Category: Issue Comments

BCE Inc. has announced:

Beginning on March 1, 2016 and ending on March 16, 2016, holders of Series AM 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 AM 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 AM Preferred Shares into BCE Inc. Cumulative Redeemable First Preferred Shares, Series AN (the “Series AN Preferred Shares”) and receive a floating quarterly dividend.
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In order to convert your shares, you must exercise your right of conversion during the conversion period, which runs from March 1, 2016 to March 16, 2016, inclusively. Should Series AN Preferred Shares be issued following the conversion on March 31, 2016 of Series AM Preferred Shares, the Series AN Preferred Shares so issued will begin trading under the symbol BCE.PR.N. Should any Series AM Preferred Shares remain outstanding after March 31, 2016, they will continue to trade under symbol BCE.PR.M.

Holders of both the Series AM Preferred Shares and the Series AN Preferred Shares will have the opportunity to convert their shares again on March 31, 2021, and every five years thereafter as long as the shares remain outstanding.
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As of March 31, 2016, the Series AM 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 March 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) 2.09 per cent. The “Government of Canada Yield” computed on March 1, 2016 is 0.674%. Accordingly, the annual fixed dividend rate applicable to the Series AM Preferred Shares for the period of five years beginning on March 31, 2016 will be 2.764%.

BCE.PR.M came into existence upon exchange from BAF.PR.A; this exchange was forced after overwhelming voluntary conversion following the privatization of BAF.

BAF.PR.A was a FixedReset, 4.85%+209, which commenced trading 2011-3-15 after being announced 2011-2-22 and a delay caused by an apparent clerical error.

BCE.PR.M and its predecessor have been tracked by HIMIPref™ but relegated to the Scraps index due to credit concerns.

The new rate represents a cut of 43% in the dividend rate. Ouch!

As noted in the press release, the deadline for notification of intent to convert to the FloatingReset is March 16. I will post a recommendation on March 11.

Husky Energy Inc. has announced that it:

is notifying shareholders of the applicable dividend rates of its Cumulative Redeemable Preferred Shares, Series 1 (Series 1 Shares) and Cumulative Redeemable Preferred Shares, Series 2 (Series 2 Shares). The rates were calculated according to the terms of the prospectus supplement dated March 11, 2011.

As previously announced in its Feb. 16, 2016 news release, Husky does not intend to exercise its right to redeem its Series 1 Shares. Subject to certain conditions, the holders of Series 1 Shares have the right to choose one of the following options with regard to their shares:
1. Retain any or all of their Series 1 Shares and continue to receive an annual fixed rate dividend paid quarterly; or
2. Convert, on a one-for-one basis, any or all of their Series 1 Shares into Series 2 Shares and receive a floating rate quarterly dividend.

Holders of Series 1 Shares who choose to retain any or all of their shares will receive the new fixed rate quarterly dividend applicable to the Series 1 Shares of 2.404 percent for the five year period commencing March 31, 2016 to, but excluding, March 31, 2021.

Holders of Series 1 Shares who choose to convert their shares to Series 2 Shares will receive the new floating rate quarterly dividend applicable to the Series 2 Shares of 2.192 percent for the three month period commencing March 31, 2016 to, but excluding, June 30, 2016. The floating rate quarterly dividend will be reset every quarter.

Beneficial owners of Series 1 Shares who wish to exercise the right of conversion should communicate with their broker or other nominee in order to meet the deadline to exercise such right, which is 5 p.m. ET on March 16, 2016. Holders of Series 1 Shares who do not exercise the right of conversion by this deadline will continue to hold Series 1 Shares with the new fixed rate quarterly dividend.

For more information on the terms of, and risks associated with, an investment in the Series 1 Shares and the Series 2 Shares, please see the Company’s prospectus supplement dated March 11, 2011 on www.sedar.com.

HSE.PR.A was issued as a FixedReset, 4.45%+173, which commenced trading 2011-3-18 after being announced 2011-3-10. It is tracked by HIMIPref™ and assigned to the FixedReset subindex. The notice of extension was reported on PrefBlog.

The new rate represents a cut of 46% in the dividend rate. Ouch!

As noted in the press release, the deadline for notification of intent to convert to the FloatingReset is March 16. I will post a recommendation on March 11.

