Category: Issue Comments

The Stirling Funds has issued an Open Letter to Lowes (LOW: NYSE) and to Rona (RON: TSX) – Lowes Bid Undervalues Rona Preferred Shares (RON.PR.A: TSX):

Lowes, a FORTUNE 50 US based multinational company with sales of over $56 billion, has come to Canada to TAKEOVER, TAKE PRIVATE, CHANGE CONTROL of Rona Inc. Why are these descriptions important? Because they mean that certain things happen: common shareholders get a “Take-Over” premium for their shares and directors and officers get paid handsomely (> $40 million) by accelerating payments that would otherwise take many years for them to receive, if at all.

Let’s consider fundamental principles of Canadian and Quebec corporate law. If Rona’s common shares are collectively worth $2.6 billion, than any higher ranking financial instrument is worth at minimum its face or par value. But that is not how the transaction has been structured and as a result retail preferred shareholders will be FORCED to accept $5 per share less than its face or par value of $25. This is OPPRESSIVE.

Moreover, the Rona Board of Directors owe a fiduciary duty of care to all stakeholders. They have addressed the common shareholders’ interests with a > 100% premium, debenture holders which stand to gain better ratings for their interests, and employees by undertaking to maintain employment, but they have failed in their fiduciary duty to preferred shareholders.

In a similar situation in Canada, RioCan REIT preferred shares with almost identical terms as the Rona preferred shares and also with a March 31, 2016 maturity are being redeemed at their par value of $25.

The Caisse de dépôt et placement du Québec, one of Canada’s pre-eminent pension fund managers, supports the deal seemingly knowing that the preferred shares are held principally by Quebec retail investors and Quebec pensioners, the very people the Caisse represents.

Recently, a Quebec-based retail investor who owns Rona preferred shares wrote to the company:

“I feel the Rona board in unanimously recommending the Lowes take-over has failed to act fairly and equitably in the interests of all stake holders and has only acted in the interest of common shareholders”… “Do not short change the small retail investor”.

As background, the Stirling Funds owns Rona preferred shares. We also own Lowes common shares and are supportive of Lowes’ strategic entry into Canada, and its takeover offer of Rona. We believe Lowes has 1) a strong, focused and highly competent management team; 2) are well positioned in their market segments; and 3) will prosper significantly as the economy continues to recover and the housing and renovation cycle normalises. We are not hostile to Lowes (in fact the opposite). Our issue lies in the deal structure. It would seem bad business for Lowes to “short-change” the very group of investors it hopes to win as customers to save a rounding error on a $2.7 billion purchase.

NEXT STEPS

To further support our efforts to seek fair remedies for the Rona preferred shareholders, the Stirling Funds has retained European-based ÖstVäst Advisory, a specialist advisor to global institutions in complex financial and security law matters.

“It is unclear why Lowes would uniquely diminish the value of the Rona preferred shareholders, while handsomely rewarding everyone else” stated Fredrik Skoglund, Partner & Head of Research of ÖstVäst Advisors. “I would assume the Quebec Securities Commission would not wish to establish precedents like this”.

PROFILES:

The Stirling Funds are value-focused investment funds based in London, England that hold a portfolio of diversified global securities principally in asset-rich companies trading at a discount to their underlying intrinsic value.

ÖstVäst Advisory, based in Stockholm Sweden is an independent, specialist global advisory firm providing client tailored financial, investment and corporate services.

SOURCE The Stirling Funds

For further information: ÖstVäst Advisory AB, Stockholm, Sweden, Fredrik Skoglund, Partner / Head of Research, +46 70 410 5165, info@ostvast.com; The Stirling Funds, London, England, Gordon Flatt, Chief Investment Officer, +44 3239 9932, info@stirling-funds.co.uk

I have not been able to find any information on the so-called Stirling Funds. Their website has been set up simply for use as a mail-drop. They’re not entirely a joke because last October they issued an Early Warning Report:

Yesterday Stirling purchased sufficient shares of Kicking Horse Energy Inc. (KCK: TSX-V) in the market on the Venture Exchange to increase its ownership to hold 7,630,000 Common Shares representing 12% issued equity.

