Category: Issue Comments

Loblaw Companies Limited has announced:

the completion today of the sale of 9 million cumulative Second Preferred Shares, Series B (the “Preferred Shares Series B”), to yield 5.30% per annum, to a syndicate of underwriters co-led by RBC Capital Markets, Scotiabank and TD Securities Inc. The aggregate gross proceeds of the sale were $225 million. The Preferred Shares Series B have been listed and posted to trade on the Toronto Stock Exchange under the symbol “L.PR.B”.

L.PR.B is a 5.30% Straight Perpetual announced June 2. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 765,451 shares today (consolidated exchanges) in a range of 24.87-97 before closing at 24.92-95. Vital statistics are:

Standard & Poor’s has announced:

• •We now consider the prospect that the U.K. and German governments would provide extraordinary support to their banking systems to be uncertain, meaning that we now include no such uplift in the ratings on systemic commercial banking groups domiciled in these countries.
• •However, we recognize that these countries’ bank resolution frameworks are now well advanced, and we now include notches of uplift for systemic banks that we expect will hold or build sizeable volumes of bail-in capital in the coming years.
• •At the same time, we have recognized the strengthening intrinsic creditworthiness of a few banks that have, for example, materially strengthened their capitalization and lowered their exposure to unexpected losses.
• •We have resolved the CreditWatch placements on all these banks, lowering the long-term, and in some cases short-term, ratings on some, and affirming the ratings on others.
• •The outlook on most of these banks is now stable, but we have assigned negative outlooks where, for example, we see a risk that their building of core or bail-in capital may fall short.
• •Finally, we maintain the developing outlook on Germany-based Deutsche Pfandbriefbank AG (PBB), reflecting our view that the outcome of its reprivatization process is still uncertain.

…
•We affirmed our ratings on the hybrid capital instruments issued by, or guaranteed by, HSBC, Santander UK, and SCB, but raised by one notch the issue credit ratings on hybrids issued by Lloyds (and its banking affiliates) and Nationwide. We also raised by one notch the long-term issuer credit ratings on Lloyds Banking Group PLC and HBOS PLC.
…
However, to summarise, these actions reflect our view that these countries’ implementation of the comprehensive resolution framework set out in the EU’s Bank Recovery & Resolution Directive, including bail-in powers and requirements, mean that the prospect for extraordinary government support now appears uncertain, even for systemically important bank operating companies, and even while these banks remain in a transitional phase of building buffers of loss-absorbing debt instruments. However, we expect that regulators will (in most cases) require these banks within the next few years to build those buffers to a level that offers a material level of protection to senior unsecured creditors on a nonviability (or “gone concern”) basis.

For two reasons, our review primarily focused on the implications of the above for the issuer credit ratings on these banks’ operating companies and the issue credit ratings on their senior unsecured debt issue instruments:

• •Our ratings on European banks’ subordinated debt instruments and U.K. bank holding companies already excluded any uplift for government
  support; and

• •We saw no prospect of uplift under our additional loss absorbing capacity (ALAC) criteria for the instruments cited in the bullet above because regulators intend them to act as a source of bail-in capital to support the systemic functions provided by bank operating companies, including the servicing of certain senior obligations.

The now-resolved Credit-Watch-Negative on HSBC was reported in February.

Bank of Montreal has announced:

it has closed its domestic public offering of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 33 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 33”). The offering was underwritten on a bought deal basis by a syndicate of underwriters led by BMO Capital Markets. Bank of Montreal issued 8 million Preferred Shares Series 33 at a price of $25 per share to raise gross proceeds of $200 million.

The Preferred Shares Series 33 were issued under a prospectus supplement dated May 29, 2015, to the Bank’s short form base shelf prospectus dated March 13, 2014. Such shares will commence trading on the Toronto Stock Exchange today under the ticker symbol BMO.PR.Y.