Scotia Managed Companies announced on February 26:

that it has completed its public offering of Class B preferred shares, series 2 (“Preferred Shares”) raising $17,649,845 through the issuance of 687,567 Preferred Shares at a price per share of $25.67. In addition, the Company has redeemed all of its outstanding Class B preferred shares, series 1. The Preferred Shares were offered to the public on a best efforts basis by a syndicate of agents led by Scotia Capital Inc., which included National Bank Financial Inc., CIBC World Markets Inc., and BMO Nesbitt Burns Inc.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.C, respectively.

The shares have been rated Pfd-2(low) by DBRS:

The Company holds a portfolio (the Portfolio) of publicly listed common shares of Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank (collectively, the Portfolio Shares) in order to generate dividend income for the holders of the Series 2 Preferred Shares and to enable holders of the Class A Capital Shares to participate in any capital appreciation in the Portfolio Shares.

The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution of $0.3048 per share to holders of the Series 2 Preferred Shares, yielding approximately 4.75% annually on the initial issue price. The current yield on the Portfolio shares fully covers the Series 2 Preferred Share dividends, providing dividend coverage of approximately 1.7 times. The Class A Capital Shares are expected to receive all excess dividend income after the Series 2 Preferred Share distributions and other expenses of the Company have been paid.

The Pfd-2 (low) rating of the Series 2 Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.

Some highlights from the prospectus dated 2016-2-17:

Holders of Series 2 Preferred Shares will be entitled to receive quarterly fixed cumulative preferential distributions equal to $0.3048 per Series 2 Preferred Share. On an annualized basis, this would represent a yield on the offering price of the Series 2 Preferred Shares of approximately 4.75%. Such distributions are expected to consist of ordinary dividends but may include non-taxable returns of capital and capital gains dividends. Such quarterly distributions are expected to be paid by the Company on or before the last day of May, August, November and February in each year. Based on the expected closing date of February 26, 2016, the initial distribution will be approximately $0.3048 per Series 2 Preferred Share and is expected to be payable on or before May 31, 2016.
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The Series 2 Preferred Shares may be surrendered for retraction at any time and will be redeemed by the Company on February 28, 2021 (the “Redemption Date”). In addition, the Series 2 Preferred Shares may otherwise be redeemed by the Company prior to the Redemption Date in certain limited circumstances including on February 28th in each year or, where such day is not a business day, on the preceding business day, if there are any unmatched retractions of Capital Shares.

The issue will be tracked by HIMIPref™ and is assigned to the SplitShares index – although, given the small size of the issue, I expect it to move to Scraps on volume concerns eventually.

The issue traded 10,000 shares in a range of 25.67-97 on its debut.

Update, 2016-3-5: Confirmed at Pfd-2 by DBRS.

The five banks continued with the regular increases in the dividend distribution policies in 2015, which had brought the dividend coverage ratio to 2.39 times as of February 25, 2016. Holders of the Capital Shares do not receive a stated regular distribution. They are, however, expected to receive all excess dividend income after the Class C Preferred Share distributions and other expenses of the Company have been paid.

In the past twelve months, decreasing share prices of the five banks had a reflection on the net asset value of the Company, bringing overall the downside protection to 58.7% as of February 25, 2016, down from 62.6% a year ago. Nevertheless, the downside protection has demonstrated relative stability over the past year. Given a strong dividend coverage ratio, credit quality of the underlying shares and the downside protection level, DBRS confirms the rating of the Class C Preferred Shares at Pfd-2.

Manulife Financial Corporation has announced:

that it has completed its offering of 16 million Non-cumulative Rate Reset Class 1 Shares Series 21 (the “Series 21 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $400 million.

The offering was underwritten by a syndicate of investment dealers co-led by RBC Capital Markets, Scotia Capital Inc. and TD Securities Inc. The Series 21 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.O.

Manulife has granted the underwriters’ an option, exercisable in whole or in part, to purchase up to an additional 1 million Series 21 Preferred shares at the same offering price. The underwriters have 30 days from the closing of the preferred share offering to exercise the option.

The Series 21 Preferred Shares were issued under a prospectus supplement dated February 18, 2016 to Manulife’s short form base shelf prospectus dated December 17, 2015.

MFC.PR.O is a FixedReset, 5.60%+497, announced 2016-2-16. The issue will be tracked by HIMIPref™ and 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 753,902 shares today (consolidated exchanges) in a range of 24.80-92 before closing at 24.86-89, 82×36. Since announcement date, the TXPL total return index has increased by 43bp since the announcement date, so ‘a little soft’ is an appropriate appraisal of its performance.

