities for growth and ultimately enhance long-term value for shareholders. If implemented, the reorganization would result in Element (which will be renamed “Element Fleet Management Corp.”) continuing as a fleet management company focused on generating revenue and earnings based on the continued service to Element’s existing fleet management business. The reorganization would also result in the creation of a new commercial finance company (to be named “ECN Capital Corp.”) with a broad origination platform in the commercial and vendor, rail and aircraft sectors, which will transition into an asset management business.
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Each of Element’s outstanding series of preferred shares will remain outstanding obligations of Element Fleet following the Element Arrangement.

Element’s Debentures will also remain outstanding obligations of Element Fleet following the Element Arrangement, and the Board has determined to adjust the conversion prices of the Debentures after the Element Effective Date in a manner equitable in the circumstances so as to reflect the effect of the Element Arrangement. Such adjustment will be subject to the approval of the TSX.
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While Element expects that the credit rating of Element Fleet following the Element Arrangement will improve in relation to Element’s current credit rating, there can be no assurance that its credit rating will improve or be maintained. In any case, the credit ratings assigned to Element are not a recommendation to buy, hold or sell securities of Element. A rating is not a comment on the market price of a security nor is it an assessment of ownership given various investment objectives. There can be no assurance that the credit ratings assigned to Element will remain in effect for any given period of time and ratings may be upgraded, downgraded, placed under review, confirmed and discontinued by an applicable credit ratings agency at any time. Real or anticipated changes in credit ratings may affect the ma rket value of securities of Element Fleet. In addition, real or anticipated changes in credit ratings may affect Element Fleet’s ability to obtain short -term and long-term financing and the cost at which Element Fleet can access the capital markets.

DBRS has had the company on Review-Positive since the announcement of intention in February, as previously reported. There has not yet been any announcement from the Credit Rating Agencies regarding changes in rating now that shareholder approval of the split has been obtained.

Affected issues are EFN.PR.A, EFN.PR.C, EFN.PR.E and EFN.PR.G.

Intact Financial Corporation has announced:

that 1,594,996 of its 10,000,000 Non-cumulative Rate Reset Class A Shares Series 3 (the “Series 3 Preferred Shares”) were tendered, for conversion on September 30, 2016, on a one-for-one basis, into Non-cumulative Floating Rate Class A Shares Series 4 of IFC (the “Series 4 Preferred Shares”) after having taken into account all elections received before the September 15, 2016, 5:00 p.m. (ET) conversion deadline. As a result of the conversion, on September 30, 2016, IFC will have 8,405,004 Series 3 Preferred Shares and 1,594,996 Series 4 Preferred Shares issued and outstanding. The Series 3 Preferred Shares will continue to be listed on the Toronto Stock Exchange (“TSX”) under the symbol IFC.PR.C. The Series 4 Preferred Shares will begin trading on the TSX on September 30, 2016 under the symbol IFC.PR.D, subject to IFC fulfilling all the listing requirements of the TSX.

Subject to certain conditions described in IFC’s prospectus supplement dated August 11, 2011, IFC may redeem the Series 3 Preferred Shares, in whole or in part, on September 30, 2021 and on September 30 every five years thereafter and may redeem the Series 4 Preferred Shares, in whole or in part, after September 30, 2016.

For more information on the terms of, and risks associated with an investment in, the Series 3 Preferred Shares and the Series 4 Preferred Shares, see IFC’s prospectus supplement dated August 11, 2011 which is available on www.sedar.com.

I previously reported that IFC.PR.C will reset at 3.332%, to be reset again in five years at GOC-5 + 266bp if not called. IFC.PR.D will pay 3-month bills +266bp, reset quarterly. There will be another conversion opportunity at the next Reset Date.

Canaccord Genuity Group Inc. has announced:

that after having taken into account all election notices received by the September 15, 2016 conversion deadline in respect of the Cumulative 5-Year Rate Reset First Preferred Shares, Series A (the “Series A Preferred Shares”) tendered for conversion into Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Preferred Shares”), the holders of the Series A Preferred Shares are not entitled to convert their shares. There were 761,594 Series A Preferred Shares tendered for conversion, which is less than the 1,000,000 shares required for the ability to proceed with the conversion into Series B Preferred Shares, in accordance with the terms of the Series A Preferred Shares.

There are currently 4,540,000 Series A Preferred Shares listed on the Toronto Stock Exchange under the symbol CF.PR.A.

I previously reported that CF.PR.A will reset at 3.885% for the next five years before resetting again at GOC-5 + 321bp. The FloatingReset shares, which will not be issued at the present time, would have paid three-month bills +321bp, reset quarterly. The notice of extension was also reported.

Sun Life Financial Inc. has announced:

that 1,080,072 of its 8,000,000 Class A Non-Cumulative Rate Reset Preferred Shares Series 10R (the “Series 10R Shares”) have been elected for conversion on September 30, 2016, on a one-for-one basis, into Class A Non-Cumulative Floating Rate Preferred Shares Series 11QR (the “Series 11QR Shares”). Consequently, on September 30, 2016, Sun Life Financial will have 6,919,928 Series 10R Shares and 1,080,072 Series 11QR Shares issued and outstanding. The Series 10R Shares and Series 11QR Shares will be listed on the Toronto Stock Exchange under the symbols SLF.PR.H and SL.PR.K, respectively.

Subject to regulatory approval, Sun Life Financial: (i) may redeem the Series 10R Shares and the Series 11QR Shares in whole or in part on September 30, 2021 and on the 30th of September every five years thereafter by the payment of an amount for each share so redeemed of $25.00, together with all declared and unpaid dividends to the date fixed for such redemption, and (ii) may redeem the Series 11QR Shares in whole or in part on any other date after September 30, 2016 by the payment of an amount for each share so redeemed of $25.50, together with all declared and unpaid dividends to the date fixed for such redemption.