Kicking Horse was promptly taken over at 4.75 per share, so – assuming Stirling Funds has other investments – there is some heft to the management company.

Gordon Flatt, CIO of Stirling, has made the news before in connection with Inco’s preferred shares:

A $40-million (U.S.) investment in Inco Ltd. has intensified speculation that the Canadian nickel producer is a potential takeover target.

The purchase makes Winnipeg’s Coastal Investment Inc. – run by Gordon Flatt, brother of Brascan’s Bruce Flatt – the single-biggest owner of Inco’s series E preferred shares, the market’s largest preferred issue. Coastal now owns 1.12 million shares, or 12 per cent.

In turn, we can find reference to Coastal Value Fund with respect to their redemption of CVF.PR.A in 2007 and DIV.PR.A later in that year. Bloomberg has a note:

As of February 21, 2007, Coastal Value Fund Inc has gone out of business. Coastal Value Fund Inc. is an equity mutual fund launched and managed by Coastal Corp. The fund invests in the public equity markets of Canada. It invests in the stocks of companies operating across diversified sectors. The fund primarily invests in value stocks of large cap companies. Coastal Value Fund Inc was formed on September 27, 2002 and is domiciled in Canada.

And this eventually leads to a Bloomberg data dump regarding Gordon Flatt – he’s got his thumbs in a lot of pies, although it is not immediately apparent how substantial any of them are.

I have sent an eMail to the indicated address:

Dear Mr. Flatt,

I read your press release with interest and will be reporting on it at http://www.prefblog.com later today.

Please tell me a little more about yourself and your firm. Does Stirling Funds have a functional website? What are the AUM and where may I find your historical performance numbers? Ar e you the same Gordon Flatt who has been involved with Copacabana Capital Ltd. and Coastal Value Fund Inc.?

Sincerely,

No answer yet, but it’s still early.

Anyway, Assiduous Readers will remember that my post regarding the proposed RON.PR.A arrangement sparked a fair amount of comment – by PrefBlog standards – with several commenters expressing horror at the idea of a preferred share being taken out below par and heaping me with opprobrium for suggesting it was a pretty good deal for holders.

I based that opinion on a comparison with similar issues, so I’ll take the opportunity to update prices for that list:

So, given that Lowe’s is offering $20.00 for RON.PR.A with its spread of +265, it would appear that so far a good deal has simply gotten better since the announcement date. But it’s still too early to make a decision … the meeting is not until March 31 and if the preferred share market should happen to go up 10% between now and the last minute to vote … well, then, circumstances alter cases, don’t they?

Update, 2016-3-9: Barry Critchley has taken up the story:

The battle for the support of Rona’s preferred shareholders — who in the takeover by Lowe’s are being offered $20 per share, a $5 discount to the original purchase price — is set to get a little more interesting three weeks before all parties gather in Montreal to approve the transaction.

This week, and possibly as early as Thursday, more information is expected to be released about the extent of the opposition to the terms offered to the pref shareholders. “We have had lots of emails and calls from retail investors about the situation and we will be responding,” said an adviser with knowledge of what’s being planned.
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Maybe the circumstances are different but there is a precedent that doesn’t look too good for Lowe’s. In early 1987, Australia’s Fosters Brewing acquired Carling O’Keefe. For some reason, it decided not to acquire the preferred shares that had been issued by Carling. Led by a brewery analyst Mike Palmer and with heavy lifting from Sheila Block of Torys, an action was brought based on improper treatment of Carling’s preferred-shareholders. In time the courts in Ontario found the conduct of the directors of the amalgamated corporation to be “oppressive” to the preference shareholders. After that ruling the pref shareholders got their proper reward.

