Category: Issue Comments

Quadravest has announced:

Dividend 15 Split Corp. II (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and will also include BMO Capital Markets, TD Securities Inc., GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% on the issue price and the Class A Shares will be offered at a price of $7.50 per Class A Share to yield 16.00% on the issue price. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on December 12, 2016 was $10.31 and $7.75, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $10.90 per share and the aggregate dividends paid on the Class A Shares have been $5.27 per share, for a combined total of $16.17 unit. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed portfolio of dividend yielding common shares which includes each of the 15 Canadian companies listed below:

Bank of Montreal	Enbridge Inc.	TELUS Corporation
The Bank of Nova Scotia	Manulife Financial Corp.	Thomson‐Reuters Corporation
BCE Inc.	National Bank of Canada	The Toronto‐Dominion Bank
Canadian Imperial Bank of Commerce	Royal Bank of Canada	TransAlta Corporation
CI Financial Corp.	Sun Life Financial Inc.	TransCanada Corporation

The Company’s investment objectives are:

Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends in the amount of $0.04375 per Preferred Share to yield 5.25% per annum on the original issue price; and
ii. on or about December 1, 2019, to pay the holders of the Preferred Shares the original issue price of those shares.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends currently targeted to be $0.10 per Class A; and
ii. on or about December 1, 2019, to pay the holders of Class A Shares at least the original issue price of those shares.

The sales period of this overnight offering will end at 9:00 a.m. (EST) on December 14, 2016.

Update, 2016-12-15: Quadravest has announced:

Dividend 15 Split Corp. II (the “Company”) is pleased to announce it has completed the overnight marketing of up to 2,290,000 Preferred Shares and up to 2,290,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $40.1 million. The offering is being co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and also includes BMO Capital Markets, TD Securities Inc., GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% on the issue price and the Class A Shares will be offered at a price of $7.50 per Class A Share to yield 16.00% on the issue price. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on December 13, 2016 was $10.32 and $7.90, respectively.

It will be recalled that SLF.PR.I will reset to 3.806% effective December 31; the extension was announced 2016-11-14.

Holders of SLF.PR.I have the option to convert to FloatingResets, which will pay 3-month bills plus 273bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (ET) on Friday, December 16, 2016.; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset has not yet been announced.

As this issue is from an insurer and there is no provision for conversion into common shares at the option of the issuer, I consider this to be subject to my Deemed Retraction policy; accordingly I have placed a maturity entry dated 2025-1-31 at par in the call schedule of this instrument for analytical purposes. Note that this approach is due to analysis and there is no contractual provision in the terms of issue for any such maturity. It will be noted that this does not affect the following analysis, which requires only the two issues be interconvertible and therefore equivalent five years hence.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BAM.PR.R and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at -0.04% and -0.42%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the SLF.PR.I FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of SLF.PR.I continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Note as well that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of SLF.PR.I are tendered for conversion, then no conversions will be allowed; but if only 100,000 shares of SLF.PR.I will remain after the rest are all tendered, then conversion will be mandatory. However, this is relatively rare: all Strong Pairs have some version of this condition; there are 49 Strong Pairs outstanding; and only nine issues which did not create the potential Strong Pair.

ECN Capital Corp. has announced:

that it has closed the previously announced offering of 4,000,000 6.50% Cumulative 5-Year Minimum Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares” or the “Offering”) at a price of $25.00 per share for aggregate gross proceeds of $100,000,000. The Offering was conducted by a syndicate of underwriters led by BMO Capital Markets, CIBC World Markets, National Bank Financial, RBC Capital Markets, TD Securities, Desjardins Securities, Cormark Securities, GMP Securities, HSBC Securities (Canada) and Raymond James.

The net proceeds will be be used to originate and finance, directly and indirectly, finance assets and for general corporate purposes.

The Series A Preferred Shares will commence trading today on the Toronto Stock Exchange under the symbol “ECN.PR.A”.

The Company also filed on November 22, 2016 its interim carve-out financial statements as at and for the three and nine-month periods ended September 30, 2016, together with its amended management’s discussion and analysis of financial condition and results of operations for the same period (which non material amendments relate to non-GAAP financial measures, results of operations and related party transactions). These documents were filed on SEDAR and are incorporated by reference into the Corporation’s prospectus in connection with the Offering. For more information, please visit SEDAR at www.sedar.com.

ECN.PR.A is a FixedReset, 6.50%+544M650, announced 2016-11-23. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 134,385 shares today in a range of 24.30-65 before closing at 24.32-40, 3×1. Vital statistics are:

BCE Inc. has released its Notice of Conversion Privilege for BCE.PR.K:

1. Holders of BCE Inc. fixed-rate Series AK Preferred Shares have the right to convert all or part of their shares, effective on December 31, 2016, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AL of BCE Inc. (the “Series AL Preferred Shares”). In order to convert their shares, holders must exercise their right of conversion during the conversion period, which runs from December 1, 2016 until 5:00 p.m. (Montréal/Toronto time) on December 16, 2016.
…
4. As of December 31, 2016, the Series AK Preferred Shares will, should they remain outstanding, pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on a fixed rate equal to the sum of: (a) the yield to maturity compounded semi-annually (the “Government of Canada Yield”), computed on December 1, 2016 in accordance with the articles of BCE Inc., of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years, and (b) 1.88%. The “Government of Canada Yield” computed on December 1, 2016 is 1.074%. Accordingly, the annual fixed dividend rate applicable to the Series AK Preferred Shares for the period of five years beginning on December 31, 2016 will be 2.954%.