Vital statistics are:

Implied volatility analysis indicates the issue is expensive at its current level:

Click for Big

According to this, the fair value for MFC.PR.O is 23.74 – and even at that, the slope of the theoretical line is clearly flattened by the influence of this issue. The issue is clearly well off the line defined by the lower-spread MFC issues.

Brompton Funds has announced:

Investors and investment advisors are invited to listen to a February 2016 recorded update hosted by Portfolio Managers Laura Lau and Michael Clare on Brompton Oil Split Corp. (the “Company”). The Portfolio Managers discuss the Company’s portfolio and the Energy Sector. A link to the presentation recorded on February 23, 2016 has been posted to the Brompton Funds website.
Class A Shares and Preferred Shares of the Company are available for purchase on the Toronto Stock Exchange under the ticker symbols OSP & OSP.PR.A, respectively.
The Company invests in a portfolio (the “Portfolio”) of equity securities of at least 15 large capitalization North American oil and gas issuers selected by the manager from the S&P 500 Index and the S&P/TSX Composite Index, giving consideration to, among other metrics, attractive valuation, growth prospects, profitability, liquidity, sustainability of dividends and a strong balance sheet. The Portfolio is focused primarily on oil and gas issuers that have significant exposure to oil, and includes equities of the following oil and gas issuers:

Clearly, when you’ve got a name like “Oil Split Corp.” in this market, your investors are going to want a lot of reassurance!

The presentation slides are available, as is an audio-visual presentation using the same slides, which is pretty cool.

I also note that Brompton has produced a Preferred Shares Primer, which includes the following chart:

Click for Big

OSP / OSP.PR.A had a NAVPU of 16.14 as of 2016-2-24; OSP closed at $6.25; OSP.PR.A closed at 9.37.

OSP.PR.A was recently downgraded to Pfd-3 by DBRS. The issue has been tracked by HIMIPref™ since it commenced trading 2015-2-24, but is relegated to the Scraps index on credit concerns.

First National Financial Corporation has announced:

that it does not intend to exercise its right to redeem the currently outstanding 4,000,000 cumulative 5-year rate reset Class A Preference Shares, Series 1 of First National (“Series 1 Preference Shares”) on March 31, 2016.

As a result, subject to certain conditions, the holders of Series 1 Preference Shares have the right to convert all or part of their Series 1 Preference Shares on a one-for-one basis into cumulative floating rate Class A Preference Shares, Series 2 of First National (“Series 2 Preference Shares”) on March 31, 2016. Holders who do not exercise their right to convert their Series 1 Preference Shares into Series 2 Preference Shares on such date will retain their Series 1 Preference Shares.
The foregoing conversions are subject to the conditions that: (i) if First National determines that there would be less than 1,000,000 Series 1 Preference Shares outstanding on March 31, 2016, then all remaining Series 1 Preference Shares will automatically be converted into Series 2 Preference Shares on a one-for-one basis on March 31, 2016, and (ii) alternatively, if First National determines that there would be less than 1,000,000 Series 2 Preference Shares outstanding on March 31, 2016, no Series 1 Preference Shares will be converted into Series 2 Preference Shares. In either case, First National shall give a written notice to that effect to holders of Series 1 Preference Shares no later than March 24, 2016.

The dividend rate applicable to the Series 1 Preference Shares for the five-year period commencing on April 1, 2016, and ending on March 31, 2021, and the dividend rate applicable to the Series 2 Preference Shares for the three-month period commencing on April 1, 2016, and ending on June 30, 2016, will be determined in accordance with the terms of the respective classes of preference shares and announced by way of a news release on March 2, 2016.

Beneficial owners of Series 1 Preference Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (Toronto time) on March 16, 2016.

This is not a big surprise. FN.PR.A is a FixedReset, 4.65%+207, that commenced trading 2011-1-25 after being announced 2011-1-17.

The issue is tracked by HIMIPref™ but relegated to the scraps index on credit concerns.

I will post information regarding the reset rate when it is available March 2 and intend to post a recommendation regarding conversion on March 11.