I’ve looked it up and, while ready to be corrected, suggest that the Carling-Fosters case is irrelevant:

In Palmer v. Carling O’Keefe, Carling O’Keefe amalgamated with a company established by Elders to acquire Carling O’Keefe. The Court was asked to consider the impact of the amalgamation on the holders of the preference shares of Carling O’Keefe. The object of amalgamating the two companies was to move the debt incurred to make the acquisition into Carling O’Keefe. In order to protect the interests of the preference shareholders, sufficient funds to redeem the preference shares were set aside in a separate trust account. The Court decided that the transaction had no business purpose for Carling O’Keefe. It concluded that the transaction served the interests of the controlling shareholder and was unfairly prejudicial to, and unfairly disregarded the interests of, the preference shareholders and that the directors of Carling O’Keefe had breached their duty to act for the benefit of the corporation as a whole. The oppression remedy is discussed in greater detail in Section 7 of this part of the chapter.
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In Palmer v. Carling O’Keefe, discussed above, the Court found that there was no bad faith involved in the decision to amalgamate the two companies, and that the board, composed of experienced business people acting upon independent advice, had exercised its best business judgment with respect to the transaction. The Court concluded that the impugned conduct nevertheless constituted oppression because it was unfairly prejudicial to the interests of the holders of preference shares and because it only served the interests of the controlling shareholder and not the interests of the corporation.

It seems to me that this precedent explains why the BCE preferred shares were to be redeemed in the BCE-Teachers’ deal, since in that case BCE was to be loaded up with LBO debt (see Responding to an Amalgamation Squeeze-out under the OBCA); but it doesn’t seem applicable here.

Partners Value Split Corp. has announced:

its intention to redeem all of its outstanding Class AA Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) (TSX: PVS.PR.A) for cash on March 28, 2016 (the “Redemption Date”). The redemption price per Series 1 Preferred Share will be equal to C$25.00 plus accrued and unpaid dividends of C$0.091541 thereon to March 28, 2016, representing a total redemption price of C$25.091541 per Series 1 Preferred Share (the “Redemption Price”). Formal notice will be delivered to holders of Series 1 Preferred Shares in accordance with the terms of the Series 1 Preferred Shares.

From and after the Redemption Date the Series 1 Preferred Shares will cease to be entitled to dividends or any other participation in any distribution of the assets of the Company and the holders thereof shall not be entitled to exercise any of their other rights as shareholders in respect thereof except to receive the Redemption Price (less any tax required to be deducted and withheld by the Company). After the redemption of the Series 1 Preferred Shares, the Company will consolidate the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

It will be recalled that this redemption was funded well in advance by the issue of PVS.PR.E – part funds from this issuance were used to pay a dividend to the capital unitholder.

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BM. Royal Bank of Canada issued 30 million Preferred Shares Series BM at a price of $25 per share to raise gross proceeds of $750 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BM will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.R.

The Preferred Shares Series BM were issued under a prospectus supplement dated February 29, 2016 to the bank’s short form base shelf prospectus dated January 21, 2016.

RY.PR.R is a FixedReset, 5.50%+480, announced 2016-2-25. The issue will be tracked by HIMIPref™ and assigned to the FixedReset subindex.

The issue traded 1,482,632 shares today (consolidated exchanges) in a range of 25.15-27 before closing at 25.23-25, 25×70. The TXPL total return index has increased by 830bp since the announcement date, so buyers on new-issue day could have done better elsewhere!

Vital statistics are:

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

Click for Big

Interpretation of this chart using the standard assumptions that everything will remain the same forever leads us to believe that the new issue is a little cheap – fair value is $25.48 according to the best fit of the NVCC-compliant issues, compared to an actual bid of 25.23. Note that RY.PR.Q is indicated to be quite expensive: it resets at 453bp (less than RY.PR.R) on 2021-5-24, and is 0.71 rich at its bid of 25.52 (higher than RY.PR.R).

However, the standard assumptions are even more shaky than they usually are. Some will say that the derived value of Implied Volatility, at 24%, is far too high and may be expected to decline in the future. This will cause the theoretical curve to flatten, which implies that the higher-spread issues will outperform the lower spread issues. Some will say, however, that the fundamental assumption of non-directionality in the Black-Scholes theory is wrong; that spreads in general are far too high, will narrow, and therefore the lower-spread issues will outperform the higher-spread issues. Some, like myself, will say that both criticisms are correct but that on balance the lower-spread issues are preferable. If, for instance, you plug in a 250bp spread and 10% Implied Volatility – numbers I would consider more reflective of a normal market – you find that the four lower spread issues increase in price by over 40%, compared to the higher-spread issues, which may well go substantially above the $25 call price, but not 40% worth. Mind you, the critical part of the above analysis is “normal” … i.e., with five year Canadas yielding more than inflation and that’s just for starters! There will be some who believe that current conditions represent the new normal; these players will probably prefer the higher-spread issues.