BMO.PR.Y is a FixedReset, 3.80%+271, announced May 27. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 651,560 shares today (consolidated exchanges) in a range of 24.46-65 before closing at 24.65-73. Vital statistics are:

This issue looks reasonably good according to Implied Volatility theory:

Click for Big

Note that the very high level of Implied Volatility is also calculated when only the NVCC-compliant issues are considered – for these issues alone, I get a spread of 99bp and Implied Volatility of 40%. This level of Implied Volatility is silly and will generally arise when the issues concerned are trading with an expectation of directionality in prices; I suggest that there are a lot of investors who figure that anything with the BMO brand name on it will trade somewhere near par forever.

This has the effect of making the lower spread issues vulnerable to a decline in credit quality and/or an increase in spreads; in other words, the higher-spread issues (such as this new issue) are getting a boatload of downside protection for free (when compared to other BMO issues ONLY!).

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, Preferred Shares Series BH. Royal Bank of Canada issued 6 million Preferred Shares Series BH 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 BH will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.N.

The Preferred Shares Series BH were issued under a prospectus supplement dated May 29, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.N is a 4.90% Straight Perpetual announced May 28. It will be tracked by HIMIPref™ an is assigned to the PerpetualDiscounts subindex.

The issue traded 659,315 shares today (consolidated exchanges) in a wide range of 24.57-90 before closing at 24.75-85. Vital statistics are:

Fortis Inc. has announced:

that 2,975,154 of its 10,000,000 issued and outstanding Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series H (“Series H Shares”) were tendered for conversion, on a one‑for‑one basis into Cumulative Redeemable Floating Rate First Preference Shares, Series I (“Series I Shares”). As a result of the conversion, Fortis has 7,024,846 Series H Shares and 2,975,154 Series I Shares issued and outstanding. The Series H Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol FTS.PR.H. The Series I Shares will begin trading on the TSX today under the symbol FTS.PR.I.

The Series H Shares will pay on a quarterly basis, for the five-year period beginning on June 1, 2015, as and when declared by the Board of Directors of Fortis, a fixed dividend based on an annual fixed dividend rate of 2.50 per cent.

The Series I Shares will pay a floating quarterly dividend for the five-year period beginning on June 1, 2015, as and when declared by the Board of Directors of Fortis. The floating quarterly dividend rate for the Series I Shares for the first quarterly floating rate period (being the period from June 1, 2015 to but excluding September 1, 2015) is 2.10 per cent and will be reset every quarter based on the applicable 3-month Government of Canada Treasury Bill rate plus 1.45%.

For more information on the terms of, and risks associated with an investment in, the Series H Shares and the Series I Shares, please see the Corporation’s prospectus dated January 18, 2010 which can be found under the Corporation’s profile on SEDAR at www.sedar.com and on the Corporation’s website at www.fortisinc.com.

I am very pleased to see this news release, following the earlier policy of minimal communication.

The 30% conversion rate of FixedReset into FloatingReset is lower than it has been for most issues lately; perhaps the persistently poor pricing of FloatingResets is beginning to seep into the market’s consciousness!

Vital statistics for the two elements of the Strong Pair are:

Click for Big

The FTS.PR.H / FTS.PR.I pair is at the high end of break-even T-Bill rates, but not impossibly so at 0.63% compared with an average of 0.49% for all investment-grade pairs. There are three junk pairs implying a negative three-month bill rate over the next five-odd years.

TransCanada Corporation has announced:

that it has notified the registered shareholder of its Cumulative Redeemable First Preferred Shares, Series 3 (Series 3 Shares) of the Conversion Privilege and Dividend Rate Notice.

Beginning on June 1, 2015 and ending on June 15, 2015, holders of the Series 3 Shares will have the right to choose one of the following options with regard to their shares:
1.To retain any or all of their Series 3 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 3 Shares into Cumulative Redeemable First Preferred Shares, Series 4 (Series 4 Shares) of TransCanada and receive a floating quarterly dividend.

Holders of the Series 3 Shares and the Series 4 Shares will have the opportunity to convert their shares again on June 30, 2020, and every five years thereafter as long as the shares remain outstanding.

