Category: Issue Comments

We have been treated to the spectacle of three FixedResets resetting their dividend on the same day … TRP.PR.A To Reset To 3.266%, AZP.PR.B To Reset To 5.57% and FFH.PR.C To Reset To 4.578%.

Let’s have a little look at how all these rates were calculated. I regret I cannot link directly to the prospectuses because the Canadian Securities Administrators insist that this public information be available to retail scum only in an inconvenient manner.

TRP.PR.A: SEDAR TransCanada Corporation Sep 23 2009 16:14:12 ET Prospectus supplement – English PDF 127 K

‘‘Fixed Rate Calculation Date’’ means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

‘‘Government of Canada Yield’’ on any date means the yield to maturity on such date (assuming semi-annual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and that appears on the Bloomberg Screen GCAN5YR Page on such date; provided that if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, then the Government of Canada Yield shall mean the arithmetic average of the yields quoted to the Corporation by two registered Canadian investment dealers selected by the Corporation as being the annual yield to maturity on such date, compounded semi-annually, that a non-callable Government of Canada bond would carry if issued, in Canadian dollars, at 100% of its principal amount on such date with a term to maturity of five years.

AZP.PR.B: SEDAR Atlantic Power Preferred Equity Ltd. Oct 21 2009 17:20:19 ET Final short form prospectus – English PDF 229 K:

“Bloomberg Screen GCAN5YR Page” means the display designated on page “GCAN5YR” on the Bloomberg Financial L.P. service (or such other page as may replace the GCAN5YR page on that service for purposes of displaying Government of Canada Bond yields).

“Fixed Rate Calculation Date” means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

“Government of Canada Bond Yield” on any date means the yield to maturity on such date (assuming semi-annual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and which appears on the Bloomberg Screen GCAN5YR Page on such date; provided that, if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, the Government of Canada Bond Yield will mean the arithmetic average of the yields quoted to the Corporation by two registered Canadian investment dealers selected by the Corporation as being the annual yield to maturity on such date, compounded semi-annually, which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100% of its principal amount on such date with a term to maturity of five years.

FFH.PR.C: SEDAR Fairfax Financial Holdings Limited Sep 29 2009 18:40:58 ET Prospectus supplement – English PDF 419 K

“Bloomberg Screen GCAN5YR Page” means the display designated as page “GCAN5YRGINDEXH” on the Bloomberg Financial L.P. service (or such other page as may replace the GCAN5YR page on that service) for purposes of displaying Government of Canada bond yields.

“Fixed Rate Calculation Date” means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

“Government of Canada Yield” on any date means the yield to maturity on such date (assuming semi-annual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and which appears on the Bloomberg Screen GCAN5YR Page on such date; provided that, if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, the Government of Canada Yield will mean the average of the yields determined by two registered Canadian investment dealers selected by the Company, as being the yield to maturity on such date (assuming semi-annual compounding) which a Canadian dollar denominated non-callable Government of Canada bond would carry if issued in Canadian dollars at 100% of its principal amount on such date with a term to maturity of five years.

OK, so according to me these reset yields are calculated in all the same way at the same time. So let’s look at the announced reset yields and see what the GOC-5 yield was:

Eight basis points difference? On a five year Canada? When all the calculations are supposed to be performed the same way at the same time?

This is very odd.

Accordingly, I have sent the following eMail to investor_relations@transcanada.com:

Sirs,

I understand that the dividend on TRP.PR.A is to be reset to 3.266% in accordance with the terms of the prospectus, which implies that the “Government of Canada Yield”, as defined in the prospectus, was 1.346% at 10am on December 1.

However, as discussed at http://prefblog.com/?p=26996 , measurements of this yield taken at the same time, in the same manner and for the same purpose by two other companies resulted in assessments of 1.39% and 1.428%, which are very different numbers when one considers what is being measured.

I would appreciate receiving further details of your calculation of the “Government of Canada Yield”, as defined, with any supporting material that you choose to provide.

Sincerely,

… but it appears that I will have to call John Varnell of Fairfax at (416) 367-4941 and Computershare on behalf of Atlantic Power at (800) 564-6253 because those companies haven’t implemented eMail yet, as far as I can tell.

Update, 2014-12-3: TRP got back to me with a link to the prospectus and a quote from it which duplicates part of the text I’ve quoted above. I’ve left a message with John Varnell of FFH, and with the Investor Relations department of AZP.

Update #2, 2014-12-3: TRP’s Investor Relations department has forwarded the query to Treasury, and expect to hear back tomorrow.