First National Financial Corporation has announced (although not yet on their website):

the applicable dividend rates for its cumulative 5-year rate reset Class A Preference Shares, Series 1 (“Series 1 Preference Shares”) and cumulative floating rate Class A Preference Shares, Series 2 (“Series 2 Preference Shares”).

With respect to any Series 1 Preference Shares that remain outstanding on March 31, 2016, commencing as of such date, holders thereof will be entitled to receive cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of First National. The dividend rate for the five-year period commencing on April 1, 2016, and ending on March 31, 2021 will be 2.79%, being equal to the 5-Year Government of Canada bond yield determined as at 10 am (Toronto time) March 2, 2016 plus 2.07%, as determined in accordance with the terms of the Series 1 Preference Shares.

With respect to any Series 2 Preference Shares that may be issued on March 31, 2016, holders thereof will be entitled to receive floating rate cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of First National, based on a dividend rate equal to the 90-day Canadian Treasury Bill plus 2.07% on an actual/365 day count basis, subject to certain adjustments in accordance with the terms of the Series 2 Preference Shares. The dividend rate for the period commencing on April 1, 2016 and ending on June 30, 2016 will be equal to 2.532%, as determined in accordance with the terms of the Series 2 Preference Shares.

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.

FN.PR.A is a FixedReset 4.65%+207, which commenced trading 2011-1-25 after being announced 2011-1-17. The notice of extension was previously reported on PrefBlog. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

The new rate represents a cut of 40% 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.

GMP Capital Inc. has announced:

the applicable dividend rates for its Cumulative 5-Year Rate Reset Preferred Shares, Series B (the Series B Shares) and its Cumulative Floating Rate Preferred Shares, Series C (the Series C Shares), further to its press release dated February 23, 2016, announcing that it does not intend to exercise its right to redeem all or any part of the currently outstanding Series B Shares and, as a result of which, subject to certain conditions, the holders of the Series B Shares have the right to convert all or any part of their Series B Shares into Series C Shares on a one-for-one basis.

With respect to any Series B Shares that remain outstanding after March 31, 2016, holders thereof will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Corporation, subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the five-year period commencing on April 1, 2016 and ending on and including March 31, 2021 will be 3.611% per annum or $0.22569 per share per quarter, being equal to the sum of the Government of Canada bond yield determined as of today, plus 2.89%, in accordance with the terms of the Series B Shares.

With respect to any Series C Shares that may be issued on March 31, 2016, 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 the Corporation, subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the three-month period commencing on April 1, 2016 and ending on and including June 30, 2016 will be 3.352% per annum or $0.20893 per share for the quarter, being equal to the sum of the three-month Government of Canada Treasury Bill yield determined as of today, plus 2.89% (calculated on the basis of the actual number of days elapsed during such quarterly period divided by 365), in accordance with the terms of the Series C Shares. The quarterly floating dividend rate will be reset every quarter.

Beneficial owners of Series B Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to ensure their instructions are followed for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Toronto time) on March 16, 2016.

GMP.PR.B is a FixedReset 5.50%+289, which commenced trading 2011-2-22 after being announced 2011-2-1. The notice of extension was previously reported on PrefBlog. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. It is rated Pfd-3(low) by DBRS; this rating is now on Review-Negative.

The new rate represents a cut of 34% in the dividend rate.

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.

