Category: Issue Comments

There are now about 1.66-million shares of AZP.PR.C outstanding following a 42% conversion from AZP.PR.B – which are going to be a nightmare for novices to trace, since this was issued as EPP.PR.B, then changed to CZP.PR.B, then changed to AZP.PR.B and finally converted to AZP.PR.C.

AZP.PR.C is a FloatingReset, paying the three-month bill rate +418bp, reset quarterly. It is convertible back to AZP.PR.B on 2019-12-31 at the option of the holder.

This issue will be tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The Toronto Stock Exchange reports no volume on its debut.

Vital statistics are:

The Pair Equivalency of AZP.PR.C to its FixedReset sibling AZP.PR.B shows it to be very cheaply bid at 12.50, compared to the 13.30 bid on the latter issue; but given that there was no volume at all and that the quote was 12.50-14.00, no real conclusions can be drawn. At the bid prices, three-month bills need only average 0.42% over the next five years to achieve equivalent total returns.

Click for Big

There are now about 4.0-million shares of FFH.PR.D outstanding following a 40% conversion from FFH.PR.C.

FFH.PR.D is a FloatingReset, paying the three-month bill rate +315bp, reset quarterly. It is convertible back to FFH.PR.C on 2019-12-31 at the option of the holder.

This issue will be tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The Toronto Stock Exchange reports 29,200 shares trading on its debut in a very wide range of 22.60-23.99 (!) before closing at 23.87-25.

Vital statistics are:

The Pair Equivalency of FFH.PR.D to its FixedReset sibling FFH.PR.C shows it to be expensive at 23.87, compared to the 22.75 bid on the latter issue. At the bid prices, three-month bills will have to average 2.55% over the next five years to achieve equivalent total returns.

Click for Big

There are now about 12.0-million shares of TRP.PR.F outstanding following a 57% conversion from TRP.PR.A.

TRP.PR.F is a FloatingReset, paying the three-month bill rate +192bp, reset quarterly. It is convertible back to TRP.PR.A on 2019-12-31 at the option of the holder.

This issue will be tracked by HIMIPref™ and is assigned to the FloatingReset subindex.

The Toronto Stock Exchange reports 37,925 shares trading on its debut in a range of 22.41-85 before closing at 22.26-75.

Vital statistics are:

The Pair Equivalency of TRP.PR.F to its FixedReset sibling TRP.PR.A shows it to be very rich at 22.26, compared to the 20.65 bid on the latter issue; but potential sellers in retail won’t have received access to their shares yet. At the bid prices, three-month bills will have to average 2.89% over the next five years to achieve equivalent total returns.

Click for Big

I must emphasize that the headline judgement of “extremely rich” applies only within the TRP.PR.A / TRP.PR.F pair: with a yield to perpetuity of 3.11%, the issue looks reasonably priced, if not a little cheap, against other investment-grade Floating Rate perpetuals (BAM.PR.B, BAM.PR.C, BAM.PR.K and PWF.PR.A). Note that the only other investment grade FloatingResets at this time are NVCC non-compliant banks; the presumption of a Deemed Maturity makes them not particularly comparable to TRP.PR.F.

TransCanada Corporation has announced:

that 12,501,577 of its 22,000,000 fixed rate Cumulative Redeemable First Preferred Shares, Series 1 (Series 1 Shares) were tendered for conversion today, on a one-for-one basis into floating-rate Cumulative Redeemable First Preferred Shares, Series 2 (Series 2 Shares). As a result of the conversion TransCanada has 9,498,423 Series 1 Shares and 12,501,577 Series 2 Shares issued and outstanding. The Series 1 Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol TRP.PR.A. The Series 2 Shares will begin trading on the TSX today under the symbol TRP.PR.F

The Series 1 Shares will continue to pay on a quarterly basis, for the five-year period beginning on December 31, 2014, as and when declared by the Board of Directors of TransCanada, a fixed dividend based on an annual fixed dividend rate of 3.266 per cent.

