Category: Issue Comments

Partners Value Split Inc. has announced:

the completion of its previously announced issue of 4,000,000 Class AA Preferred Shares, Series 7 (the “Series 7 Preferred Shares”) at an offering price of $25.00 per Series 7 Preferred Share, raising gross proceeds of $100,000,000. The Series 7 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 5.50% annualized yield on the offering price and have a final maturity of October 31, 2022. The Series 7 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol PVS.PR.E. The net proceeds of the offering will be used to redeem the Company’s outstanding Class AA Preferred Shares, Series 1 no later than March 25, 2016, in accordance with the terms of the Series 1 Preferred Shares, and to pay a special dividend to holders of the Company’s capital shares.

Prior to the closing of the offering, the Company subdivided the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares.

DBRS has rated the issue Pfd-2(low):

DBRS Limited (DBRS) has today finalized the provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 7 (the Series 7 Preferred Shares) issued by Partners Value Split Corp. (the Company) and has confirmed the ratings of the previously issued Class AA Preferred Shares, Series 1; Class AA Preferred Shares, Series 3; Class AA Preferred Shares, Series 5; and Class AA Preferred Shares, Series 6 (collectively, with the Series 7 Preferred Shares, the Class AA Preferred Shares) at Pfd-2 (low).
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Following the redemption of the Series 1 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 83% (based on the closing price of BAM shares as of October 22, 2015) and the dividend coverage ratio is expected to be above 1.7 times (based on the Canadian dollar and U.S. dollar exchange rate as of October 22, 2015). BAM declares its dividend in U.S. dollars, so there is the risk that an appreciating Canadian dollar will cause the dividend coverage ratio to fall below 1.0 times. In the event of a shortfall, the Company may sell some of the BAM Shares, engage in security lending or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends. If the Company chooses to lend its holdings, the Portfolio would be exposed to the potential losses in the event that the borrower defaults on its obligations to return the borrowed securities.

The rating is based on the same rating rationale and rating considerations as all other series of Class AA Preferred Shares.

PVS.PR.E is a seven-year 5.50% SplitShare announced October 20. It will be tracked by HIMIPref™ and has been assigned to the SplitShares subindex.

The issue traded a miserable 23,300 shares today in a range of 24.50-80 before settling at 24.52-55, 4×57. Vital statistics are:

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, Preferred Shares Series BJ. Royal Bank of Canada issued 6 million Preferred Shares Series BJ at a price of $25 per share to raise gross proceeds of $150 million.

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

The Preferred Shares Series BJ were issued under a prospectus supplement dated September 28, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.P is a PerpetualDiscount, 5.25%, announced September 24. The issue will be tracked by HIMIPref™ and has been assigned to the PerpetualDiscount subindex.

The issue traded a miserable 73,494 shares today (consolidated exchanges) in a range of 24.40-80 before closing at 24.40-44, 15×29. Vital statistics are:

When only the NVCC-compliant issues are used for fitting the Implied Volatility curve, it appears that Implied Volatility is very low (which suggests that the relationship will steepen somewhat in the future) implying that higher-coupon issues are relatively expensive. However, there are only four data points to support this conclusion and the variety of coupon rates is minimal, so don’t mortgage the farm!

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On the other hand, the lower-coupon, explicitly NVCC-compliant issues (RY.PR.N and RY.PR.O) are trading at the same Current Yield at the new issue, which is crazy; they should be trading to yield a little less (with the 9% Implied Volatility shown, which is calculated including the NVCC-compliance-eligible RY.PR.W), the difference in Current Yield should be about 6bp.

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 44 issue in the amount of C$250,000,000. The offering was underwritten by a syndicate led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc.

Brookfield issued 10,000,000 Series 44 Shares at a price of C$25.00 per share, for total gross proceeds of C$250,000,000. Holders of the Series 44 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 5.00% annually for the initial period ending December 31, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.17%, and (ii) 5.00%. The Series 44 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.H.

BAM.PF.H is a FixedReset, 5.00%+417M500, announced September 24. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,304,995 shares today (consolidated exchanges) in a range of 24.95-03 before closing at 24.96-99, 14×57. Vital statistics are:

Implied Volatility analysis for the BAM FixedResets is difficult to take seriously, since the fit is so poor – but it is interesting to compare the following chart with the chart published on the announcement day. The issue’s siblings have been very weak in the intervening time, with the low Expected Future Current Yield moving from about 4.40% to 4.60% and several issues moving to have an EFCY of about 5%, on a level with the new issue. I will point out that this equivalence makes no sense – lower-spread issues should trade with a lower yield as compensation for their lower risk of call. Mind you, all this ignores the rate floor on the new issue!