5. As of December 31, 2016, the Series AL Preferred Shares, if issued, will pay, for each quarterly period beginning with the quarterly period from and including December 31, 2016 up to but excluding March 31, 2017, as and when declared by the Board of Directors of BCE Inc., a quarterly floating dividend rate equal to the “Floating Quarterly Dividend Rate” for such quarterly period. The “Floating Quarterly Dividend Rate” for any such quarterly period shall be equal to the rate, expressed as a percentage, equal to the sum of:
(a) the “T-Bill Rate”, calculated in accordance with the articles of BCE Inc. on the 30th day prior to the first day of the new quarterly period, and (b) 1.88%, calculated on the basis of the actual number of days in such quarterly period divided by 365. The “T-Bill Rate” means, for any quarterly period, the average yield expressed as a percentage per annum on three-month Government of Canada Treasury Bills, as reported by the Bank of Canada, for the most recent treasury bills auction preceding the applicable calculation date. The “Floating Quarterly Dividend Rate” computed on December 1, 2016 and applicable to the Series AL Preferred Shares for the quarterly period beginning on December 31, 2016 will be 0.58907% (annual rate of 2.389%, based on an initial T-Bill Rate of 0.509%).

BCE.PR.K is a FixedReset, 4.15%+188, that commenced trading 2011-7-5 after being announced 2011-6-20. The issue is notorious for having been to subject of an experiment by BCE to see if stockbrokers and their clients were really as dumb as all that; this was tested by reopening the issue when the spread was nowhere near market rates. The experiment concluded that giving the salesmen a 3% commission on sales to retail is a great business, at which point the experimenters sent another letter to the OSC decrying trailer fees on mutual funds and collapsed in giggles.

I will make a recommendation regarding whether this issue should be converted or held in the near future.

Sun Life Financial Inc. has announced (although not yet on their website because they’re morons):

the dividend rates for its Class A Non-Cumulative Rate Reset Preferred Shares Series 12R (the “Series 12R Shares”) and Class A Non-Cumulative Floating Rate Preferred Shares Series 13QR (the “Series 13QR Shares”).

With respect to any Series 12R Shares that remain outstanding after December 31, 2016, commencing as of that date, holders thereof will be entitled to receive non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on December 31, 2016 to but excluding December 31, 2021 will be 3.806% per annum or $0.237875 per share per quarter, being equal to the sum of the five year Government of Canada Yield, as defined in the terms of the Series 12R Shares, on Thursday, December 1, 2016 plus 2.73%, as determined in accordance with the terms of the Series 12R Shares.

With respect to any Series 13QR Shares that are issued on December 31, 2016, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada), based on a dividend rate equal to the sum of the three month T-Bill Rate, as defined in the terms of the Series 13QR Shares, plus 2.73% (calculated on the basis of the actual number of days elapsed in such Quarterly Floating Rate Period divided by 365 days), subject to certain adjustments in accordance with the terms of the Series 13QR Shares. The dividend rate for the period commencing on December 31, 2016 to but excluding March 31, 2017 will be equal to 3.239% per annum or $0.199664 per share, as determined in accordance with the terms of the Series 13QR Shares.

Beneficial owners of Series 12R Shares who wish to exercise the right of conversion applicable to those shares should communicate as soon as possible with their broker or other nominee and should ensure that their instructions are followed in order to meet the deadline to exercise such right of conversion, which is 5:00 p.m. (ET) on Friday, December 16, 2016.

An application will be made to list the Series 13QR Shares on the Toronto Stock Exchange.

The term extension for SLF.PR.I was previously reported on PrefBlog. I will make a recommendation regarding holding or converting the shares in the near future.

It will be recalled that MFC.PR.G will reset to 3.891% effective December 19.

Holders of MFC.PR.G have the option to convert to FloatingResets, which will pay 3-month bills plus 290bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Toronto time) on December 5, 2016; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset will be MFC.PR.Q.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BAM.PR.R and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both below zero, at -0.34% and -0.65%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the MFC.PR.G FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of MFC.PR.G continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Note as well that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of MFC.PR.G are tendered for conversion, then no conversions will be allowed; but if only 100,000 shares of MFC.PR.G will remain after the rest are all tendered, then conversion will be mandatory. However, this is relatively rare: all Strong Pairs have some version of this condition; there are 49 Strong Pairs outstanding; and only eight issues which did not create the potential Strong Pair.