The Series 2 Shares will pay a floating quarterly dividend for the five-year period beginning on December 31, 2014, as and when declared by the Board of Directors of TransCanada. The floating quarterly dividend rate for the Series 2 Shares for the first quarterly floating rate period (being the period from December 31, 2014 to but excluding March 31, 2015) is 2.815 per cent and will be reset every quarter.

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 Corporation’s prospectus supplement dated September 22, 2009 which can be found under the Corporation’s profile on SEDAR at www.sedar.com.

So both the FixedReset TRP.PR.A, with 9.5-million shares outstanding, and the FloatingReset TRP.PR.F (12.5-million) are good-sized, liquid issues, which is a good result for trading purposes.

In my post immediately before the conversion deadline, I had recommended conversion to the FloatingReset, TRP.PR.F.

Faircourt Asset Management has announced (although not yet on their websit):

Faircourt Asset Management Inc., the manager of Faircourt Split Trust (the “Trust”) (TSX: FCS.UN; FCS.PR.B), is pleased to announce that the Trust has completed a public offering (the “Offering”) of 1,500,000 6.00% preferred securities due June 30, 2019 (the “Preferred Securities”) at a price of $10.00 per Preferred Security. The Offering raised gross proceeds of $15,000,000.

The Preferred Securities commence trading today on the Toronto Stock Exchange under the symbol “FCS.PR.C”.

The syndicate of agents for the Offering was co-led by National Bank Financial Inc. and CIBC, and includes Canaccord Genuity Corp., GMP Securities L.P. and Raymond James Ltd.

The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014 (the “6.25% Preferred Securities”). As the Offering has been completed without any matched Preferred Securities and trust units of the Trust being issued, there are insufficient proceeds to fully repay the aggregate principal amount of the outstanding 6.25% Preferred Securities (the “6.25% Outstanding Principal”) from the proceeds of the Offering. The balance of the 6.25% Outstanding Principal will be funded by the Trust through cash currently held by the Trust and the sale of securities from the portfolio of securities held by the Trust. Payment of the 6.25% Outstanding Principal will be made to holders of the 6.25 Preferred Securities in accordance with the provisions of the trust indenture and first supplemental indenture governing the 6.25% Preferred Securities.

For further information about the Offering, please contact: Faircourt Asset Management Inc. at (416) 364-8989 or 1-800-831-0304 or visit our website at www.faircourtassetmgt.com.

This issue has been rated Pfd-3(low) by DBRS:

The Trust has advised DBRS that the initial downside protection available to holders of the 6.00% Preferred Securities is expected to be approximately 36.7% after the payment of all issuance expenses. The downside protection is provided by the Trust Units. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of December 17, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.02 times.

According to the terms of the Trust’s Declaration of Trust, the Trust has the ability to borrow up to 10% of Total Assets (as defined in the Declaration of Trust) under a loan facility in order to meet its investment objectives. Under the terms of the Company’s Trust Indenture, the loan facility is considered Senior Indebtedness, and all amounts owing under the loan facility will be paid in priority to the 6.00% Preferred Securities. There is currently no loan facility in place and therefore, there are currently no amounts owing under a loan facility; however, to the extent that the Trust borrows under a loan facility, the rating on the 6.00% Preferred Securities could be negatively impacted. DBRS will continue to monitor the situation in connection with the ongoing surveillance of the rating on the 6.00% Preferred Securities, and will take appropriate ratings action as necessary.

The DBRS release is largely a copy-paste of their provisional release reported on PrefBlog.

FCS.PR.C will be tracked by HIMIPref™ but assigned to the Scraps index on credit concerns.

There are two items of particular interest in the prospectus, which Faircourt cannot be bothered to publish on their website and which is available on SEDAR via “Faircourt Split Trust Dec 22 2014 12:50:39 ET Final short form prospectus – English PDF 382 K”. A direct link is not permitted because the Alberta Securities Commission does not believe retail scum should have convenient access to public documents.

