Category: Issue Comments

Quadravest has announced:

Canadian Banc 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 and will also include Scotia Capital Inc., TD Securities Inc., 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% and the Class A Shares will be offered at a price of $13.25 per Class A Share to yield 10%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on March 31, 2015 was $10.30 and $13.75, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $5.27 per share and the aggregate dividends paid on the Class A Shares have been $8.89 per share, for a combined total of $14.16 per unit (inclusive of the March 31, 2015 distribution payable on April 10, 2015). All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in a portfolio of six publicly traded Canadian Banks as follows: [images of corporate logos for BMO, BNS, CM, NA, RY and TD]

The Company’s investment objectives are to:

• Preferred Shares:
  • i. provide holders with cumulative preferential floating rate monthly cash dividends at a rate per annum equal to the prevailing Canadian prime rate plus 0.75%(minimum annual rate of 5.0% and maximum annual rate of 7%) based on original issue price; and
  • ii. On or about December 1, 2018 or such other date as the Company may determine (the “termination date”) to pay holders the original $10 issue price of those shares.
• Class A Shares:
  • i. provide holders with regular monthly cash distributions currently targeted to be at the annualized rate of 10% based upon the volume-weighted average trading price of the Class A Shares on the TSX for the last three trading days of the preceding month; and
  • ii. On the termination date to pay holders the original $15 issue price of those shares.

The sales period of this overnight offering will end at 9:00 a.m. EST on April 2, 2015.

Given that the NAVPU on March 31, 2015 was 21.47, the unit price of $23.25 for the offering is pretty good! It’s nice when you can simultaneously increase your assets under management and improve returns .. when the SplitShare business works, it works really well!

BK.PR.A was last mentioned on PrefBlog when there was a rights offering in September 2014. BK.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on both credit and volume concerns.

Veresen Inc. has announced:

that it has closed its previously announced bought deal offering of 8,000,000 Cumulative Redeemable Preferred Shares, Series E (the “Series E Preferred Shares”) at a price of $25.00 per share representing aggregate gross proceeds of $200,000,000 (the “Offering”). The Offering was made through a syndicate of underwriters co-led by Scotiabank, TD Securities Inc. and RBC Capital Markets.

The net proceeds from the Offering will be used to repay amounts outstanding under the credit facility that Veresen entered into for purposes of financing its acquisition of a 50% convertible preferred interest in Ruby Pipeline Holding Company, L.L.C., the entity which indirectly owns the Ruby pipeline system.

The Series E Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol “VSN.PR.E”.

VSN.PR.E is a FixedReset, 5.00%+427, announced 2015-03-23. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue has been rated Pfd-3 [Stable] by DBRS.

VSN.PR.E traded 616,055 shares today (consolidated exchanges) in a range of 24.75-92 before closing at 24.75-79. Vital statistics are:

While the issue closed its first day at a discount, its opening day turned out better than might be expected! The NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) was 12.86 at the close on March 23 (the announcement day) and was 12.50 today. After doing a rough adjustment for the $0.048 distribution that went ex on March 26, we calculate a total return for the FixedReset ETF over the period of -2.4%, which suggests that a closing price of about 24.39 could have been expected.

Brookfield Renewable Energy Partners L.P. has announced:

that it has determined the fixed dividend rate on Brookfield Renewable Power Preferred Equity Inc.’s Class A Preference Shares, Series 1 (“Series 1 Shares”) (TSX: BRF.PR.A) for the five years commencing May 1, 2015 and ending April 30, 2020. If declared, the fixed quarterly dividends on the Series 1 Shares during that period will be paid at an annual rate of 3.355% ($0.2096875 per share per quarter).

Holders of Series 1 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on April 15, 2015, to convert all or part of their Series 1 Shares, on a one-for-one basis, into Class A Preference Shares, Series 2 (the “Series 2 Shares”), effective April 30, 2015.

The quarterly floating rate dividends on the Series 2 Shares will be paid at an annual rate, calculated for each quarter, of 2.62% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the May 1, 2015 to July 31, 2015 dividend period for the Series 2 Shares will be 0.793468% (3.148% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.198367 per share, payable on July 31, 2015.

Holders of Series 1 Shares are not required to elect to convert all or any part of their Series 1 Shares into Series 2 Shares.

As provided in the share conditions of the Series 1 Shares, (i) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 1 Shares outstanding after April 30, 2015, all remaining Series 1 Shares will be automatically converted into Series 2 Shares on a one-for-one basis effective April 30, 2015; and (ii) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 2 Shares outstanding after April 30, 2015, no Series 1 Shares will be permitted to be converted into Series 2 Shares. There are currently 10,000,000 Series 1 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 2 Shares effective upon conversion. Listing of the Series 2 Shares is subject to Brookfield Renewable fulfilling all the listing requirements of the TSX and, upon approval, the Series 2 Shares will be listed on the TSX under the trading symbol “BRF.PR.B”.