Update, 2016-3-11: Interesting bit in the 15Q4 Report:

Bond forward: On March 2, 2016, we announced that the dividend rate on the Series B Preferred Shares will reset to 3.611% per annum, being the rate equal to the sum of the then current five-year Government of Canada (GOC) bond yield plus 2.89%, for the five-year period commencing on April 1, 2016 and ending on and including March 31, 2021. In order to partially hedge against a potential rise in GOC bond yields, GMP had entered into bond forward agreements with a Schedule I Canadian chartered bank in fourth quarter 2014 and first quarter 2015. In 2015, we recorded $3.6 million in pre-tax unrealized losses in connection with the bond forward (2014 – $0.4 million). For more information refer to “Financial Instruments – Derivative Financial Instruments”.

TransAlta Corporation has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Redeemable Rate Reset First Preferred Shares, Series A (“Series A Shares”) (TSX: TA.PR.D) on March 31, 2016 (the “Conversion Date”).

As a result and subject to certain conditions set out in the prospectus supplement dated December 3, 2010 relating to the issuance of the Series A Shares, the holders of the Series A Shares will have the right to elect to convert all or any of their Series A Shares into Cumulative Redeemable First Preferred Shares, Series B of the Company (“Series B Shares”) on the basis of one Series B Share for each Series A Share on the Conversion Date.

With respect to any Series A Shares that remain outstanding after March 31, 2016, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of TransAlta. The annual dividend rate for the Series A Shares for the five year period from and including March 31, 2016 to but excluding March 31, 2021, will be 2.709%, being equal to the 5-year Government of Canada bond yield determined as of today plus 2.03%, in accordance with the terms of the Series A Shares.

With respect to any Series B Shares that may be issued on March 31, 2016, 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 TransAlta. The annual dividend rate for the 3-month floating rate period from and including March 31, 2016 to but excluding June 30, 2016 will be 2.492%, being equal to the average yield expressed as an annual rate on 90 day Government of Canada Treasury Bills, plus 2.03%, in accordance with the terms of the Series B Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

As provided in the share conditions of the Series A Shares, (i) if TransAlta determines that there would remain outstanding on March 31, 2016, less than 1,000,000 Series A Shares, all remaining Series A Shares shall be converted automatically into Series B Shares on a one-for one basis effective March 31, 2016; or (ii) if TransAlta determines that there would remain outstanding after March 31, 2016, less than 1,000,000 Series B Shares, Series A Shares shall not be entitled to convert their shares into Series B Shares effective March 31, 2016. There are currently 12,000,000 Series A Shares outstanding.

The Series A Shares are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (“CDS Participant”). All rights of holders of Series A Shares must be exercised through CDS or the CDS Participant through which the Series A Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series A Shares into Series B Shares is 3:00 p.m. (MST) / 5:00 p.m. (EST) on March 16, 2016. Any notices received after this deadline will not be valid. As such, holders of Series A Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

If TransAlta does not receive an election notice from a holder of Series A Shares during the time fixed therefor, then the Series A Shares shall be deemed not to have been converted (except in the case of an automatic conversion). Holders of the Series A Shares and the Series B 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.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series B Shares effective upon conversion. Listing of the Series B Shares is subject to TransAlta fulfilling all the listing requirements of the TSX.

TA.PR.D was issued as a FixedReset, 4.60%+203, which commenced trading 2010-12-10 after being announced 2010-12-2. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

The new rate represents a cut of 41% 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.

RONA Inc. has announced (although not yet on its website):

that it does not intend to exercise its right to redeem all or any part of its currently outstanding 6,900,000 Cumulative 5-Year Rate Reset Series 6 Class A Preferred Shares (the “Series 6 Shares”) on March 31, 2016. As a result and subject to certain conditions set out in the short form prospectus dated February 11, 2011 relating to the issuance of the Series 6 Shares, the holders of the Series 6 Shares have the right, at their option, to convert all or any of their Series 6 Shares into Cumulative Floating Rate Series 7 Class A Preferred Shares of RONA (the “Series 7 Shares”) on March 31, 2016, on the basis of one Series 7 Share for each Series 6 Share. Holders who do not exercise their right to convert their Series 6 Shares into Series 7 Shares on such date will continue to hold their Series 6 Shares.