Asset Coverage Test

The Trust Indenture and the Declaration of Trust provide that the Trust may not make any cash distributions on the Units if, after giving effect to the proposed distribution, the Total Assets less the amount outstanding under the Loan Facility equals less than 1.4 times the principal amount of the 6.00% Preferred Securities then outstanding.
…
Redemption of 6.00% Preferred Securities by the Trust

6.00% Preferred Securities may be redeemed in whole or in part by the Trust upon notice to 6.00% Preferred Securityholders in accordance with the Trust Indenture at any time that the aggregate principal amount outstanding of the 6.00% Preferred Securities exceeds 40% of the Total Assets. All 6.00% Preferred Securities then outstanding will be redeemed by the Trust at maturity or immediately prior to the termination of the Trust, if earlier. The 6.00% Preferred Securities would, in any such case, be redeemed at par, plus any accrued but unpaid interest.

So that’s a NAV Test of 1.4x, inferior to the more usual 1.5x; given that the 36.7% downside protection referred to by DBRS (quoted above) is Asset Coverage of only 1.6-:1, Faircourt might have felt that there wasn’t enough danger space available with a 1.5x NAV Test.

The other highly significant item is that these shares can be redeemed at any time at par; there’s no capital gains potential for these shares at all given current conditions and in general a little more symmetricallity in potential returns is preferred. It will be noted in the vital statistics, below, that the YTW scenario after its first day of trading in an immediate call.

The issue traded 76,995 shares today (consolidated exchanges) in a range of 9.99-09 before closing at 10.01-05. Vital statistics are:

Quadravest has announced:

New Commerce Split (the “Company”) announced today that it will redeem 1,011,720 Class I Preferred Shares (YCM.PR.A) and 1,011,720 Class II Preferred Shares (YCM.PR.B) for cash redemption on January 5, 2015. This redemption represents approximately 36.91% of the outstanding Preferred Shares and allows the Company to fulfill the requirement to maintain an equal number of shares of all classes after holders of 1,011,720 Capital Shares (YCM) exercised their 2014 Special Retraction rights. The 2014 Special Retraction right was given to all shareholders in connection with the extension of the termination date from December 1, 2014 to December 1, 2019 as approved at the May 14, 2014 Special Meeting of Shareholders.

The Class I and Class II Preferred Shares will be redeemed on a pro rata basis, so that Preferred Shareholders of record on the close of business on December 31, 2014 will have approximately 36.91% of their Preferred Shares redeemed. The redemption price of $5.00 per Class I Preferred Share and $5.00 per Class II Preferred Share will be paid on January 5, 2015. Holders of Class I and Class II Preferred Shares that have been called for redemption will be entitled to receive the regular monthly dividends declared for the December 31, 2014 record date, payable January 9, 2015.

The net asset value per unit as of the close of business on December 17, 2014 was $11.35 per unit after giving effect to the Capital Shares Special Retraction payment and the Class I and Class II Preferred Share redemption. Preferred shares are only redeemable by the Company on the set redemption dates, the next such date being December 1, 2019.

YCM.PR.A and YCM.PR.B were last mentioned on PrefBlog in connection with the recent warrant expiry (it doesn’t look like there was much, if any, exercise – the news page has no announcement). YCM.PR.A and YCM.PR.B are not tracked by HIMIPref™.

The Canadian Imperial Bank of Commerce has announced:

that it has completed the offering of 12 million Basel III-compliant non-cumulative Rate Reset Class A Preferred Shares Series 41 (the “Series 41 Shares”) priced at $25.00 per share to raise gross proceeds of $300 million.

The offering was made through a syndicate of underwriters led by CIBC World Markets Inc. The Series 41 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.P.

The Series 41 Shares were issued under a prospectus supplement dated December 8, 2014, to CIBC’s short form base shelf prospectus dated March 11, 2014.

CM.PR.P is a FixedReset, 3.75%+224, announced December 8. This issue will be tracked by HIMIPref™ and has been added to the FixedResets index.

The issue traded 862,850 shares today (consolidated exchanges) in a range of 24.75-94 before closing at 24.75-76.

Vital statistics are:

TD.PF.C is a FixedReset, 3.75%+225, announced December 5, which TD did not honour with an announcement of the closing. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded a very respectable 1,005,216 shares today in a range of 24.80-96 before closing at 24.87-88.

Vital statistics are:

Implied Volatility is:

Click for Big