BRF.PR.A was issued as a FixedReset, 5.25%+262, closing 2010-3-10 after being announced 2010-2-18. The new rate of 3.355% is thus a horrific 36% cut in the dividend.

As stated, the deadline for notification of the company of intent to convert is 5:00 p.m. (Toronto time) on April 15, 2015, but brokers will have earlier internal deadlines. I intend to post on April 10 regarding my recommendation on conversion.

BRF.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. BRF.PR.B, if it comes into existence as a FloatingReset, will also be tracked.

AIM.PR.A recently extended with a dividend cut of 31% and I recommended that holders retain their shares in preference to conversion to the FloatingReset issues. More recently, I opined that AIM.PR.A looks cheap relative to AIM.PR.C.

Aimia did not issue a press release with respect to either the conversion percentage or the first day of listing of the FloatingReset AIM.PR.B on the Toronto Stock Exchange, but TMXMoney reports that there are now 3,953,365 shares of AIM.PR.A outstanding relative to 2,946,635 shares of AIM.PR.B, so we may calculate a conversion rate of 43%.

There was no volume in AIM.PR.B reported.

Despite this lack of volume – or, who knows, maybe because of it – the AIM.PR.A / AIM.PR.B Strong Pair ended its first day on the market with an implied average three-month bill rate over the next five years of +0.24%, well within the boundaries set by other pairs.

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Vital statistics are:

FFH.PR.E recently extended with a dividend cut of 39% and I recommended that holders retain their shares in preference to conversion to the FloatingReset issues.

Fairfax did not issue a press release with respect to either the conversion percentage or the first day of listing of the FloatingReset FFH.PR.F on the Toronto Stock Exchange, but TMXMoney reports that there are now 7,915,539 shares of FFH.PR.E outstanding relative to 3,572,044 shares of the FloatingReset FFH.PR.F, so we may calculate a conversion rate of 31%.

Volume of 8,118 shares of FFH.PR.F was reported in a range of 15.65-75.

This was a fairly good result for FFH.PR.F; the FFH.PR.E / FFH.PR.F Strong Pair ended its first day on the market with an implied average three-month bill rate over the next five years of +0.72%, which may seem low, but is the highest rate implied by all other pairs.

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Vital statistics are:

The Bank of Nova Scotia has announced:

the applicable dividend rates for its Non-cumulative 5-Year Rate Reset Preferred Shares Series 30 of Scotiabank (the “Preferred Shares Series 30”) and Non-cumulative Floating Rate Preferred Shares Series 31 of Scotiabank (the “Preferred Shares Series 31”).

With respect to any Preferred Shares Series 30 that remain outstanding after April 26, 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 Scotiabank and subject to the Bank Act (Canada). The dividend rate for the five-year period commencing on April 26, 2015 and ending on April 25, 2020 will be 1.82%, being equal to the 5-Year Government of Canada bond yield determined as at March 27, 2015 plus 1.00%, as determined in accordance with the terms of the Preferred Shares Series 30.

With respect to any Preferred Shares Series 31 that may be issued on April 26, 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 Scotiabank and subject to the Bank Act (Canada), based on a dividend rate equal to the 90-day Canadian Treasury Bill yield plus 1.00%, on an actual/365 day count basis, subject to certain adjustments in accordance with the terms of the Preferred Shares Series 31. The dividend rate for the period commencing on April 26, 2015 and ending on July 25, 2015 will be equal to 1.528%, as determined in accordance with the terms of the Preferred Shares Series 31.

Beneficial owners of Preferred Shares Series 30 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. (EDT) on April 13, 2015.

Note that the deadline for notifying the company of a holder’s intent to exchange for the new FloatingReset issue is April 13, but that brokers will have earlier internal deadlines. I intend to recommend whether or not to convert on April 8.

Brookfield Soundvest Capital Management Ltd. has announced:

Brookfield Soundvest Split Trust (TSX:BSD.UN)(TSX:BSD.PR.A) (referred to as the “Trust”) is pleased to announce that holders (the “Preferred Securityholders”) of preferred securities (the “Preferred Securities”) of the Trust and holders (the “Unitholders”) of trust units of the Trust (the “Units”) approved the extraordinary resolution relating to the Preferred Securities and the extraordinary resolution relating to the Units at a special meeting (the “Meeting”) of the Preferred Securityholders and the Unitholders held on March 27, 2015.

