Category: Issue Comments

BAM.PR.S, the new FloatingReset that has come into existence via partial exchange from BAM.PR.R, is now trading.

The 14% conversion rate has been reported previously; Assiduous Readers will remember that I recommended against conversion. BAM.PR.R now pays 3.014% (on par) until 2021-6-30, while BAM.PR.S will pay 3-month bills +230bp, reset quarterly.

BAM.PR.S closed July 4 with a quote of 15.00-50, 1×1.

Vital statistics are:

The $0.39 price difference between the two elements of the Strong Pair implies a break-even three-month bill rate of +0.33% – the highest of the investment-grade Strong Pairs.

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Capstone Infrastructure Corporation has announced:

the applicable dividend rates for its Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A shares”) and Cumulative Floating Rate Preferred Shares, Series B (the “Series B shares”) that will take effect on July 31, 2016.

With respect to any Series A shares that remain outstanding after August 2, 2016 (when, subject to the terms of the Corporation’s articles, holders of Series A shares who elect to exchange some or all of their Series A shares for Series B shares will have such shares exchanged) (the “Conversion Date”), holders of Series A shares will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Capstone. The dividend rate for the five-year period from and including July 31, 2016 to but excluding July 31, 2021 will be 3.271% per annum, being equal to the five-year Government of Canada bond yield determined as of today plus 2.71%, in accordance with the terms of the Series A shares.

With respect to any Series B shares that may be issued on the Conversion Date, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Capstone. The dividend rate for the three-month period from and including July 31, 2016 to but excluding October 31, 2016 will be 3.204% per annum, being equal to the three-month Government of Canada Treasury Bill yield per annum determined as of today plus 2.71%, with the amount of any quarterly dividend calculated based on the actual number of days in such quarterly period divided by 365, in accordance with the terms of the Series B shares.

Beneficial owners of Series A shares who wish to exercise their conversion right should communicate with their broker or other nominee to ensure their instructions are followed so that the registered holder of the Series A shares can meet the deadline to exercise such conversion right, which is 5:00 p.m. (EST) on July 18, 2016.

I previously reported that this issue will be extended.

CSE.PR.A is a FixedReset, 5.00%+271, that commenced trading 2011-6-30 after being announced 2011-6-13.

The new rate therefore represents a 35% cut in dividends.

As noted, the deadline to notify the company is 5 p.m. (Toronto time) on July 18, 2016.; brokers will have internal deadlines a day or two in advance.

I will post a recommendation regarding whether or not to convert closer to the deadline.

BCE Inc. has issued a Notice to Holders of BCE Inc. Series AI Preferred Shares (BCE.PR.I):

Beginning on June 17, 2016 and ending on July 22, 2016, holders of Series AI Preferred Shares will have the right to choose one of the following options with regards to their shares:
1. To retain any or all of their Series AI Preferred Shares and continue to receive a fixed quarterly dividend; or
2. To convert, on a one-for-one basis, any or all of their Series AI Preferred Shares into BCE Inc. Cumulative Redeemable First Preferred Shares, Series AJ (the “Series AJ Preferred Shares”) and receive a floating monthly dividend.
Effective August 1, 2016, the fixed dividend rate for the Series AI Preferred Shares will be set for a five-year period as explained in more detail in paragraph 5 of the attached Notice of Conversion Privilege.
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In order to convert your shares, you must exercise your right of conversion during the conversion period, which runs from June 17, 2016 to July 22, 2016, inclusively.

Holders of both the Series AI Preferred Shares and the Series AJ Preferred Shares will have the opportunity to convert their shares again on August 1, 2021, and every five years thereafter as long as the shares remain outstanding.
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As of August 1, 2016, the Series AI Preferred Shares, should they remain outstanding, will 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 determined by BCE Inc. on July 7, 2016 but which shall not be less than 80% of the five-year Government of Canada Yield (as defined in BCE Inc.’s articles) compounded semi-annually and computed on July 7, 2016 by two investment dealers appointed by BCE Inc. The annual dividend rate applicable to the Series AI Preferred Shares will be published on July 11, 2016 in the national edition of The Globe and Mail, the Montreal Gazette and Le Devoir and will be posted on BCE Inc.’s website at www.bce.ca.