Effective June 1, 2015, the Annual Fixed Dividend Rate for the Series 3 shares was set for the next five year period at 2.152%.

Effective June 1, 2015, the Floating Quarterly Dividend for the Series 4 Shares was set for the first Quarterly Floating Rate Period (being the period from and including June 30, 2015, to but excluding September 30, 2015) at 1.945%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 3 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 3 Shares is the Canadian Depositary for Securities Limited (CDS). All rights of beneficial holders of Series 3 Shares must be exercised through CDS or the CDS participant through which the Series 3 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 3 Shares into Series 4 Shares is 3 p.m. (MDT)/ 5 p.m. (EDT) on June 15, 2015. Any notices received after this deadline will not be valid. As such, holders of Series 3 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.

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 is available on sedar.com or on the Corporation’s website.

TRP.PR.B has paid 4.00% over the past five years, so the change in dividend represents a cut of 46%. Ouch! +128 is a pretty skinny spread!

TRP.PR.B was announced 2010-3-4 and commenced trading 2010-3-11. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex.

Note that holders of TRP.PR.B have the right, until 5:00 p.m. (ET) on Monday, June 15, 2015, to notify the company that they wish to convert to the new FloatingReset series – the two series will be interconvertible every five years for as long as they exist. Note that brokers will have earlier internal deadlines.

I will post regarding my opinion on whether to retain or convert TRP.PR.B closer to the deadline; until then, contemplate today’s graph of FixedReset/FloatingReset Strong Pairs:

Click for Big

The Investment Grade pairs are very well-behaved today, with implied break-even 3-Month T-Bill rates in a nice cluster between 0.31% and 0.63%, with an average of 0.48%.

So at this point, it appears that holders of TRP.PR.B who wish to own the FloatingReset issue would be better advised not to convert, but to swap on the market; this will result in a small cash take-out provided that the new pair trades in line with extant pairs, which is by no means guaranteed.

Sun Life Financial Inc. has announced:

the applicable dividend rates for its Class A Non-Cumulative Rate Reset Preferred Shares Series 8R (the “Series 8R Shares”) and Class A Non-Cumulative Floating Rate Preferred Shares Series 9QR (the “Series 9QR Shares”).

With respect to any Series 8R Shares that remain outstanding after June 30, 2015, commencing as of such date, holders thereof will be entitled to receive non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on June 30, 2015 to but excluding June 30, 2020 will be 2.275 % per annum or $0.142188 per share per quarter, being equal to the sum of the Government of Canada Yield, as defined in the terms of the Series 8R Shares, on Monday, June 1, 2015 plus 1.41%, as determined in accordance with the terms of the Series 8R Shares.

With respect to any Series 9QR Shares that may be issued on June 30, 2015, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada), based on a dividend rate equal to the sum of the T-Bill Rate, as defined in the terms of the Series 9QR Shares, plus 1.41% (calculated on the basis of the actual number of days elapsed in such Quarterly Floating Rate Period divided by 365 days), subject to certain adjustments in accordance with the terms of the Series 9QR Shares. The dividend rate for the period commencing on June 30, 2015 to but excluding September 30, 2015 will be equal to 2.075 % per annum or $0.130753 per share, as determined in accordance with the terms of the Series 9QR Shares.

Beneficial owners of Series 8R 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 meet the deadline to exercise such right, which is 5:00 p.m. (ET) on Monday, June 15, 2015.

An application will be made to list the Series 9QR Shares on the Toronto Stock Exchange.

SLF.PR.G has paid 4.35% over the past five years, so the change in dividend represents a cut of 48%. Ouch!

SLF.PR.G was announced 2010-5-13 and commenced trading 2010-5-25. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex. As it is an insurance issue, it is my opinion that OSFI will – eventually – apply the NVCC rules to it and as it is not NVCC-compliant, it is my further opinion that it will be redeemed on or before a certain date. For analytical purposes, I have currently set that date to be 2025-1-31; it will probably be pushed back a year or two as OSFI’s foot-dragging with respect to the Life Insurance Regulatory Framework continues. You may agree or disagree with me as you wish; at present, the performance of insurance issues suggests the market as a whole disagrees.