The extraordinary resolution relating to the Preferred Securities will allow the Trust to implement the following:

• •extend the term of the Preferred Securities for additional five-year renewal terms following the scheduled maturity date of March 31, 2015;
• •determine the interest rate on the Preferred Securities for each subsequent extended five-year renewal term of the Preferred Securities, and set the interest rate for the first renewal term at 6.0% per annum; and
• •provide the Preferred Securityholders with the right to retract and receive repayment of their Preferred Securities on March 31, 2015, and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Preferred Special Repayment Right”).

The extraordinary resolution relating to the Units will allow the Trust to implement the following:

• •provide the Unitholders with the right to retract, in the aggregate, a number of Units not exceeding the number of Preferred Securities tendered under the Preferred Special Repayment Right on March 31, 2015 and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Unit Special Retraction Right”), and receive redemption proceeds equal to the net asset value per Unit as of such dates, and to the extent that more Units are tendered for retraction under the Unit Special Retraction Right than Preferred Securities tendered for repayment under the Preferred Special Repayment Right, Units so tendered will be redeemed on a pro rata basis; and
• •in order to maintain the same number of the Units and the Preferred Securities outstanding, in the event that more Preferred Securities are tendered for repayment under the Preferred Special Repayment Right than Units tendered for retraction under the Unit Special Retraction Right, provide the Trust with the ability to consolidate the Units on or about March 31, 2015 and at the end of each subsequent renewal term of the Preferred Securities.

The Trust also announces today that holders of 1,988,024 Units have given notice to the Trust that they wish to exercise the Unit Special Retraction Right up to the number of Units not exceeding the number of Preferred Securities tendered pursuant to the right of Preferred Securityholders to retract and receive repayment of their Preferred Securities pursuant to the Preferred Special Repayment Right. As announced by the Trust on March 16, 2015, holders of 1,779,807 Preferred Securities have given notice to the Trust that they wish to exercise the Preferred Special Retraction Right.

In order to maintain an equal number of Units and Preferred Securities outstanding, 1,779,807 Units will be redeemed on March 31, 2015, on a pro rata basis, from the holdings of those Unitholders who have exercised the Unit Special Retraction Right. This means that 89.53% of the Units surrendered for redemption by Unitholders pursuant to the Unit Special Redemption Right will be retracted. As announced on March 16, 2015, the Trust is reinstituting the annual redemption right available to Unitholders and accordingly Unitholders will be able to redeem Units under the annual redemption right in November, 2015.

The manager, investment advisor and portfolio manager for the Fund is Brookfield Soundvest Capital Management Ltd. (the “Manager”), an established investment advisor, that provides investment management services to trusts, foundations, corporations and high net worth individuals.

So, in line with the manager’s general attitude towards its unitholders, the percentage voting in favour of this ridiculous plan was not disclosed. I had recommended against the proposal; but 44% of preferred shareholders voted with their feet.

So what have the remaining preferred shareholders let themselves in for? I’ve taken a look at the 14H1 Semi-Annual Report and figures of interest are:

MER: Fees and Expenses of $217,000 over six months on total assets of $40.07-million is 1.83% of the whole unit value, annualized. Note that the report states:

Fees and expenses for the six months ending June 30, 2014 totalled $217 thousand, compared to $258 thousand for the same period in 2013, representing an annualized management expense ratio (“MER”) of 2.47% as compared to 2.64% for the six months ending June 30, 2013. The MER is based on the total expenses of the Fund for the stated period (excluding brokerage commissions) and is expressed as an annualized percentage of the daily average net asset value for the period. The MER before interest expense for the six months ending June 30, 2014 and 2013 was 2.47% and 2.31%, respectively. Fees and expenses for the six months ending June 30, 2014 decreased as compared to the same period in 2013 in response to the decrease in net asset value for the six months ending June 30, 2014 relating to the September 2013 redemption of 609,675 units. The net asset value increased by 2.9% while expenses decreased by 15.9% for the six months ending June 30, 2014.

Note that the percentage figure has defined net assets as being the Capital Unitholders’ interest only and does not include preferreds. We may expect the MER to increase in the future, given the 44% cut in assets.

Average Net Assets: We need this to calculate portfolio yield. Since fees and expenses of $217,000 represented a MER of 2.74% on average net assets, we calculate Average Net Assets to be $7.92-million, but this is only the Capital Units. Add in 32,150,310 for the preferreds, and the total is $40.07-million.

Underlying Portfolio Yield: Distributions received of 400,044 divided by average net assets of 40.07-million is 2.00% annualized.

Income Coverage: Net Investment Income 400,044 gross income less expenses of 216,887 is 183,157 divided by Preferred Share Distributions of 385,804 is 47%.

These figures, together with the prospectus, the website and a guess a Capital Units dividend payout policy, allow us to estimate Split Share Credit Quality using the Split Share Credit Quality Calculator:

Note that the distributions on the preferreds are as interest, not dividends! And also note that while, in the interests of fairness, I have used 7% as the expected annual return on the underlying portfolio, the manager’s track record makes me dubious about their ability to match their benchmark.