On 2016-1-20, Capstone Infrastructure Corporation announced:

that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with Irving Infrastructure Corp., a subsidiary of iCON Infrastructure Partners III, L.P. (“iCON III”), a fund advised by London, UK-based iCON Infrastructure LLP (“iCON Infrastructure”), that provides for the acquisition of all issued and outstanding common shares of Capstone and Class B exchangeable units of Capstone’s subsidiary MPT LTC Holding LP for $4.90 cash per share or unit, as applicable. The acquisition will be completed by way of a plan of arrangement (the “Arrangement”) under the British Columbia Business Corporations Act (“BCBCA”). The total equity value of the transaction is approximately $480 million.
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Under the Arrangement, it is proposed that Capstone’s 6.50% convertible unsecured subordinated debentures due December 31, 2016 will be redeemed for 101% of their principal amount and Capstone Power Corp.’s 6.75% extendible convertible unsecured subordinated debentures due December 31, 2017 will be converted into common shares of Capstone in accordance with the cash change of control provisions of the debenture indenture governing such debentures and then immediately acquired by Irving Infrastructure Corp. at a price of $4.90 per share, in each case plus accrued and unpaid interest on the debenture until the Effective Date. Pursuant to the Arrangement Agreement, holders of the debentures will be asked to vote on the Arrangement, with each series of debentures voting as a separate class. However, completion of the Arrangement is not conditional on receipt of either of such approvals. If the requisite debenture holder approval is not obtained, such debentures will be excluded from the Arrangement and dealt with in accordance with their terms. For a series of debentures to be part of the Arrangement, the resolution approving the Arrangement must be approved by holders of not less than a majority in number and not less than 75% of the principal amount of such debentures present in person or by proxy at the special meeting of securityholders.

Capstone’s previously announced fourth quarter 2015 dividend will be paid to common and preferred shareholders on January 29, 2016, but no further dividends will be declared to common shareholders in anticipation of the consummation of the transaction. Quarterly dividends are expected to be declared to preferred shareholders on a continuing basis and those shares will continue to be listed and trade on the Toronto Stock Exchange following closing of the Arrangement.

Capstone expects to hold a meeting of securityholders to consider the resolution approving the Arrangement in mid-March 2016, and if approved, to complete the transaction in April 2016 following receipt of regulatory approvals.

They have now announced:

that Glass, Lewis & Co., LLC (“Glass Lewis”) and Institutional Shareholder Services, Inc. (“ISS”), two leading independent proxy advisory firms, have both recommended that Capstone shareholders vote FOR the previously announced arrangement (the “Arrangement”) that provides for Irving Infrastructure Corp., a subsidiary of iCON Infrastructure Partners III, L.P. (“iCON III”), a fund advised by London, UK-based iCON Infrastructure LLP (“iCON Infrastructure”), to acquire all issued and outstanding common shares of Capstone (“common shares”) and Class B exchangeable units of Capstone’s subsidiary MPT LTC Holding LP (“Class B units”) for $4.90 cash per share or unit, as applicable.

CSE.PR.A is a FixedReset, 5.00%+271, that commenced trading 2011-6-30 after being announced 2011-6-13. The issue dived in late 2011 when the company announced a review of the common dividend and the issue was downgraded to P-4(high) by S&P in April 2012.

There has been no indication as yet from S&P regarding the credit implications of a successful takeover.

Update, 2016-2-24: Barry Critchley is incensed by the voting terms:

Judging by some recent actions, it seems that preferred shareholders are preferred in name only.
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Holders of the rate-reset preferreds would have liked to have been invited. Given their recent trading price — during the past year the prefs have traded in the range of $9.50 to $15.30 and closed Tuesday at $12.46 – they would have gladly accepted a small premium and voted to support the offer.

The non-invite to the meeting and the decision to leave the prefs outstanding has upset some holders.
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ICON said, “the rights of preferred shareholders will not be affected by the transaction, since the preferred shares will remain outstanding on their current terms. The maintenance of a public listing leaves open the potential for future capital raisings of the public entity.”

GMP Capital Inc. has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative 5-Year Rate Reset Preferred Shares, Series B of the Corporation (the Series B Shares) on March 31, 2016 (the Conversion Date). There are currently 4,600,000 Series B Shares outstanding.

As a result and subject to certain conditions set out in the short form prospectus dated February 14, 2011 relating to the issuance of the Series B Shares, the holders of the Series B Shares have the right, at their option, to convert all or any of their Series B Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series C of the Corporation (the Series C Shares) on the Conversion Date (the Conversion Privilege). A formal notice of the Conversion Privilege will be sent to the registered holder of the Series B Shares.