Update, 2014-12-5: See the post Deriving Reset Yields: Mystery Partially Resolved

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series C (“Series C Shares”) (TSX:FFH.PR.C) for the five years commencing January 1, 2015 and ending December 31, 2019, with the result that the quarterly dividends on the Series C Shares during that period will be paid at an annual rate equal to Cdn.$1.14450 per share.

Holders of Series C Shares have the right, at their option, to convert all or part of their Series C Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series D (the “Series D Shares”), effective December 31, 2014. The deadline for exercising this conversion privilege is 5:00 p.m. (Toronto time) on December 16, 2014.

The quarterly floating rate dividends on the Series D Shares will be paid at an annual rate, calculated for each quarter, of 3.15% over the annual yield on three-month Government of Canada treasury bills (calculated as set out in the prospectus supplement relating to the public offering of the Series C Shares dated September 29, 2009). The quarterly dividend amount in respect of the initial dividend period will be Cdn.$0.25212 per share, payable on March 31, 2015.

As provided in the share conditions of the Series C Shares, (i) if Fairfax determines that there would be fewer than 1,000,000 Series C Shares outstanding after December 31, 2014, all remaining Series C Shares will be automatically converted into Series D Shares on a one-for-one basis effective December 31, 2014; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series D Shares outstanding after December 31, 2014, no Series C Shares will be permitted to be converted into Series D Shares. There are currently 10,000,000 Series C Shares outstanding.

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

FFH.PR.C is a FixedReset, 5.75%+315, which commenced trading 2009-10-5 after being announced 2009-9-29.

From a 5.75% coupon to 4.578% is a big hit – a reduction in income of just over 20%.

The new rate of 4.578% implies that the five-year Canada was at 1.428% at time of measurement, significantly higher than 1.346%”used for TRP.PR.A. Very curious.

Using similar arguments to those made with respect to TRP.PR.A, I suggest that conversion to the FloatingReset issue is currently favoured, with a projected price on the FloatingReset of 25.06 compared to 24.78 for the FixedReset. However, any decision should be made at the last possible moment – which will be earlier than the company’s last possible moment of 5pm, December 16, 2014. Check with your broker to determine what their deadline is!

Atlantic Power Corporation and Atlantic Power Preferred Equity Ltd. have announced:

the dividend rate on Preferred Equity’s outstanding Cumulative Rate Reset Preferred Shares, Series 2 (the “Series 2 Shares”) will be reset on December 31, 2014, using a reset dividend rate (the “Reset Dividend Rate”) calculated on December 1, 2014.

The Reset Dividend Rate was calculated on December 1, 2014 to be 5.57%, representing the sum of the Canadian Government five-year bond yield of 1.39% plus 4.18%.

Such Reset Dividend Rate will commence with the March 31, 2015 dividend payment to the holders of the Series 2 Shares and continue through the December 31, 2019 dividend payment to the holders of the Series 2 Shares, at which time such Reset Dividend Rate will again be reset.

On December 31, 2014 and again on December 31 of every fifth year thereafter, the holders of Series 2 Shares have the right to convert their Series 2 Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares (the “Series 3 Shares”).

The Series 3 Shares dividend rate was calculated on December 1, 2014 to be 5.09%, representing the sum of the Canadian Government 90-day Treasury Bill yield (using the three-month average result of .91%) plus 4.18%.

Holders of Series 2 Shares who wish to convert such securities to Series 3 Shares should contact the financial institution, broker or other intermediary through which they hold the Series 2 Shares to exercise this conversion privilege. Notice of the exercise of the conversion privilege must be received by Preferred Equity not earlier than December 1, 2014 and not later than 5:00 p.m. (Toronto time) on December 16, 2014.

If after giving effect to all Election Notices, there would remain outstanding less than 1 million Series 2 Shares, then all remaining outstanding Series 2 Shares will automatically convert into Series 3 Shares, on a one-for-one basis on December 31, 2014. Holders of the Series 2 Shares will not be permitted to convert their Series 2 Shares into Series 3 Shares if, after giving effect to all Election Notices, there would be outstanding less than 1 million Series 3 Shares.

Inquiries should be directed to Preferred Equity’s registrar and transfer agent, Computershare Trust Company of Canada, at (800) 564-6253.

AZP.PR.B used to be CZP.PR.B, which used to be EPP.PR.B, and throughout has been a FixedReset, 7.00%+418, which commenced trading 2009-11-2 after being announced 2009-10-13. You can’t tell your players without a programme!