I previously reported that SLF.PR.H will reset at 2.842% for five years, while SLF.PR.K will pay 3-month bills + 217bp, reset quarterly; the notice of extension was also reported.

The Bank of Nova Scotia has announced:

that it has completed the domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 38 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 38”).

Scotiabank sold 20 million Preferred Shares Series 38 at a price of $25.00 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending January 26, 2022, yielding 4.85% per annum, as and when declared by the Board of Directors of Scotiabank. The gross proceeds of the offering were $500 million.

The offering was made through a syndicate of underwriters led by Scotia Capital Inc. The Preferred Shares Series 38 commenced trading on the Toronto Stock Exchange today under the symbol BNS.PR.H.

On January 27, 2022 and on January 27 every five years thereafter, Scotiabank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem all or any number of the then outstanding Preferred Shares Series 38 at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 38 will, subject to certain conditions, have the right to convert all or any part of their shares to Non-cumulative Floating Rate Preferred Shares Series 39 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 39”) of Scotiabank on January 27, 2022 and on January 27 every five years thereafter.

Holders of the Preferred Shares Series 39 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.19%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 39 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 38 on January 27, 2027 and on January 27 every five years thereafter.

BNS.PR.H is a FixedReset, 4.85%+419, NVCC, announced 2016-9-7. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 2,738,643 shares in a range of 25.41-49 before closing at 25.46-47. This represents the tenth largest daily volume in my database, just behind TD.PF.H, which settled last week, despite having only half the number of shares outstanding. Vital statistics are:

DBRS has announced that it:

has today upgraded the Class B Preferred Shares, Series 2 (the Preferred Shares) rating of BNS Split Corp. II (the Company) to Pfd-2 from Pfd-2 (low). The Preferred Shares were issued in September 2015 following a reorganization of the Company at an issue price of $19.71 each. At the same time, the Company redeemed all of the outstanding Class B Preferred Shares, Series 1. The redemption date of the Preferred Shares is September 22, 2020.

The Company holds a portfolio (the Portfolio) of common shares of Bank of Nova Scotia (BNS) (rated AA, Negative trend by DBRS). The dividends received from the Portfolio are used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares in the amount of $0.1971 per quarter, representing 4.0% per annum on the issue price. Excess dividends net of all expenses of the Company, after the preferred cumulative dividends have been paid to the holders of the Preferred Shares, may be paid as dividends on the Capital Shares or re-invested by the Company in additional BNS Shares as determined by the board of directors of the Company. The distributions of dividends on the Preferred Shares may be additionally funded from the sale of the underlying shares. The Company may engage in securities lending to supplement the income generated by the dividends.

As of September 1, 2016, the downside protection is 68.4%, an increase from the initial 61.6% recorded in September 2015 at the time of the Preferred Shares issuance. An increase in dividend distributions from BNS helped boost the dividend coverage ratio, which is approximately 2.7 times. Taking into consideration the dividend coverage, the amount of downside protection available, and the absence of the grind on the Portfolio, the rating of the Preferred Shares has been upgraded to Pfd-2.

BSC.PR.C is tracked by HIMIPref™ but relegated to the Scraps index on volume concerns – the average trading volume is less than 100 shares daily.

This issue actually settled on August 30, but I neglected to post.

Westcoast Energy Inc. has announced:

that it has closed its previously announced offering of 12,000,000 Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 12 (the “Series 12 First Preferred Shares”) at a price of $25.00 per Series 12 First Preferred Share for aggregate gross proceeds of $300,000,000. The offering was made through a syndicate of underwriters led by TD Securities Inc. and CIBC Capital Markets.

The proceeds are expected to be used to fund capital expenditures and for general corporate purposes.

The Series 12 First Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol “W.PR.M”.

W.PR.M will be tracked by HIMIPref™; it has been assigned to the FixedResets subindex.

The issue traded 1,764,113 in a range of 25.23-34 before closing at 25.29-32.

Vital statistics on August 30 were:

TD.PF.H is a FixedReset, 4.85%+412, NVCC, announced 2016-8-29. It is a monster issue, the largest in the market, with 40-million shares (=$1-billion p.v.) outstanding.

The issue settled today and traded a whopping 2,936,651 shares in a range of 25.33-50 prior to closing at 25.43-46, 75×19. This is the ninth highest number of shares traded on a single day in my entire database (which contains just over a million records going back to 1993) and the highest since MFC.PR.A traded nearly 3.6-million shares on 2004-2-13.

TD.PF.H will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex. Vital statistics are:

Implied Volatility analysis shows it to be slightly expensive to its peers at current levels:

Click for Big

As a matter of interest, TD has just issued sub-debt in the US market:

The Toronto-Dominion Bank (“TD” or the “Bank”) today announced a U.S. offering of US$1.5 billion of 3.625% Non-Viability Contingent Capital Subordinated Notes due 2031 (the “Notes”), which will constitute subordinated indebtedness of the Bank. The Notes are registered with the U.S. Securities and Exchange Commission. The Notes will qualify as Tier 2 capital of the Bank.

The Notes are expected to be issued on September 15, 2016 and will bear interest at a fixed rate of 3.625% per annum (paid semi-annually) to, but excluding, September 15, 2026, and at the 5-Year Mid-Swap Rate plus 2.205% thereafter (paid semi-annually) to, but excluding, September 15, 2031.

The Bank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem the Notes on September 15, 2026, in whole at par plus accrued and unpaid interest on not more than 60 nor less than 30 days’ notice to holders. Net proceeds from the issuance of the Notes will be used for general corporate purposes.