Note that holders of SLF.PR.G have the right, until 5:00 p.m. (ET) on Monday, June 15, 2015, to notify the company that they wish to convert to the new FloatingReset series – the two series will be interconvertible every five years for as long as they exist. Note that brokers will have earlier internal deadlines.

I will post regarding my opinion on whether to retain or convert SLF.PR.G closer to the deadline; until then, contemplate today’s graph of FixedReset/FloatingReset Strong Pairs:

Click for Big

The Investment Grade pairs are very well-behaved today, with implied break-even 3-Month T-Bill rates in a nice cluster between 0.31% and 0.63%, with an average of 0.48%.

So at this point, it appears that holders of SLF.PR.G who wish to own the FloatingReset issue would be better advised not to convert, but to swap on the market; this will result in a small cash take-out provided that the new pair trades in line with extant pairs, which is by no means guaranteed.

Loblaw Companies Limited has announced (as part of their new issue announcement):

that it intends to redeem all of its outstanding Second Preferred Shares, Series A (TSX:L.PR.A) (the “Preferred Shares Series A”) for cash on July 31, 2015 (“redemption date”). The redemption price for each Preferred Share Series A will be $25.00. Holders of Preferred Shares Series A will separately receive all accrued and unpaid dividends outstanding on the redemption date. Loblaw intends to use the net proceeds of the issue of Preferred Shares Series B to partially fund the redemption of its Preferred Shares Series A. The offering is expected to close on or about June 9, 2015.

This is not really the biggest surprise in the world – L.PR.A is an OperatingRetractible paying 5.95% which becomes redeemable at par on 2015-7-31 and also becomes retractible for shares on that date.

How times change! When this issue was announced 2008-6-11 I opined that it looked expensive and when it commenced trading 2008-6-20 it turned out that the market agreed with me.

Doubtless this will cause a certain amount of angst for some investors … given the imminent redemption of MFC.PR.A the ranks of OperatingRetractibles are dwindling quickly!

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% on the issue price and the Class A Shares will be offered at a price of $8.65 per Class A Share to yield 13.87% on the issue price. The closing price on the TSX of each of the Preferred Shares and Class A Shares on May 27, 2015 was $10.08 and $9.19, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $5.58 per share and the aggregate dividends paid on the Class A Shares have been $8.85 per share (including one special distribution of $0.25 per share), for a combined total of $14.43. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the secondary offering will be used by the Company to invest in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal	National Bank of Canada	Bank of America Corp.
The Bank of Nova Scotia	Manulife Financial Corporation	Citigroup Inc.
Canadian Imperial Bank of Commerce	Sun Life Financial Services of Canada Inc.	Goldman Sachs Group Inc.
Royal Bank of Canada	Great-West Lifeco Inc.	JP Morgan Chase & Co.
The Toronto-Dominion Bank	CI Financial Corp.	Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of Preferred Shares with cumulative preferential monthly cash dividends, currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2019; and
ii. on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash distributions in an amount to be determined by the Board of Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. (Toronto time) on May 29, 2015.

The NAVPU of the fund is 16.97 as of May 27 and the new Whole Units are being flogged at 18.65. When the Split Share structure is working as intended, it’s a thing of beauty! As well as being a counter-example to the Modigliani-Miller hypothesis, last mocked on PrefBlog on March 15, 2013.

FFN.PR.A was last mentioned on PrefBlog when they changed their name to North American Financial 15 Split Corp.; it will also be noted that they got bigger in August, 2014.

FFN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2015-5-29: It did all right!

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 1,380,000 Preferred Shares and up to 1,380,000 Class A Shares. Total proceeds of the offering are expected to be approximately $25.7 million.

The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.