The new rate of 5.57% is a sharp drop from 7.00%, just over 20% of the coupon in fact. This probably explains recent weakness in the issue’s price, although the company has not exactly been a picture of health lately.

Using similar arguments to those made with respect to TRP.PR.A, I suggest that conversion to the FloatingReset issue is currently favoured, with a projected price on the FloatingReset of 12.35 compared to 12.10 for the FixedReset … which looks better in percentage terms than absolutes! However, any decision should be made at the last possible moment – which will be earlier than the company’s last possible moment of 5pm, December 16, 2014. Check with your broker to determine what their deadline is!

TransCanada Corporation has announced:

that it has notified the registered shareholder of its Cumulative Redeemable First Preferred Shares, Series 1 (Series 1 Shares) of the Conversion Privilege and Dividend Rate Notice.

Beginning on December 1, 2014 and ending on December 16, 2014, holders of the Series 1 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 1 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 1 Shares into Cumulative Redeemable First Preferred Shares, Series 2 (Series 2 Shares) of TransCanada and receive a floating quarterly dividend.

Holders of the Series 1 Shares and the Series 2 Shares will have the opportunity to convert their shares again on December 31, 2019, and every five years thereafter as long as the shares remain outstanding.

Effective December 1, 2014, the Annual Fixed Dividend Rate for the Series 1 shares was set for the next five year period at 3.266 per cent.

Effective December 1, 2014, the Floating Quarterly Dividend for the Series 2 Shares was set for the first Quarterly Floating Rate Period (being the period from and including December 31, 2014, to but excluding March 31, 2015) at 2.815 per cent. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 1 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 1 Shares is the Canadian Depositary for Securities Limited (CDS). All rights of beneficial holders of Series 1 Shares must be exercised through CDS or the CDS participant through which the Series 1 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 1 Shares into Series 2 Shares is 5 p.m. (ET) on December 16, 2014. Any notices received after this deadline will not be valid. As such, holders of Series 1 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 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.

TRP.PR.A is a FixedReset, 4.60%+192, which closed 2009-9-30 after being announced 2009-9-22.

From 4.60% coupon to 3.266% is a big hit – a 29% reduction. And it’s a big issue – $550-million par value. I anticipate a lot of highly unhappy brokerage customers who may, as has been speculated previously, be overselling the issue so they don’t have to see any reduced dividends.

The new rate of 3.266% implies that the GOC-5 rate at time of measurement was 1.346%, which sounds about right according to what I saw yesterday (the BoC says yesterday’s close was 1.38%), but it is most interesting to note that CBID says today’s close 1.45%. Conspiracy theories regarding manipulation of the GOC-5 rate on a day when three issues reset may be recorded in the comments.

Prices for the TRP issues are very strange: consider that TRP.PR.A, bid at 21.15, is priced lower than TRP.PR.C, which is a FixedReset, 4.40%+154, resetting 2016-1-30, bid at 21.77. One can only suppose that the market expects some dramatic changes in the five year Canada yield over the next year! Implied Volatility analysis – which assumes, among many other things, that GOC-5 will not change, ever – suggests that TRP.PR.A is now $1.44 cheap while TRP.PR.C is $1.73 expensive (both relative only to other TRP FixedResets, not to anything else). Well … place yer bets, gennelmen, place yer bets!

So, the perennial question was most recently asked by Assiduous Reader janbjarne and will be highlighted because of the flattering introduction:

Thank you for the very informative Prefblog and PrefLetter.

Your comments on how underpriced TRP.PR.A appears are interesting. Any thoughts on the pending conversion? A few months ago I thought that converting to the floater was a no-brainer. Now I am not so sure as both the TD.PR.Y/Z and the DC.PR.B/D pairs are trading at the same price.

Well, I’m not sure either! If you want absolute certainty, ask a stockbroker! Just don’t be so rude as to remind him of his prediction later!

We can make an informed guess, though, using the Pair Equivalency Calculator which is explained in the article Preferred Pairs. We can examine all the currently trading FixedReset / FloatingReset pairs and determine the break-even average three-month bill rate for each pair:

Click for Big

There’s a fair bit of scatter, but the average for investment grade is 1.70% … that is, for each member of each pair to have an identical total return over the period until the next Exchange Date, the average bill rate until that date must be X, and the average of the Xs calculated for each pair is 1.70%, implying (assuming a steady increase in yields) a rate on the end date of 2.55%.

