Category: Issue Comments

Issue Comments

LCS.PR.A Semi-Annual Report 2014

Brompton Lifeco Split Corp has released its Semi-Annual Report to June 30, 2014.

Figures of interest are:

MER: “The MER per unit of the Fund, excluding Preferred share distributions and issuance costs and agents’ fees in connection with the Fund’s treasury offering of Preferred shares, was 1.79% for the first six months of 2014 up from 1.34% in 2013.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $28.8-million, compared to $43.8-million on June 30, so call it an average of $36.3-million. Preferred share dividends of $553,870 were paid over the half year at 0.575 p.a., implying average units outstanding of 963,252, at an average NAVPU of about $16.72, implies $16.1-million. This is a huge difference, caused by a large treasury offering completed May 1, 2014; none of the preferred shares in this offering accrued a dividend during the six month period. So take the beginning figure of $28.8- million twice and the period-end figure of $43.8-million once, to arrive at an estimated average of $33.8-million.

Underlying Portfolio Yield: Dividend, interest and securities lending income received of $568,825 divided by average net assets of $33.8-million, multiplied by two because it’s semiannual, is 3.37%.

Income Coverage: Investment income of $568,825, less recurring expenses of $250,570 (disregarding legal fees, transaction costs and agents’ fees) is 318,255, divided by preferred share dividends of $553,870 is 57%.

There are a lot of approximations here and, regrettably, the 2014 Annual Report won’t be of much use in nailing them down, due to all the treasury offerings.

Issue Comments

AZP.PR.B To Be Extended

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

that, in accordance with Preferred Equity’s Articles of Incorporation, as amended, the dividend rate on Preferred Equity’s outstanding Cumulative Rate Reset Preferred Shares, Series 2 (the “Series 2 Shares”) will reset on December 31, 2014.

Such reset dividend rate (the “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 reset. The Reset Dividend Rate will be calculated on December 1, 2014, and the Reset Dividend Rate will equal the sum of the Canadian Government 5-year bond yield as of that date plus 4.18%.

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 will be calculated on December 1, 2014 and will equal the sum of the Canadian Government 90-day Treasury Bill yield (using the three-month average results) plus 4.18%. The Series 3 Shares dividend rate is reset each quarter.

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.

No real surprise here, since AZP.PR.B is unrated by DBRS and P-5 by S&P and closed today with a bid of 12.33 … but doubtless there is at least one smart guy wondering why he hasn’t made a 100% profit!

One thing that is surprising, however, is the huge yield spread between AZP.PR.B and AZP.PR.A, a Straight Perpetual with a 4.85% coupon, which closed today bid at 12.32 – one penny less than the bid on AZP.PR.B. Given that the Issue Reset Spread on AZP.PR.B, this implies that the market is expecting the yield on five-year Canadas will be about 67bp on December 1 (a rather dramatic move) and at the same time is assigning zero value to future resets.

Assuming a constant GOC-5 yield of 1.53%, the yield to perpetuity on AZP.PR.A is 10.09%, while the yield to perpetuity on AZP.PR.B is 12.01%.

Issue Comments

VSN Downgraded to Pfd-3 by DBRS

DBRS has announced that it:

has today downgraded Veresen Inc.’s (Veresen or the Company) Issuer Rating and Senior Unsecured Notes rating to BBB from BBB (high) and its Preferred Shares rating to Pfd-3 from Pfd-3 (high), following the closing of Veresen’s acquisition of 50% convertible preferred interest in Ruby pipeline system (Ruby). Concurrently, the ratings have been removed from Under Review with Negative Implications, having been placed as such in September 2014. (Please refer to DBRS press release dated September 23, 2014, for details). The trend on the ratings has been changed to Stable.

The USD 1.425 billion acquisition, including transaction costs, was financed with CAD 920 million of Veresen common equity and CAD 727 million of bank debt. This was substantially in line with DBRS expectations, as noted in the previous press release. DBRS had previously noted that the acquisition will have a negative impact on the Company’s business risk profile and a moderately negative impact on its financial risk profile. Due to low average throughput utilization (55%, compared to 71% contracted), Ruby is exposed to re-contracting risk when the majority of contracts (approximately 65%) expire in 2021, and the pipeline’s capacity may not be re-contracted at current tolls, volumes or duration. This is largely a reflection of the weak natural gas pricing environment and competitive landscape. In addition, Company’s leverage is expected to be moderately higher and coverage ratios are expected to weaken due to the higher debt levels resulting from the acquisition.

The Review-Negative was previously reported on PrefBlog.

Veresen is the proud issuer of VSN.PR.A and VSN.PR.C, both FixedResets.

S&P affirmed its ratings of P-3(high) in September:

  • •We are affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on Veresen Inc. following the announcement that it has acquired 50% of the Ruby pipeline through convertible preferred shares.
  • •The transaction adds contracted capacity and tenor to Veresen’s mix of pipeline assets; however, it also modestly decreases forecast financial metrics.
  • •The stable outlook reflects our expectation that the company will continue to focus on adding fee-for-service midstream and long-term contracted power generation.


The stable outlook reflects our expectation that Veresen will continue to focus on adding fee-for-service midstream and long-term contracted power generation. The outlook also reflects our assumption that the total equity component for financing the transaction includes the 15% overallotment, and that the dividend reinvestment program (DRIP) remains in place to reduce leverage over time. Although the transaction modestly improves contract tenor and diversification away from the Alliance pipeline, financial metrics are compressed and we expect to see debt reduction, likely through DRIPs, to maintain the outlook.