The foregoing conversion right is subject to the conditions that: (i) if RONA determines that there would be less than 1,000,000 Series 7 Shares outstanding after March 31, 2016, then holders of Series 6 Shares will not be entitled to convert their shares into Series 7 Shares, and (ii) alternatively, if RONA determines that there would remain outstanding less than 1,000,000 Series 6 Shares after March 31, 2016, then all remaining Series 6 Shares will automatically be converted into Series 7 Shares on March 31, 2016, on the basis of one Series 7 Share for each Series 6 Share. In either case, RONA will give written notice to that effect to registered holders of Series 6 Shares no later than March 24, 2016.

With respect to any Series 6 Shares that remain outstanding after March 31, 2016, holders of the Series 6 Shares will be entitled to receive fixed, cumulative, preferential cash dividends, as and when declared by the Board of Directors of RONA, payable quarterly on the last business day of each of March, June, September and December each year and subject to the provisions of the Business Corporations Act (Québec). The dividend rate for the five-year period from and including March 31, 2016 to but excluding March 31, 2021 will be 3.324% per annum or $0.20775 per share per quarter, being 2.65% over the five-year Government of Canada bond yield, as determined in accordance with the terms of the Series 6 Shares.

With respect to any Series 7 Shares that may be issued on March 31, 2016, holders of the Series 7 Shares will be entitled to receive floating rate, cumulative, preferential cash dividends, as and when declared by the Board of Directors of RONA, payable quarterly on the last business day of each of March, June, September and December each year and subject to the provisions of the Business Corporations Act (Québec). The dividend rate for the floating rate period from and including March 31, 2016 to but excluding June 30, 2016 will be 3.110% per annum or $0.19384 per share, being 2.65% over the 90-day Government of Canada Treasury Bill yield (calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365), as determined in accordance with the terms of the Series 7 Shares.

An application will be made to list the Series 7 Shares on the Toronto Stock Exchange (“TSX”).

Beneficial owners of Series 6 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Montreal time) on March 16, 2016.

On February 3, 2016, RONA announced that it had entered into an arrangement agreement with Lowe’s Companies, Inc. and its wholly-owned subsidiary Lowe’s Companies Canada, ULC under which Lowe’s has agreed to acquire all of the issued and outstanding common shares of RONA at a price of $24.00 per share in cash by way of a statutory plan of arrangement under the Business Corporations Act (Québec) (the “Arrangement”). Under the terms of the arrangement agreement, Lowe’s has also agreed to acquire all of the outstanding Series 6 Shares and any then outstanding Series 7 Shares for $20 per share in cash (plus any accrued but unpaid dividends thereon at closing), which represents a premium of approximately 59% to the closing price of the Series 6 Shares on the TSX on February 2, 2016 and a premium of approximately 58% to the 20 trading day volume weighted average price of the Series 6 Shares on the TSX up to and including February 2, 2016. RONA’s board of directors has unanimously approved the arrangement agreement.

Completion of the Arrangement is conditional upon approval of at least 66 2/3% of the votes cast by the common shareholders at the special meeting to be held on March 31, 2016 for such purpose (the “Meeting”) and satisfaction of other customary conditions including regulatory approvals in Canada and the issuance of a final order by the Québec Superior Court. Preferred shareholders will vote on the Arrangement as a separate class of securities and their participation in the Arrangement will require the approval of 66 2/3% of the votes cast by holders of preferred shares represented in person or by proxy at the Meeting. However, completion of the Arrangement is not conditional on approval by the preferred shareholders and, if the requisite approval of the preferred shareholders is not obtained, the Series 6 Shares and Series 7 Shares will be excluded from the Arrangement and will remain outstanding in accordance with their terms. It is expected that the Arrangement will be completed in the second half of 2016.

A copy of the arrangement agreement, the information circular and related documents have been filed with Canadian securities regulators and are available on RONA’s profile at www.sedar.com.

RON.PR.A was issued as a FixedReset, 5.25%+265, , which commenced trading 2011-2-22 after being announced February 1. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. The proposed acquisition, via Plan of Arrangement, by Lowe’s was reported on PrefBlog.

The new rate represents a cut of 37% in the dividend rate.

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.

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.
…
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.