If we then reverse the calculation, the predicted price for the TRP FloatingReset is, given a bid of 21.15 for TRP.PR.A and an average bill rate of 1.70%, equal to 21.53: that is to say, we predict an immediate profit of $0.38 to result from conversion.

Even if we say that the average bill rate will be 1.54%, the lowest of the estimates, the predicted price of the FloatingReset should be 21.36, a profit of $0.21 … no great shakes, but it does indicate that the expectations of at least not losing are reasonably well-founded.

It should be remembered, though, that things can change dramatically in the course of even just a few weeks. The DC.PR.B / DC.PR.D conversion was a missed opportunity, because the break-even rate observed in the market changed dramatically between the date at which the estimate was made and the date the newly issued FloatingReset commenced trading..

Instructions are required by the company by December 16. I suggest holders first check with their broker to see what their broker’s deadline is (it’s usually a day or two earlier) and wait until the last minute before repeating the calculation and making up their mind. But at this point, it looks as if conversion to FloatingReset is the better bet.

Quadravest has announced:

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 and will also include Scotia Capital Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp. and Raymond James.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% and the Class A Shares will be offered at a price of $9.75 per Class A Share to yield 15.5%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on November 28, 2014 was $10.14 and $10.04, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $5.75 per share and the aggregate dividends paid on the Class A Shares have been $12.61 per share, for a combined total of $18.36. 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 an actively managed, 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 the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of $0.04375 per Preferred Share to yield 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2020; and
ii. on or about the termination date, currently December 1, 2020 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors and currently targeted to be $0.1257 per Class A Share; 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, 2020 (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. EST on December 2, 2014.

That’s a pretty hefty premium over NAV! The NAVPU of the fund was $17.78 on November 28.

FTN.PR.A was last mentioned on PrefBlog in connection with its Rights Offering that closed in September, 2014. FTN.PR.A is tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

Update, 2014-12-2: They raised $38.3-million:

Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 1,939,000 Preferred Shares and up to 1,939,000 Class A Shares. Total proceeds of the offering are expected to be approximately $38.3 million.

The offering is being co-led by National Bank Financial Inc., CIBC, RBC Capital Markets and will also include Scotia Capital Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp. and Raymond James.

The sales period of the overnight offering has now ended.

Strathbridge Asset Management Inc. has announced (albeit not yet on their website):

S Split Corp. (the “Fund”) (TSX:SBN)(TSX:SBN.PR.A) has announced that the Fund will effect a partial redemption of its Preferred Shares in order to maintain an equal number of Preferred Shares and Class A Shares of the Fund outstanding. The partial redemption of Preferred Shares is being made in connection with the recent approval by holders of Class A Shares and the Preferred Shares (collectively, the “Shareholders”) of a proposal to extend the term of the Fund for an additional seven-year term until December 31, 2021 and for automatic successive seven-year terms thereafter.

Pursuant to the special retraction right granted to Shareholders in connection with the extension of the Fund, 255,199 Preferred Shares and 1,760,848 Class A Shares were surrendered for retraction. In order to maintain an equal number of Preferred Shares and Class A Shares, the Fund will redeem approximately 1,505,649 Preferred Shares on a pro rata basis from all holders of record of Preferred Shares on December 5, 2014, representing approximately 51% of the issued and outstanding Preferred Shares. Each Preferred Share that is redeemed pursuant to the partial redemption will be redeemed at a price equal to $10.00, being the original issue price per Preferred Share, plus declared and unpaid distributions thereon (the “Repayment Price”). The Repayment Price will be paid to holders whose Preferred Shares are redeemed by the Fund on or before December 15, 2014.

SBN.PR.A was last mentioned on PrefBlog in connection with a special meeting to vote on a change in mandate; it was previously mentioned in connection with its term extension to 2021-11-31 (sic). SBN.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The three captioned issues were all placed on Review-Developing by DBRS on October 17, due to a change in sponsor.

Now, with respect to TDS.PR.C:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The performance of the Company has generally been positive since the last annual review, with the net asset value of the Company increasing to $41.13 as of November 15, 2014. Downside protection available to holders of the Class C Preferred Shares increased to 75.7% as of November 2014, compared with 70.2% in October 2013. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.

Similarly, for BIG.PR.D:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The Company’s performance has generally been positive, with the net asset value (NAV) of the Company increasing to $24.11 as of November 15, 2014 with downside protection available to holders of the Class D Preferred Shares of 58.5%. As a result, the rating of the Class D Preferred Shares has been confirmed at Pfd-2 (low).