Holders who do not exercise their right to convert their Series B Shares into Series C Shares will continue to hold their Series B Shares and will have the opportunity to convert their shares again on March 31, 2021, and every five years thereafter as long as the shares remain outstanding.

The foregoing Conversion Privilege is subject to the following conditions: (i) if the Corporation determines that there would remain outstanding on the Conversion Date less than 1,000,000 Series C Shares, after taking into account all Series B Shares tendered for conversion into Series C Shares and all Series C Shares tendered for conversion into Series B Shares, then the holders of the Series B Shares will not be entitled to convert their shares into Series C Shares; and (ii) alternatively, if the Corporation determines that there would remain outstanding on the Conversion Date less than 1,000,000 Series B Shares, after taking into account all Series B Shares tendered for conversion into Series C Shares and all Series C Shares tendered for conversion into Series B Shares, then all, but not part, of the remaining outstanding Series B Shares will automatically be converted into Series C Shares on a one-for-one basis on the Conversion Date. In either case, the Corporation will give written notice to that effect to any registered holders affected by the preceding conditions of the Series B Shares no later than March 24, 2016.

The dividend rate applicable to the Series B Shares for the five-year period commencing on April 1, 2016 and ending on and including March 31, 2021, and the dividend rate applicable to the Series C Shares for the three-month period commencing on April 1, 2016 and ending on and including June 30, 2016, will be determined and announced by way of a press release on March 1, 2016.

Beneficial owners of Series B Shares who wish to exercise their Conversion Privilege should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from March 1, 2016 until 5:00 p.m. (Toronto time) on March 16, 2016.

This is not a big surprise. GMP.PR.B is a FixedReset, 5.50%+289, that commenced trading 2011-2-22 after being announced 2011-2-1. The company is experiencing difficulties and is on Review-Negative by DBRS.

The issue is tracked by HIMIPref™ but relegated to the scraps index on credit concerns.

I will post information regarding the reset rate when it is available March 1 and intend to post a recommendation regarding conversion on March 11.

Huh. Sometimes I just can’t win. Remember yesterday, when I passed on the news that:

Element Financial, proud issuer of EFN.PR.A, EFN.PR.C, EFN.PR.E and EFN.PR.G, has announced:

that following the completion of a strategic review of each of the Company’s business units that it initiated in October of last year, the Board of Directors has approved plans to proceed with a transaction that will result in the separation of the current business into two publicly traded companies – a $19.5 billion world class fleet management company (Element Fleet Management) to be led by Bradley Nullmeyer and a $7.0 billion North American commercial finance company (Element Commercial Asset Management) to be led by Steven Hudson.
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The Company is currently analyzing the most efficient method to implement the separation of the two businesses and further details will be provided to the market as Element completes this analysis with its advisors. The separation transaction that will split the Company into these two publicly traded entities is expected to be completed on a tax free basis before the end of 2016. The allocation of the assets, liabilities and capital structure of the Company, as well as the structure of the Board and the deployment of current corporate services staff between the two new entities will be determined as the details of this separation transaction are determined.

And remember when I went on to say:

We’ll see what happens as details emerge, but I have a hard time envisaging this as being credit-positive for the preferreds!

DBRS has announced that it:

has today placed the ratings of Element Financial Corporation (Element or the Company), including its Issuer Rating of BBB, Under Review with Positive Implications. Today’s rating action follows the Company’s plans to separate into two public companies.
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The Under Review with Positive Implications reflects DBRS’s view that while the separation transaction will remove some revenue diversity, the transaction will lower the risk profile of Element Fleet Management’s balance sheet. The separation will remove the largest source of credit risk on the current balance sheet (the Commercial and Vendor Finance portfolio), as well as a key source of asset residual exposure (Aviation Finance). Moreover, the key factors that are the foundation of the Company’s ratings, namely, the strong franchise position of the fleet management business and strengthening earnings profile of the fleet business remain intact. Indeed, the soon to be separated commercial businesses accounted for just 23% of total earning assets at September 30, 2015.

The Under Review with Positive Implications also reflects DBRS’s expectations that Element will successfully execute the spin-out of the commercial business, while integrating the GE Fleet business. Moreover, the rating action considers DBRS’s anticipation that the Company’s earnings profile will continue to strengthen as earnings assets grow, and the Company improves its penetration rate within its fleet customers, while maintaining credit costs within historical levels and improving operating efficiency. Conversely, positive rating momentum could stall if there are indications of miss-steps in either the legal separation of the businesses or the GE Fleet integration evidenced by loss of key customers or operational-related charges. Further, leverage outside of fleet management peers would be viewed negatively. DBRS expects to conclude the review once the separation is completed and final details are known regarding Element Fleet Management’s balance sheet composition and pro-forma earnings capacity.