On November 14, Sun Life Financial Inc. announced:

that it does not intend to exercise its right to redeem its outstanding Class A Non-Cumulative Rate Reset Preferred Shares Series 12R (the “Series 12R Shares”) on December 31, 2016. As a result, subject to certain conditions, the holders of Series 12R Shares will have the right, at their option, to convert all or part of their Series 12R Shares on a one-for-one basis into Class A Non-Cumulative Floating Rate Preferred Shares Series 13QR of Sun Life Financial (the “Series 13QR Shares”) on December 31, 2016. Holders of Series 12R Shares who do not exercise their right to convert their Series 12R Shares into Series 13QR Shares on that date will retain their Series 12R Shares.

The foregoing conversions are subject to the following conditions: (i) if Sun Life Financial determines that there would be less than one million Series 12R Shares outstanding after December 31, 2016, then all remaining Series 12R Shares will automatically be converted into Series 13QR Shares on a one-for-one basis on December 31, 2016, and (ii) alternatively, if Sun Life Financial determines that there would be less than one million Series 13QR Shares outstanding after December 31, 2016, no Series 12R Shares will be converted into Series 13QR Shares. In either case, Sun Life Financial will give written notice to that effect to any registered holder affected by the preceeding minimums on or before Thursday, December 22, 2016.

The dividend rate applicable to the Series 12R Shares for the five-year period commencing on December 31, 2016 to but excluding December 31, 2021, and the dividend rate applicable to the Series 13QR Shares for the three-month period commencing on December 31, 2016 to but excluding March 31, 2017, will be determined on Thursday, December 1, 2016 and will be announced in a news release on December 1, 2016.

Beneficial owners of Series 12R Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and should ensure that their instructions are followed in order to ensure that the deadline to exercise such right of conversion is met, which is 5:00 p.m. (ET) on Friday, December 16, 2016.

Subject to regulatory approval, Sun Life Financial: (i) may redeem the Series 12R Shares and the Series 13QR Shares in whole or in part on December 31, 2021 and on the 31st of December in every fifth year 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 13QR Shares in whole or in part on any other date after December 31, 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.

An application will be made to list the Series 13QR Shares on the Toronto Stock Exchange.

SLF.PR.I is a FixedReset, 4.25%+273, that commenced trading 2011-11-10 after being announced 2011-11-3.

I will report the reset rate on SLF.PR.I when it becomes available.

DBRS has announced that it:

has today upgraded the rating on the Preferred Shares issued by Life & Banc Split Corp. (the Company) to Pfd-3. In October 2006, the Company raised gross proceeds of $300 million by issuing 12 million Preferred Shares at $10 each and an equal number of Class A Shares at $15 each. Since then, the Company has completed several additional treasury offerings. The redemption date for both classes of shares issued is November 29, 2018. The board of directors may extend the Company’s term and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction right at the end of each successive term.
…
Although the performance of the Portfolio has experienced some volatility over the past year, the downside protection has shown a steady recovery in the last four months. It stands at 47.7% as of November 17, 2016. The dividend coverage ratio is about 1.1 times (x).

Update, 2016-11-28: Brompton press release.

Enbridge Inc. has announced:

that it has closed its previously announced public offering of Cumulative Redeemable Minimum Rate Reset Preference Shares, Series 17 (the “Series 17 Preferred Shares”) by a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, Scotiabank, and RBC Capital Markets. Enbridge issued 30 million Series 17 Preferred Shares for gross proceeds of $750 million. The Series 17 Preferred Shares will begin trading on the TSX today under the symbol ENB.PF.I. Proceeds are expected to be used to partially fund capital projects, to reduce existing indebtedness and for other general corporate purposes of the Company and its affiliates.

ENB.PF.I is a FixedReset 5.15%+414M515, announced November 15. It will be tracked by HIMIPref™ and has been added to the Scraps index due to credit concerns.

The issue traded 1,825,658 shares today in a range of 24.85-00 before closing at 24.95-96, 20×16. Vital statistics are:

Manulife Financial Corporation has announced:

that it has completed its offering of 19 million Non-cumulative Rate Reset Class 1 Shares Series 23 (the “Series 23 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $475 million.

The offering was underwritten by a syndicate of investment dealers co-led by RBC Capital Markets, BMO Capital Markets and Scotiabank. The Series 23 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.R.

The Series 23 Preferred Shares were issued under a prospectus supplement dated November 15, 2016 to Manulife’s short form base shelf prospectus dated December 17, 2015.

MFC.PR.R is a FixedReset, 4.85%+383, announced November 14. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

As this issue is from an insurer and there is no provision for conversion into common shares at the option of the issuer, I consider this to be subject to my Deemed Retraction policy; accordingly I have placed a maturity entry dated 2025-1-31 at par in the call schedule of this instrument for analytical purposes. Note that this approach is due to analysis and there is no contractual provision in the terms of issue for any such maturity.

The issue traded 989,738 shares today in a range of 24.68-90 before closing at 24.84-89, 5×74. Vital statistics are:

Implied Volatility analysis suggests the issue is rich relative to its peers – the theoretical price is 23.95.

Click for Big