Category: Issue Comments

BCE Inc. has announced that:

BCE Inc. will, on August 1, 2016, continue to have Cumulative Redeemable First Preferred Shares, Series AI (“Series AI Preferred Shares”) outstanding if, following the end of the conversion period on July 22, 2016, BCE Inc. determines that at least 2 million Series AI Preferred Shares would remain outstanding. In such a case, as of August 1, 2016, the Series AI Preferred Shares 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 based on an annual fixed dividend rate equal to 2.75%.

The pending Exchange Date has been previously reported. As noted there, this FixedFloater issue is interconvertible with the Ratchet Rate preferred, BCE.PR.J:

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.

I will make a recommendation regarding conversion on July 18, but at this point I’m leaning towards the RatchetRate issue, BCE.PR.J, on the grounds that Canada Prime is 2.70% and I find it much easier to believe in an increase over the next five years than a decrease, the current breakeven rate (given bids of 13.48 for BCE.PR.I and 13.59 for BCE.PR.J) of 2.86% is in line with other issues, and the prices are – given current conditions – likely to be so close together after the exchange that there’s not much point trying to make a trading profit based on the conversion.

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Faircourt Asset Management Inc. has announced (although not yet on their website):

that $1,000,000.00 in aggregate principal amount of the Trust’s 6.00% outstanding Preferred Securities (the “Preferred Securities”) will be redeemed on July 27, 2016 (the “Redemption Payment Date”). The record date of the Preferred Securities partial redemption is July 25, 2016.

Proceeds from the Preferred Securities redemption will amount to $10.0450 for each $10.00 principal amount of Securities, being equal to the aggregate of (i) $10.00 (the “Redemption Price”), and (ii) all accrued and unpaid interest hereon to but excluding the Redemption Payment Date (collectively, the “Total Redemption Price”).

The interest upon the principal amount of Preferred Securities called for redemption shall cease to be payable from and after the Redemption Date, unless payment of the Total Redemption Price shall not be made on presentation for surrender of such Securities on or after the Redemption Date or prior to the setting aside of the Total Redemption Price pursuant to the Indenture.

Securities will be redeemed pro rata from each beneficial holder of Securities pursuant to the procedures of CDS Clearing and Depository Services Inc. Beneficial holders of Preferred Securities should contact their broker with any questions regarding the redemption.

FCS.PR.C is a SplitShare paying 6% p.a. (interest) on a par value of $10, maturing 2019-6-30, that commenced trading 2014-12-30. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Standard & Poor’s has announced:

• •In our view, the “leave” result in the U.K.’s June 2016 referendum on EU membership (“Brexit”) has increased the risks of adverse economic developments in the U.K. As a result, we now see a negative trend for U.K. banking industry economic risk.
• •We also believe that the U.K. economy has now entered into a correction phase, driven by our revised expectation that imbalances will worsen as credit growth slows and real house prices contract. However, we consider that banks’ underwriting standards, low interest rates, and low unemployment should mitigate the extent of losses in the banking sector.
• •We are therefore revising to negative from stable our outlook on the majority of U.K. domestic banks, as described below, while affirming their ratings.

…
In our opinion, the outcome of the Brexit vote is a seminal event, and will lead to a less predictable, stable, and effective economic policy framework in the U.K. The Brexit result could lead to a deterioration of the U.K.’s economic performance, including its large financial services sector, which is a major contributor to employment and public receipts. As such, we recognize that there is a high degree of uncertainty in the near term. In particular, it is not clear if the U.K. will retain access to the EU single market–the destination of 44% of its exports–on existing terms. Future arrangements regarding the export of services, including by the U.K.’s important financial services industry, are equally uncertain, in our view.
…
HSBC HOLDINGS PLC

We revised the outlook on group NOHC HSBC Holdings PLC, and certain European and North American subsidiaries, to negative from stable. These subsidiaries include HSBC Bank PLC, HSBC France, HSBC USA Inc., HSBC Bank USA N.A., and HSBC Bank Canada (see Ratings List for full details). The stable outlook on The Hongkong and Shanghai Banking Corp. Ltd. (HBAP) and the outlooks on its subsidiaries across Asia-Pacific remain unchanged. This is because potential extraordinary support from the Hong Kong government would maintain the long-term rating on HBAP at ‘AA-‘ if we were to downgrade HSBC Holdings by one
notch.

The negative outlook reflects potential pressures over our two-year rating horizon arising from the U.K.’s vote to leave the EU and China’s economic slowdown. Although HSBC’s highly diversified business profile and strengthening capitalization are significant mitigants, we nevertheless identify risks to asset quality and revenues that may challenge the current ratings. In particular, we expect uncertainty over whether the U.K.’s future relationship with the EU will hinder the U.K. economy. China’s economic slowdown appears to have had little impact to date on HSBC’s risk profile, but we remain alert to signs of credit deterioration in its material exposure across the Asia-Pacific region. Increased market uncertainty could also prevent HSBC from achieving its strategic priorities. The negative outlook also takes account of other factors–the prolonged period of low global interest rates, HSBC’s ongoing U.S. deferred prosecution agreement, and its outstanding litigation cases.

Affected issues are HSB.PR.C and HSB.PR.D , both of which are DeemedRetractibles trading slightly below par.

DBRS quietly announced on June 29 that it:

has today discontinued the Issuer Rating, Senior Unsecured Debt and Preferred Shares ratings of RONA inc. (RONA or the Company). The ratings are being discontinued at the request of the Company, prior to resolving the Under Review with Positive Implications status, as DBRS did not have sufficient information at this time regarding Lowe’s Companies, Inc.’s (Lowe’s; rated A (low), Stable by DBRS) financial management intentions as it relates to RONA.

On February 3, 2016, DBRS placed RONA’s ratings Under Review with Positive Implications after the Company’s announcement that it had entered into a definitive under which RONA would be acquired by Lowe’s for a total transaction value of $3.2 billion. On May 20, 2016, Lowe’s announced that it had completed its acquisition of RONA.

Thus, S&P’s rating of P-2(low) is the only agency opinion on these issues, following the closing of the Plan of Arrangement earlier this year.

SJR.PR.B, the new FloatingReset that has come into existence via partial exchange from SJR.PR.A, is now trading.

The 17% conversion rate has been reported previously; Assiduous Readers will remember that I recommended against conversion. SJR.PR.A now pays 2.791% (on par) until 2021-6-30, while SJR.PR.B will pay 3-month bills +200bp, reset quarterly.

SJR.PR.B closed July 4 with a quote of 12.01-50, 7×3. Surprisingly, 1,687 shares traded in a range of 12.30-00.

Vital statistics are:

The $1.25 price difference between the two elements of the Strong Pair (I told you not to convert!) implies a break-even three-month bill rate of -1.03% – at the low end of the range defined by the other junk Strong Pairs.

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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.
…
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.
…
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%).