While there are certain execution risks associated with separating business lines, especially at a time when the Company continues to integrate the very sizeable GE Fleet business, DBRS views these risks as manageable in the Element transaction. Indeed, DBRS anticipates minimal disruption to the operating strategy and performance of each business line; as each business currently operates with its own senior management team on a day-to-day basis with oversight from Element’s executive management. DBRS notes that these management teams will remain in place post spin-out. Moreover, there is minimal IT separation required as each of the business lines have dedicated operating platforms owed to the uniqueness of the assets. As a result, while there will be a degree of back-office systems to be separated, DBRS sees IT separation costs and risks as lower in this transaction than in many other separations or spin-outs. DBRS comments that the integration of the GE Fleet business is on target with IT integration expected to be completed in 2016. Importantly, Element’s funding strategy has been to have permanent funding in place for each vertical, which in DBRS’s view should also aid in a smooth separation.

As noted above, affected issues are EFN.PR.A, EFN.PR.C, EFN.PR.E and EFN.PR.G.

Husky Energy has announced that it:

is providing notice that the Company does not intend to exercise its right to redeem its Cumulative Redeemable Preferred Shares, Series 1 (Series 1 Shares) on March 31, 2016. As a result, subject to certain conditions, the holders of Series 1 Shares have the right to choose one of the following options with regard to their shares:

1. Retain any or all of their Series 1 Shares and continue to receive an annual fixed rate dividend paid quarterly; or
2. Convert, on a one-for-one basis, any or all of their Series 1 Shares into Cumulative Redeemable Preferred Shares, Series 2 (Series 2 Shares) of Husky Energy and receive a floating rate quarterly dividend.

The dividend rate applicable to the Series 1 Shares for the five year period commencing March 31, 2016, to, but excluding, March 31, 2021 will equal the sum of the Government of Canada five year bond yield on March 1, 2016 plus 1.73 percent. The dividend rate applicable to the Series 2 Shares for the three month period commencing March 31, 2016 to, but excluding, June 30, 2016 will equal the sum of the Government of Canada 90 day treasury bill rate on March 1, 2016 plus 1.73 percent. Both rates will be calculated according to the terms of the prospectus supplement dated March 11, 2011, and announced by way of a news release on March 1, 2016.

Beneficial owners of Series 1 Shares who wish to exercise the right of conversion should communicate as soon as possible with their broker or other nominee in order to meet the deadline to exercise such right, which is 5 p.m. ET on March 16, 2016. It is recommended this communication be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Holders of Series 1 Shares who do not exercise the right of conversion by this deadline will continue to hold Series 1 Shares with the new annual fixed rate dividend.

Conversion to Series 2 Shares is subject to the conditions that: (i) if Husky Energy determines that there would be less than one million Series 1 Shares outstanding after March 31, 2016, then all remaining Series 1 Shares will automatically be converted to Series 2 Shares on a one-for-one basis on March 31, 2016, and (ii) if Husky Energy determines that there would be less than one million Series 2 Shares outstanding after March 31, 2016, no Series 1 Shares will be converted into Series 2 Shares. In either case, Husky Energy will issue a news release to that effect no later than March 31, 2016.

Holders of the Series 1 Shares and the Series 2 Shares will have the opportunity to convert their shares again on March 31, 2021, and every five years thereafter as long as the shares remain outstanding.

For more information on the terms of, and risks associated with, an investment in the Series 1 Shares and the Series 2 Shares, please see the Company’s prospectus supplement dated March 11, 2011 on www.sedar.com.

There is no great surprise here, as HSE.PR.A is a FixedReset, 4.45%+173, which commenced trading 2011-3-18 after being announced 2011-3-10. It is currently quoted at 8.35-60, 1×1. It is tracked by HIMIPref™ and assigned to the FixedReset subindex.

I will report the actual reset rate when it is announced (given today’s GOC-5 yield of 0.65%, we may estimate (0.65% + 1.73%) * 25 = (2.38% * 25) = $0.595, a reduction of 47%!) and provide a recommendation regarding whether to convert or hold before the company’s notification deadline of 5 p.m. ET on March 16.