There was a similar Notice to Holders of BCE Inc. Series AJ Preferred Shares (BCE.PR.J).

At the last exchange date, almost 25% of BCE.PR.I Converted to Ratchet Rate.

Assiduous Readers will understand that BCE.PR.I / BCE.PR.J is a Strong Pair; BCE.PR.I being a FixedFloater and BCE.PR.J being a RatchetRate preferred in my terminology.

I will pass on information regarding the reset dividend for BCE.PR.I when that becomes available and make a recommendation regarding which element of the pair is more desirable close to the end of the conversion notice period which, as noted above, runs until July 22.

Dundee Corporation has announced that it:

today completed the redemption of 458,969 first preference shares, series 5 (the “Series 5 Preferred Shares”), being all such shares tendered for redemption in accordance with the previously announced mandatory redemption provisions of the Series 5 Preferred Shares. The Series 5 Preferred Shares were redeemed at a price of $25.00 per share. Following completion of the partial redemption, a total of 3,598,203 Series 5 Preferred Shares remain issued and outstanding.

So that’s an 11% retraction compared to the theoretical maximum of 15% declared in accordance with the reorganization earlier this year. Given that it closed today at 24.50-62, the low take-up surprises me.

Brookfield Asset Management Inc. has announced:

the results of the exercise of the conversion privilege for its Class A Preference Shares, Series 24 (the “Series 24 Preferred Shares”) (TSX: BAM.PR.R) and its Class A Preference Shares, Series 25 (the “Series 25 Preferred Shares”) (TSX: BAM.PR.S).

Holders of the company’s Series 24 Preferred Shares and Series 25 Preferred Shares had the right to exchange their shares for the other series effective June 30, 2016, if they submitted an election to convert their shares on a one-for-one basis prior to June 15, 2016. Holders of 1,533,133 Series 24 Preferred Shares have elected to convert these shares into an equivalent number of Series 25 Preferred Shares.

These conversions will be effective on July 1, 2016. Following these conversions, there will be 9,436,867 Series 24 Preferred Shares and 1,533,133 Series 25 Preferred Shares issued and outstanding.

For the five years commencing July 1, 2016, the Series 24 Preferred Shares pay a fixed rate dividend, if declared, at an annual rate of 3.014% (C$0.188375 per share per quarter).

The Series 25 Preferred Shares pay quarterly floating rate dividend, if declared, calculated for each quarter, of 2.30% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the July 1, 2016 to September 30, 2016 dividend period for the Series 25 Shares will be 0.71861% (2.851% on an annualized basis) and the dividend, if declared, for such dividend period will be C$0.1796525 per share, payable on September 30, 2016.

Holders of the company’s Series 24 and Series 25 Preferred Shares will again have the opportunity to convert their shares into the other series effective June 30, 2021 and every five years thereafter.

Assiduous Readers will remember that I recommended against conversion after reporting that BAM.PR.R will reset to 3.014% (a drop of 44%).

Shaw Communications Inc. has announced:

that 1,987,607 of its 12,000,000 Cumulative Redeemable Rate Reset Class 2 Preferred Shares, Series A (the “Series A Shares”) were tendered for conversion, on a one-for-one basis, into Cumulative Redeemable Floating Rate Class 2 Preferred Shares, Series B (the “Series B Shares”) after having taken into account all election notices following the June 15, 2016 conversion deadline. As a result of the conversion, Shaw will have 10,012,393 Series A Shares and 1,987,607 Series B Shares issued and outstanding. The Series A Shares will continue to be listed on the Toronto Stock Exchange (“TSX”) under the symbol SJR.PR.A. The Series B Shares will begin trading on the TSX on June 30, 2016 under the symbol SJR.PR.B, subject to Shaw fulfilling all the listing requirements of the TSX.

The Annual Fixed Dividend Rate for the Series A Shares, payable quarterly, was set for the five year period from and including June 30, 2016 to but excluding June 30, 2021, if, as and when declared by the Board of Directors of Shaw, based on an annual fixed dividend rate of 2.791%.

Effective June 30, 2016, the Floating Quarterly Dividend Rate for the Series B Shares was set for the first Quarterly Floating Rate Period, being the period from and including June 30, 2016 to but excluding September 30, 2016, at an annual dividend rate of 2.539%. The Floating Quarterly Dividend Rate will be reset quarterly.