And finally, FBS.PR.C:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The Company’s performance has generally been positive, with the net asset value of the Company increasing to $35.17 as of November 15, 2014. Downside protection available to holders of the Class C Preferred Shares rose to 71.6% as of November 2014, compared with 68.6.2% in April 2014. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.

Brookfield Renewable Energy Partners L.P. has announced:

an agreement to acquire a 488 MW multi-technology renewable portfolio in Brazil from Energisa S.A. The transaction represents a total enterprise value of approximately $R2.4 billion (US$935 million), subject to working capital adjustments. The equity purchase price is $R1.4 billion (US$545 million), net of assumed long-term non-recourse debt. Brookfield Renewable will acquire and fund the transaction with its institutional partners and maintain an economic interest in the portfolio of approximately 40 percent.
…
The acquisition will be funded through available capital from Brookfield Renewable and its institutional partners. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.

Brookfield Renewable Power Preferred Equity Inc. is a wholly owned subsidiary of Brookfield Renewable Energy Partners L.P., and is the issuer of record for BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. The first two are FixedResets, the second two are Straight Perpetuals, all are tracked by HIMIPref™ and all are relegated to the Scraps index on credit concerns.

I have no idea why they issue these things through a subsidiary, quite frankly. At any rate, the guarantee is solid enough (sample language taken from BRF.PR.E prospectus dated 2013-1-22):

As described below, the Series 5 Shares will be guaranteed by the Partnership, Brookfield Renewable Energy L.P. (“BRELP”), Brookfield BRP Holdings (Canada) Inc. (“CanHoldco”) and BRP Bermuda Holdings I Limited (“Bermuda Holdco”, and collectively with the Partnership, BRELP and CanHoldco, the “Guarantors”).
…
Each Series 5 Share will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors as to (i) the payment of dividends, as and when declared, (ii) the payment of amounts due on redemption of the Series 5 Shares, and (iii) the payment of the amounts due on the liquidation, dissolution and winding-up of the Corporation (the “Series 5 Guarantee”). As long as the declaration or payment of dividends on the Series 5 Shares are in arrears, the Guarantors will not make any distributions or pay any dividends on their respective equity securities or make any distributions or pay any dividends on securities of any successor entity to the Guarantors. The Series 5 Guarantee will be subordinated to all of the respective senior and subordinated debt of the Guarantors that is not expressly stated to be pari passu with or subordinate to the Series 5 Guarantee and will rank senior to the equity securities of the Guarantors. The Series 5 Guarantee will rank on a pro rata and pari passu basis with the obligations of the Guarantors under similar guarantees that may be provided by the Guarantors in respect of other Class A Preference Shares of the Corporation.

The rights, obligations and liabilities of a Guarantor pursuant to the Series 5 Guarantee will terminate upon the conveyance, distribution, transfer or lease of all or substantially all of its properties, securities and assets to another Guarantor. A Guarantor may not otherwise convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to another person, unless the person which acquires the properties, securities and assets of such Guarantor assumes such Guarantor’s obligations under the Series 5 Guarantee.

There is no word from the credit agencies as yet regarding their perceptions of the deal, but it will be remembered that on November 4 I reported:

Brookfield’s aggressive approach to expansion has cost Brookfield Renewable Energy Partners L.P. it’s S&P ‘Positive’outlook:

• •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to stable from positive.
• •The outlook revision reflects our assessment of the amount of debt being maintained at the parent level in relation to parent-only cash flow that the partnership is generating.
• •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.

…
At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

The outlook revision reflects our view of the company’s ability to generate strong remittable cash flows from its holdings and its increased level of holding company (holdco) recourse debt. The company has articulated a policy of maintaining relatively low levels of leverage at the holdco level with leverage at the holdco used opportunistically for acquisitions with equity as market conditions allow. However, during the course of the year, the company has made a number of acquisitions that, although partially funded with new equity issuance, maintained a higher level of debt at the holdco. This has resulted in lower credit metrics.
…
The stable outlook reflects our expectation that BREP will continue to increase its parent-only cash flow while maintaining modest amounts of debt at the holding company as well as maintaining the highly contracted and well-diversified portfolio of generation assets.

We could raise the ratings if we believe that parent-only cash flow to debt will continue at or above 30% assuming the current quality of cash flow score of ‘4’.

We could lower the rating if the partnership is unable to maintain parent-only cash flow to debt above 23% or if there is deterioration in the quality of cash flow score. This could result from acquisitions financed with substantially higher levels of holding-company debt or a material change in the partnership’s contractual profile.