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AltaGas Ltd. has announced:

that 2,488,780 of its 8,000,000 Cumulative Redeemable Five-Year Fixed Rate Reset Preferred Shares, Series A (“Series A Preferred Shares”) (TSX: ALA.PR.A) were tendered for conversion into Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”). As a result of the conversion AltaGas has 5,511,220 Series A Preferred Shares and 2,488,780 Series B Preferred Shares issued and outstanding. The Series A Preferred Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol ALA.PR.A. The Series B Preferred Shares will begin trading on the TSX today under the symbol ALA.PR.B.

The Series A Preferred Shares will continue to pay on a quarterly basis, for the five-year period beginning on September 30, 2015, as and when declared by the Board of Directors of AltaGas, a fixed dividend based on an annual fixed dividend rate of 3.38 percent.

The Series B Preferred Shares will pay a floating quarterly dividend for the five-year period beginning on September 30, 2015, as and when declared by the Board of Directors of AltaGas. The floating quarterly dividend rate for the Series B Preferred Shares for the first quarterly floating rate period (being the period from September 30, 2015 to but excluding December 31, 2015) is 3.04 percent and will be reset every quarter.

For more information on the terms of, and risks associated with an investment in, the Series A Preferred Shares and the Series B Preferred Shares, please see the prospectus supplement dated August 11, 2010 which is available on www.sedar.com.

ALA.PR.A is a FixedReset, currently 3.38%+266. ALA.PR.B is its Strong Pair, a FloatingReset paying 266bp over three month bills, reset quarterly. Both issues will be tracked by HIMIPref™, both relegated to the Scraps index on credit concerns.

The conversion rate was 31%, after my recommendation not to convert.

Vital statistics are:

Surprisingly, there were actually five trades today, totalling 600 shares – it’s very rare to see trades on the first day of a Floating Reset, since retail (typically) won’t be seeing the shares in their on-line accounts until reorg processes the entries in a batch after the close. But still, I wouldn’t take the quote of 15.50-89 all that seriously!

However:

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The ALA.PR.A / ALA.PR.B Strong Pair predicts an average three-month bill rate of 0.81% over the next five years, well above the average for investment-grade pairs.

Northland Power Inc. has announced:

that 1,498,435 of its 6,000,000 Cumulative Rate Reset Preferred Shares, Series 1 (“Series 1 Shares”) have been converted on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series 2 (the “Series 2 Shares”). Consequently, effective today Northland will have 4,501,565 Series 1 Shares and 1,498,435 Series 2 Shares issued and outstanding.

The Series 1 Shares are listed on the Toronto Stock Exchange under the symbol “NPI.PR.A” and the Series 2 Shares are listed on the Toronto Stock Exchange under the symbol “NPI.PR.B”.

NPI.PR.A is a FixedReset, currently (after reset) 3.51%+280. NPI.PR.B is its FloatingReset Strong Pair, paying three-month bills +280. Both issues will be tracked by HIMIPref™, both relegated to the Scraps index on credit concerns.

The conversion ratio was 25.0% after my recommendation not to convert.

Vital statistics are:

NPI.PR.B did not trade any shares today on any of the consolidated exchanges, so the quote of 14.00-50 should be taken with a grain of salt!

However:

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The NPI.PR.A / NPI.PR.B Strong Pair predicts an average three month bill rate of 0.28% over the next five years – well above the average for investment-grade pairs.

Canadian Utilities Limited has announced:

it has closed its previously announced public offering of Cumulative Redeemable Second Preferred Shares Series FF, by a syndicate of underwriters co-led by BMO Capital Markets and RBC Capital Markets, and including TD Securities Inc., Scotiabank, CIBC, Canaccord Genuity Corp., and GMP Securities L.P. Canadian Utilities Limited issued 10,000,000 Series FF Preferred Shares for gross proceeds of $250,000,000. The Series FF Preferred Shares will begin trading on the TSX today under the symbol CU.PR.I. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

CU.PR.I is a FixedReset, 4.50%+369M450, announced September 14. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 973,025 shares today (consolidated exchanges) in a range of 24.97-19 before closing at 25.08-12, 24×26. Vital statistics are: