Category: Issue Comments

Emera Incorporated has announced:

the applicable dividend rates for its Cumulative 5-Year Rate Reset First Preferred Shares, Series A (the “Series A Shares”) and Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Shares”), in each case, payable if, as and when declared by the Board of Directors of the Company:
• 2.555% per annum on the Series A Shares ($0.1597 per Series A Share per quarter), being equal to the sum of the Government of Canada bond yield as at July 16, 2015, plus 1.84%, payable quarterly on the 15th of February, May, August and November of each year during the five-year period commencing on August 15, 2015 and ending on (and inclusive of) August 14, 2020; and
• 2.393% on the Series B Shares of the Company (the “Series B Shares”) for the three-month period commencing on August 15, 2015 and ending on (and inclusive of) November 14, 2015 ($0.1508 per Series B Share for the quarter), being equal to the sum of the three-month Government of Canada treasury bill yield rate as at July 16, 2015, plus 1.84% (calculated on the basis of the actual number of days elapsed during the quarter divided by 365), payable on the 15th of November 2015. The quarterly floating dividend rate will be reset every quarter.

Holders of the Series A Shares have the right, at their option, to convert all or any of their Series A Shares, on a one-for-one basis, into Series B Shares on August 15, 2015 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series A Shares into Series B Shares will continue to hold their Series A Shares. The foregoing conversion right is subject to the following:
• if the Company determines that there would be less than 1,000,000 Series B Shares outstanding on the Conversion Date, then holders of Series A Shares will not be entitled to convert their shares into Series B Shares, and
• alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series A Shares on the Conversion Date, then all remaining Series A Shares will automatically be converted into Series B Shares on a one-for-one basis on the Conversion Date.

Beneficial owners of Series A Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2015 until 5:00 p.m. (EDT) on July 31, 2015.

Inquiries should be directed to Emera Investor Services, at 1-800-358-1995 or 902-428-6060, or by email to investors@emera.com.

The extension was reported on PrefBlog.

EMA.PR.A is a FixedReset, 4.40%+184, announced 2010-5-25, which commenced trading 2010-6-2. Therefore, the reset dividend of 2.555% represents a cut of 42% in the rate. Ouch!

It is too early to make a recommendation regarding whether to hold the FixedReset EMA.PR.A or to convert to the new FloatingReset, but it’s never too early to start thinking about it…

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., EMA.PR.A and the FloatingReset, EMA.PR.?, that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

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The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see; four of the six junk pairs now in existence are not plotted on the graph as they have a negative implied T-Bill rate.

If we plug in the current bid price of the EMA.PR.A FixedResets, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

So at this point it looks like it will be better to hold EMA.PR.A and, if for your own purposes you want a FloatingReset issue, to execute a swap in the marketplace, since it looks likely that the price of the FloatingReset will be significantly lower than the price of the FixedReset. However, not only is nothing actually guaranteed, but I won’t even make a formal recommendation until July 29 … just in case market sentiment has changed at that point!

Standard & Poor’s has announced:

• •We are revising our outlook to negative from stable on Calgary, Alta.-based ATCO Ltd. and its subsidiaries Canadian Utilities Ltd (CU Ltd.) and CU Inc.
• •We are also affirming our ‘A’ long-term corporate credit rating on ATCO and its subsidiaries.
• •The negative outlook reflects our view that ATCO’s planned capital program could put pressure on the company’s financial metrics, affecting our positive comparable rating analysis modifier on the company.

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“We base the outlook revision on our view that the company’s forecast financial metrics in the context of a more difficult Alberta operating environment, as well as its aggressive capital program, weaken the rationale for our positive comparable rating modifier on the company,” said Standard & Poor’s credit analyst Stephen Goltz. “Recent regulatory decisions also put additional pressure on the company’s revenue and cash flow,” Mr. Goltz added.
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We expect the company to invest heavily in the next few years, similar to the past three. Furthermore, although supported by long-term contracts, not all of the future spending will be regulated. Our forecast expects development of the water infrastructure and liquids storage project in Alberta, a natural gas pipeline and cogeneration power plant in Mexico, and the Fort McMurray West Transmission Project.

The outcome of the Alberta Utilities Commission’s latest decisions also affect ATCO’s revenue and recovery of prudent capital spending contributing additional pressure on cash flow stability.

The negative outlook reflects our view that the planned capital program that is forecast to occur in the context of a weaker Alberta operating environment could put pressure on financial metrics, which would cause us to remove our positive [comparable rating analysis] modifier on the company.

Affected issues are CU Inc.’s CIU.PR.A and CIU.PR.C, and Canadian Utilities’ CU.PR.C, CU.PR.D, CU.PR.E, CU.PR.F and CU.PR.G. All are tracked by HIMIPref™.

Emera Incorporated 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 First Preferred Shares, Series A of the Company (the “Series A Shares”) on August 15, 2015. There are currently 6,000,000 Series A Shares outstanding.

Subject to certain conditions set out in the prospectus supplement of the Company dated, May 26, 2010, to the short form base shelf prospectus, dated May 19, 2010 (collectively, the “Prospectus”) relating to the issuance of the Series A Shares, the holders of the Series A Shares have the right, at their option, to convert all or any of their Series A Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series B of the Company (the “Series B Shares”) on August 15, 2015 (the “Conversion Date”).

On such date, holders who do not exercise their right to convert their Series A Shares into Series B Shares will continue to hold their Series A Shares.

The foregoing conversion right is subject to the following:

1. if the Company determines that there would be less than 1,000,000 Series B Shares outstanding on the Conversion Date, then holders of Series A Shares will not be entitled to convert their shares into Series B Shares, and

2. alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series A Shares on the Conversion Date, then all remaining Series A Shares will automatically be converted into Series B Shares on a one-for-one basis on the Conversion Date.

In either case, Emera will give written notice to that effect to holders of Series A Shares no later than August 10, 2015.

The dividend rate applicable for the Series A Shares for the five-year period commencing on August 15, 2015 and ending on (and inclusive of) August 14, 2020, and the dividend rate applicable to the Series B Shares for the 3-month period commencing on August 15, 2015 and ending on (and inclusive of) November 14, 2015, will be determined on July 16, 2015 and notice of such dividend rates shall be provided to the holders of the Series A Shares on that day.

Beneficial owners of Series A Shares who wish to exercise their conversion right, should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2015 until 5:00 p.m. (EDT) on July 31, 2015.

Inquiries should be directed to Emera Investor Services, at 1-800-358-1995 or 902-428-6060, or by email to investors@emera.com.

EMA.PR.A is a FixedReset, 4.40%+184, announced 2010-5-25, which commenced trading 2010-6-2. If we assume that the July 3 GOC-5 yield of 0.80% remains the level at the time of reset, then the issue will reset at 2.64%, a 40% decline from the initial rate.

So, we shall learn the new rate on July 16, and can elect conversion until July 31 (or a day or two earlier when providing instructions via an intermediary). I’ll keep you posted!

As earlier reported on PrefBlog, there was a 50% conversion from the FixedReset, SLF.PR.G, to the FloatingReset SLF.PR.J

SLF.PR.G will pay 2.275% (on its par value of $25), or $0.142188 per share per quarter, until its next exchange date of 2020-6-30. SLF.PR.J will pay the three month Canada treasury bill rate, plus 141bp, reset quarterly, throughout its existence.

As both of these issues are issued by an insurance holding company and neither has an NVCC clause, I have added a DeemedMaturity entry to the call schedule; I am therefore assuming that these will be called at par on or before 2025-6-30. See the heading “DeemedRetractibles” on the Format of PrefLetter page for more information. Please note carefully that this is the result of my analysis and is neither a binding commitment of the issuer nor guaranteed in any way.

Vital statistics are:

At the indicated bid prices, the break-even three-month bill rate (the average bill rate at which the total return of the two elements of the Strong Pair will be equal until the next Exchange Date) is 1.08%, so far above the average for all investment grade FixedReset / FloatingReset Strong Pairs (irrespective of Exchange Date) of 0.36% that this pair constitutes an outlier. If the average rate exceeds 1.08% then SLF.PR.J will outperform SLF.PR.G over the period (measured from today’s bid prices).

Click for Big

TransCanada Corporation has announced:

that 5,466,595 of its 14,000,000 fixed rate Cumulative Redeemable First Preferred Shares, Series 3 (Series 3 Shares) were tendered for conversion into floating-rate Cumulative Redeemable First Preferred Shares, Series 4 (Series 4 Shares). As a result of the conversion TransCanada has 8,533,405 Series 3 Shares and 5,466,595 Series 4 Shares issued and outstanding. The Series 3 Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol TRP.PR.B. The Series 4 Shares will begin trading on the TSX today under the symbol TRP.PR.H.

The Series 3 Shares will continue to pay on a quarterly basis, for the five-year period beginning on June 30, 2015, as and when declared by the Board of Directors of TransCanada, a fixed dividend based on an annual fixed dividend rate of 2.152 per cent.

The Series 4 Shares will pay a floating quarterly dividend for the five-year period beginning on June 30, 2015, as and when declared by the Board of Directors of TransCanada. The floating quarterly dividend rate for the Series 4 Shares for the first quarterly floating rate period (being the period from June 30, 2015 to but excluding September 30, 2015) is 1.945 per cent and will be reset every quarter.

For more information on the terms of, and risks associated with an investment in, the Series 3 Shares and the Series 4 Shares, please see the Corporation’s prospectus supplement dated March 4, 2010 which can be found under the Corporation’s profile on SEDAR at www.sedar.com or on the Corporation’s website.

No shares traded today and the closing quote, as reported by the Toronto Stock Exchange, was 14.35-25.00.

Vital statistics are:

At the indicated bid prices, the break-even three-month bill rate (the average bill rate at which the total return of the two elements of the Strong Pair will be equal until the next Exchange Date) is 0.26%, slightly below the average for all investment grade FixedReset / FloatingReset Strong Pairs (irrespective of Exchange Date) of 0.36%. Thus, if the average rate exceeds 0.26% then TRP.PR.H will outperform TRP.PR.B over the period (measured from today’s bid prices), which seems like a pretty good bet.

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The Bank of Nova Scotia has announced:

BNS Split Corp. II (the “Company”) announced today that its Board of Directors has approved a proposal to reorganize the Company. The reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of September 22, 2015 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on September 22, 2015.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of a new class of preferred shares in order to provide continuing leverage for the Capital Shares. The Company may also offer additional Capital Shares at the time of the preferred share offering.

A special meeting of holders of the Capital Shares will be held on August 7, 2015 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on July 9, 2015 in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

BNS Split Corp. II is a mutual fund corporation created to hold a portfolio of common shares of The Bank of Nova Scotia. Capital Shares and Preferred Shares of BNS Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols BSC and BSC.PR.B respectively.

BSC.PR.B was last mentioned on PrefBlog when there was a partial call for redemption last September. BSC.PR.B is tracked by HIMIPref™ but is relegated to the Scraps index on volume concerns.

Moody’s Investors Service has announced that it [emphasis added]:

has downgraded the senior unsecured ratings for Enbridge Inc. (ENB) to Baa2 from Baa1; for Enbridge Energy Partners L.P. (EEP) to Baa3 from Baa2 and for Enbridge Energy Limited Partnership (EELP) to Baa2 from Baa1. Moody’s affirmed the Baa2 senior unsecured rating on Enbridge Income Fund (EIF) and the Prime-2 commercial paper rating for Enbridge (U.S.) Inc. For all these entities, the rating outlooks are stable. For a complete list of Moody’s ratings actions see the end of this press release.
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The downgrade of ENB reflects the reduction in financial flexibility following the company’s change in its distribution policy, the increased level of structural subordination at the ENB level, principally due to the transfer of Enbridge Pipelines Inc.(EPI) and Enbridge Pipelines Athabasca (EPA) to EIF and the ongoing capital structure complexity within the group. Dividends per share at ENB will increase by 33% in 2015, because the company changed its dividend policy to 40-50% of cash flow from operations from 60-70% of earnings. We see ENB implementing more shareholder-friendly policies at a time when the group continues to move forward with its large capital program, with increasing execution risk. Structural subordination is also increasing because EPI and EPA, the assets being transferred to EIF, will no longer be held directly by ENB. Cash flow from these assets must service obligations at EIF, including EIF’s debt, before servicing ENB creditors. This more than offsets the transfer of interests of EEP to ENB from EPI.
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Rating Outlook

The outlook for the group is stable.