For more information on the terms of, and risks associated with, an investment in, the Series A Shares and the Series B Shares, see Shaw’s prospectus supplement dated May 20, 2011 which is available on sedar.com.

Assiduous Readers will remember that I recommended against conversion after reporting that SJR.PR.A will reset to 2.791% (a drop of 38%).

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P. has announced:

that after having taken into account all election notices received by the June 15, 2016 deadline for the conversion of its Class AAA Preference Shares, Series N (the “Series N Shares”) (TSX: BPO.PR.N) into Class AAA Preference Shares, Series O (the “Series O Shares”), the holders of Series N Shares are not entitled to convert their Series N Shares into Series O Shares. There were 972,331 Series N Shares tendered for conversion, which is less than the one million shares required to give effect to conversions into Series O Shares.

The Series N Shares will pay on a quarterly basis, for the five-year period beginning on July 1, 2016, as and when declared by the board of directors of Brookfield, a fixed dividend based on an annual dividend rate of 3.782% ($0.236375 per share per quarter).

Assiduous Readers will remember that I recommended against conversion after reporting that BPO.PR.N will reset to 3.782% (a drop of 39%).

Bank of Montreal has announced:

that it does not intend to exercise its right to redeem the currently outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 25 of the Bank (the “Preferred Shares Series 25”) on August 25, 2016, and as a result, subject to certain conditions, the holders of Preferred Shares Series 25 have the right, at their option, to convert all or part of their Preferred Shares Series 25 on a one-for-one basis into Non-Cumulative Floating Rate Class B Preferred Shares, Series 26 of the Bank (the “Preferred Shares Series 26”) on August 25, 2016. Holders who do not exercise their right to convert their Preferred Shares Series 25 into Preferred Shares Series 26 on such date will retain their Preferred Shares Series 25, unless automatically converted in accordance with the conditions below.

The foregoing conversions are subject to the conditions that: (i) if, after August 10, 2016, the Bank determines that there would be less than 1,000,000 Preferred Shares Series 25 outstanding on August 25, 2016, then all remaining Preferred Shares Series 25 will automatically be converted into an equal number of Preferred Shares Series 26 on August 25, 2016; and (ii) alternatively, if the Bank determines that there would be less than 1,000,000 Preferred Shares Series 26 outstanding on August 25, 2016, no Preferred Shares Series 25 will be converted into Preferred Shares Series 26. In either case, the Bank will give written notice to that effect to any registered holders of Preferred Shares Series 25 affected by the preceding minimums on or before August 18, 2016.

The dividend rate applicable to the Preferred Shares Series 25 for the 5-year period commencing on August 25, 2016, and ending on August 24, 2021, and the dividend rate applicable to the Preferred Shares Series 26 for the 3-month period commencing on August 25, 2016, and ending on November 24, 2016, will be determined and announced by way of a news release on July 26, 2016. The Bank will also give written notice of these dividend rates to the registered holders of Preferred Shares Series 25.

Beneficial owners of Preferred Shares Series 25 who, on or after July 26, 2016, wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (EDT) on August 10, 2016.

BMO.PR.Q is a FixedReset, 3.90%+115, which commenced trading 2011-3-11 after being announced 2011-3-2. It will be noted that the prospectus does not mention the NVCC rules except as follows:

The Basel Committee on Banking Supervision has announced new international bank capital adequacy rules (commonly called Basel III) which will amend the existing Basel II capital management framework. The Office of the Superintendent of Financial Institutions of Canada (‘‘OSFI’’) has announced that it plans to adopt the new Basel III rules for purposes of Canadian bank capital guidelines. Under the new Basel III rules, effective January 1, 2013, all non-common Tier 1 and Tier 2 capital instruments issued by a bank must have, either in their contractual terms and conditions or by way of statute in the issuer’s home country, a clause requiring a full and permanent conversion into common shares of such bank upon certain trigger events at the point where such bank is determined to be no longer viable. The Preferred Shares Series 25 and, if and when issued, the Preferred Shares Series 26 as a result may not fully qualify as non-common Tier 1 capital under the new capital rules as no such conversion mechanism exists. For purposes of being included in the Bank’s regulatory capital under the new capital rules, the Preferred Shares Series 25 and the Preferred Shares Series 26 would be phased out beginning January 31, 2013 (their recognition will be capped at 90% of total Tier 1 capital from January 1, 2013, with the cap reducing by 10% in each subsequent year). As a result, the Bank may, with the prior approval of the Superintendent, redeem the Preferred Shares Series 25 and the Preferred Shares Series 26, if any, in accordance with their respective terms.

Accordingly, I treat these shares as having a DeemedRetraction for analytical purposes.

I will relay information regarding the reset rate when it is announced July 26 and make a recommendation regarding conversion shortly before the conversion deadline of August 10, 2016.

The Bank of Nova Scotia has announced:

Scotiabank (TSX: BNS) (NYSE: BNS) today announced that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 15 of Scotiabank (the “Series 15 Shares”) on July 27, 2016, at a price equal to $25.00 per share, together with all declared and unpaid dividends. Formal notice will be issued to shareholders in accordance with the share conditions.

The redemption has been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank.

On May 31, 2016, the Board of Directors of Scotiabank announced a quarterly dividend of $0.28125 per Series 15 Share. This will be the final dividend on the Series 15 Shares and will be paid in the usual manner on July 27, 2016, to shareholders of record at the close of business on July 5, 2016, as previously announced. After July 27, 2016, the Series 15 Shares will cease to be entitled to dividends.

BNS.PR.M is a StraightPerpetual, 4.50%, that commenced trading 2007-4-5 after being announced 2007-3-21. The greenshoe was exercised in its entirety, resulting in 13.8-million shares ($345-million) trading. The issue had no NVCC clause, so since February 2011 it has been considered a DeemedRetractible.

DBRS has announced that it:

has today removed Brookfield Renewable Partners L.P. (BRP or the Company; formerly Brookfield Renewable Energy Partners L.P.) from Under Review with Developing Implications and confirmed the ratings as follows:

— Issuer Rating of BRP at BBB (high), Stable trend
— Class A Preferred Limited Partnership Units of BRP at Pfd-3 (high), Stable trend
— Class A Preference Shares of Brookfield Renewable Power Preferred Equity Inc. (guaranteed by BRP) at Pfd-3 (high), Stable trend
— Senior Unsecured Debentures and Notes of BRP Finance ULC (guaranteed by BRP) at BBB (high), Stable trend

On January 13, 2016, DBRS placed all the ratings as listed above Under Review with Developing Implications. The rating actions followed the announcement that the Company, with its institutional partners (together, the Consortium), committed to acquire a 57.6% controlling interest in ISAGEN S.A. E.S.P. (ISAGEN) for a total consideration of approximately $2.2 billion (the Acquisition).
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DBRS has reviewed the Company’s final financing plan of the Acquisition and is of the view that the Company’s final financing plan is consistent with DBRS’s expectations. In support of the Acquisition, in May 2016, the Company closed CAD 200 million preferred unit offering (Class A Limited Partnership Units) and in June 2016, the Company completed CAD 860 million equity offering. The preferred shares were treated as equity since the outstanding amount still falls within DBRS’s 20% threshold of common equity. Based on DBRS’s review and pro forma calculations, the Company’s consolidated and deconsolidated metrics would remain supportive of the current rating as follows: (1) its pro forma consolidated debt-to-capital ratio would not materially change from 2015, remaining in the 45% to 47% range in 2016; (2) its pro forma deconsolidated debt-to-capital ratio is expected to remain around 20% at the end of 2016; (3) the Company’s pro forma deconsolidated credit metrics, such as cash flow-to-debt and cash flow-to-interest coverage ratios, would slightly improve from 2015 (the cash flow-to-debt ratio was 26.3% in 2015 and the cash flow-to-interest coverage was, including preferred dividends, 4.88 times in 2015) due mainly to stronger cash flow from hydro projects in North America in the first quarter of 2016. In addition, given the Company’s contractual profile (approximately 90% of generation output is contracted for 2016 and 2017) and with the expected incremental cash flow from the Acquisition, DBRS expects that the Company’s deconsolidated cash flow-related metrics will remain stable and will be consistent with the current ratings over the medium term.

The declaration of a Review was reported on PrefBlog in January. BRF was recently highlighted on PrefBlog for actually executing – in a small way – part of its NCIB for preferred shares.

Affected issues are BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F.