BSD.PR.A will continue to be tracked by HIMIPref™. It is assigned to the Scraps index on credit concerns.

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 share offering prices will be set at levels that ensure that existing unitholders are not diluted.

Life & Banc Split Corp. 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, Scotiabank, and TD Securities Inc., and includes 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.

LBS.PR.A last got bigger in November 2013. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2015-3-27: Priced:

Life & Banc Split Corp. (the “Company”) is pleased to announce that the Company’s treasury offering of class A and preferred shares has been priced at $9.55 per class A share and $10.05 per preferred share. The final class A and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on March 26, 2015, as adjusted for dividends accrued prior to or upon settlement of the offering.

That’s a pretty hefty premium to NAV which was 18.74 on March 26. However, the closing price on March 25 was 9.68 for the Capital Units and 10.17 for the preferreds (both are down today, pricing was made public at 11:27am), so it will probably go pretty well.

TransAlta Corporation has announced:

entered into an investment agreement with TransAlta Renewables Inc. (“TransAlta Renewables”) (TSX: RNW) pursuant to which TransAlta Renewables has agreed to invest in TransAlta’s Australian power generation and gas pipeline portfolio (the “Portfolio”) and fund the remaining project costs for the South Hedland gas-fired project for a combined value of approximately $1.78 billion (the “Transaction”). The Portfolio consists of 575 MW of power generation from six operating assets and the South Hedland project currently under construction, as well as the recently commissioned 270 km gas pipeline. TransAlta Renewables’ investment will consist of the acquisition of securities which track the cash flows of the Portfolio.

“TransAlta created TransAlta Renewables in 2013 to unlock the underlying value in our contracted assets and to fund our growth” said Dawn Farrell, President and CEO. “This transaction highlights the value of our Australian investment strategy, finances the South Hedland plant, generates cash to strengthen our balance sheet and provides greater financial flexibility. The transaction significantly benefits both companies as TransAlta remains the majority shareholder and sponsor of TransAlta Renewables.”

DBRS comments:

Initially, the Transaction is expected to have a minimal impact on the credit quality of TAC as the Transaction is to be funded with all equity at OpCo. In the medium term, the ratings of TAC will likely be influenced by OpCo’s funding strategy related to the South Hedland gas-fired project under construction which requires a substantial investment of approximately $570 million (approximately $70 million spent in 2014). OpCo is contemplating funding alternatives associated with the South Hedland project. In the interim, the intercompany credit facility increase from TAC gives OpCo time to assess alternatives. DBRS will treat the funding alternative review as an event and assess OpCo’s actions and the resulting impact on TAC’s ratings when the funding plan is finalized.
…
DBRS acknowledges that the new OpCo structure creates another source of equity and could serve as a lower cost of capital for future growth opportunities; however, as TAC’s ownership in OpCo decreases and OpCo’s asset portfolio grows, the integration between TAC and OpCo could weaken. In this case, DBRS will increasingly weigh in on deconsolidated analysis for both TAC and CHD, which could ultimately result in a rating differential between TAC and CHD. TAC’s rating could be pressured if it significantly increases its exposure to construction and development risk as well as merchant risk of greenfield projects, and funds new projects with debt. This may not have a material impact on CHD if OpCo continues to fully hedge power production through PPAs with investment-grade counterparties and maintains reasonable financial metrics. Construction cost overrun risk associated with the South Hedland project is manageable given that the majority of the budgeted investment is either under fixed- price engineering, procurement and construction contracts or fixed fee to the off-taker, Horizon Power, a state government-owned corporation for existing assets.

Finally, since the lower-risk assets of TAC have been transferred to OpCo and this trend is expected to continue, holders of TAC’s direct external debt are facing structural subordination risk should OpCo raise a material amount of third-party debt in the future. OpCo has not raised any new external recourse debt since its inception in 2013 as TAC has provided virtually all necessary funding requirements to date. As such, TAC’s rating has not taken meaningful structural subordination effects into account, except outstanding debt related to CHD (which was grandfathered to OpCo at its inception in 2013). TAC’s ratings will likely be affected negatively should OpCo issue a material amount of third-party debt in the future as this will create structural subordination challenges for TAC’s bondholders.

TransAlta has four series of preferreds outstanding, all FixedResets: TA.PR.D, TA.PR.F, TA.PR.H and TA.PR.J.

Implied Volatility gives a murky picture. The Implied Volatility (which is of the Market Reset Spread, remember) is extremely low, but it could be simply that the highest spread issue, TA.PR.J, resetting at +380bp on 2019-9-30, is simply ridiculously expensive and is throwing everything off.

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