ENB: What could change the rating up

Given the large capital program and high leverage, an upgrade is unlikely until the completion of the capital program in 2017. Beyond that, we could raise the ratings if proportionately consolidated Debt/EBITDA is forecast in the 4-5x range on a sustained basis.

ENB: What could change the rating down

A failure to execute the capital program on time and budget or a negative deviation from our proportionately consolidated financial forecast could result in a downgrade. A deterioration in the business risk profile of the company or proportionately consolidated Debt/EBITDA sustained above 5.5x following the completion of the large capital program could also lead to a downgrade.
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..Issuer: Enbridge Inc.

…. Issuer Rating, Downgraded to Baa2 from Baa1

….Preferred Stock Shelf, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Shelf and MTN program, Downgraded to (P)Baa2 from (P)Baa1

….Subordinated Shelf, Downgraded to (P)Baa3 from (P)Baa2

….Pref. Stock Preferred Stock, Downgraded to Ba1 from Baa3

….Pref. Stock Preferred Stock, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa2 from (P)Baa1

….Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

And yes, I checked … Ba1 is not investment grade by Moody’s definition.

This follows the downgrade by S&P to P-2(low) (still investment grade!) which was also with respect to the Dropdown.

Affected issues are: ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T and ENB.PR.Y.

Hat-tip to Assiduous Reader gsp for bringing this development to my attention!

Brompton Group has announced:

Life & Banc Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus with respect to a treasury offering of class A shares and preferred shares. The class A and preferred shares have been priced at $9.65 per class A share and $10.10 per preferred share. The offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on June 23, 2015, as adjusted for dividends accrued prior to or upon settlement of the offering.

The Company invests in a portfolio of common shares of the six largest Canadian banks (“Banks”) and the four major publicly traded Canadian life insurance companies (“Lifecos”). Currently, the portfolio consists of common shares of the following Banks and Lifecos:

The Bank of Nova Scotia	Royal Bank of Canada
National Bank of Canada	Industrial Alliance Insurance and Financial Services Inc.
The Toronto-Dominion Bank	Great-West Lifeco Inc.
Canadian Imperial Bank of Commerce	Manulife Financial Corporation
Bank of Montreal	Sun Life Financial Inc.

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share and to provide the opportunity for growth in net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.11875 per preferred share ($0.475 per annum), representing a yield on the original issue price of 4.75% per annum, and to return the original issue price to holders of preferred shares on the maturity date of the Company, November 29, 2018.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC and Scotiabank, and includes TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Haywood Securities Inc., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

What a joy it is when you can sell fund units valued at 18.93 as of June 23 for 19.75!

LBS.PR.A was last mentioned on PrefBlog when they raised 25.5-million in a similar offering in April. This issue is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2015-6-30: Final prospectus filed:

Life & Banc Split Corp. (the “Company”) is pleased to announce that it has filed a final short form prospectus with respect to a treasury offering of up to 1,860,000 class A shares and up to 1,860,000 preferred shares for aggregate gross proceeds of up to approximately $36.7 million.

Sun Life Financial Inc. has announced:

that 6,007,314 of its 11,200,000 Class A Non-cumulative Rate Reset Preferred Shares Series 8R (the “Series 8R Shares”) have been elected for conversion on June 30, 2015, on a one-for-one basis, into Class A Non-cumulative Floating Rate Preferred Shares Series 9QR (the “Series 9QR Shares”). Consequently, on June 30, 2015, Sun Life Financial will have 5,192,686 Series 8R Shares and 6,007,314 Series 9QR Shares issued and outstanding. The Series 8R Shares and Series 9QR Shares will be listed on the Toronto Stock Exchange under the symbols SLF.PR.G and SLF.PR.J, respectively.

Subject to regulatory approval, Sun Life Financial may redeem the Series 8R Shares and the Series 9QR Shares in whole or in part on June 30, 2020 and on the 30th of June every five years thereafter.

The conversion rate is much higher than the most recent conversion, FTS.PR.H / FTS.PR.I, in which a 30% conversion was seen.

And the conversion rate flies in the face of my recommendation to hold SLF.PR.G, the FixedReset. Oh well, we’ll see how it turns out.