We could lower the ratings if AFFO-to-debt drops to the lower end within the “significant” range using the medial table. In addition, if the contract profile at Alliance after 2015 significantly increases the cash flow variability or business risk to Veresen, we could lower the ratings.

The uncertainty surrounding the Alliance pipeline recontracting is likely to constrain the ratings for the next two years. An upgrade is unlikely in that time without AFFO-to-debt staying above 23% and the contract profile improving at Alliance.

Issue Comments

IAG.PR.E To Be Redeemed

Industrial Alliance Insurance and Financial Services Inc. has announced:

that it has the intention to redeem, on December 31, 2014, all of its Non-Cumulative Class A Preferred Shares Series E (the “Series E Preferred Shares”) then outstanding. The redemption price will be $26.00 for each Series E Preferred Share less any tax required to be deducted and withheld by Industrial Alliance. There are 4,000,000 Series E Preferred Shares outstanding as of today. A formal notice and instructions for the redemption of the Series E Preferred Shares will be sent to all shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series E Preferred Shares.

Separately from the redemption price, the final quarterly dividend of $0.3750 per Series E Preferred Share will be paid in the usual manner on December 31, 2014 to shareholders of record on November 28, 2014. After the Series E Preferred Shares are redeemed, holders of Series E Preferred Shares will cease to be entitled to distributions of dividends and will not be entitled to exercise any rights as holders other than to receive the redemption price and the final quarterly dividend described above.

Note that this redemption is at $26.00, a premium to the issue price of $25, which means that for tax purposes holders will be treated as if their $26.00 is comprised of a sale at $25.00 and a deemed dividend of $1.00; this can have important tax consequences, particularly for those who have accumulated capital losses for tax purposes. In many cases it will be advisable for holders to sell prior to redemption (at redemption price less a few pennies so the purchaser can make a little money, but plus the final dividend value if sold before the ex-dividend date). Please consult your personal tax advisor.

IAG.PR.E is a 6.00% Straight Perpetual (considered to be a DeemedRetractible since it’s issued by an insurer) which commenced trading 2009-10-15 after being announced 2009-10-6.

Better Communication, Please!

BAF Preferred Share Exchange Into BCE Completed

BCE Inc. has finally announced:

As a result of the amalgamation of Bell Aliant Preferred Equity Inc. (TSX: BAF) (Prefco), which was approved by preferred shareholders on October 31, 2014 and became effective November 1, 2014, Prefco became a wholly owned subsidiary of Bell Aliant.

Bell Aliant common shares were de-listed from the Toronto Stock Exchange (TSX) on October 31, 2014 and the Bell Aliant preferred shares will be delisted from the TSX at the close of trading today.

Naturally, it would have been far too much work to confirm the consideration given in exchange for the BAF preferreds, so after an annoying search through the website we find:

BCE’s preferred share offer expired at 5:00 pm (Eastern Time) on September 19, 2014. As all conditions of BCE’s preferred share offer have been satisfied, the BCE preferred shares exchanged for tendered Bell Aliant preferred shares were issued on September 24, 2014 and commenced trading on the Toronto Stock Exchange at the open of trading on the next day.
On October 3, 2014, BCE announced that the company has entered into an agreement with Bell Aliant Preferred Equity Inc. (TSX: BAF) (Prefco) to effect an amalgamation of Prefco with a newly incorporated, wholly owned subsidiary of BCE. Upon implementation:

  • holders of Prefco preferred shares (other than shareholders who properly exercise their right of dissent in respect of the amalgamation) will receive for their shares the same consideration as was paid by BCE for preferred shares pursuant to the preferred share offer; and
  • Prefco will become a wholly owned subsidiary of BCE.

A special meeting of the Prefco preferred shareholders will be held on October 31, 2014 at 9:30 am (Atlantic Time) to consider the amalgamation. BCE intends to vote all of the preferred shares that it owned as of September 30, 2014, the record date for the meeting, in favour of the amalgamation, which will be sufficient to approve the amalgamation and complete the privatization of Prefco.

The notice of meeting, accompanying management information circular and related meeting material, which contain full details of the amalgamation, was mailed to Prefco preferred shareholders early in October. The meeting material is also available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Because the jerk who approved this press release is a moron, this STILL doesn’t give the details of the consideration, so we reach back into the files to find the following table:

:

BCE / BAF Preferred Share Exchange
BCE Ticker Description BAF Ticker
BCE.PR.M FixedReset
4.85%+209
BAF.PR.A
BCE.PR.O FixedReset
4.55%+309
BAF.PR.C
BCE.PR.Q FixedReset
4.25%+264
BAF.PR.E

Golly, republishing that table was a lot of work! I think I’ll take a few vacation weeks and spend my bonus. On the bright side, the BCE preferred share web page has finally been updated and, even better, there is confirmation from DBRS:

DBRS has today discontinued Bell Aliant Preferred Equity Inc.’s (Bell Aliant) preferred share ratings following their delisting as part of Bell Aliant Inc.’s privatization. This rating action removes Bell Aliant’s preferred shares from Under Review with Positive Implications.

On July 23, 2014, BCE Inc. (BCE) announced it would privatize its Bell Aliant Inc. affiliate by acquiring the interest of public minority shareholders for consideration of approximately $3.95 billion. DBRS subsequently placed Bell Aliant’s preferred shares Under Review with Positive Implications based on the stronger credit profile of BCE/Bell Canada. The transaction closed on October 31, 2014.

As part of BCE’s tender offer to acquire the minority interest in Bell Aliant Inc., BCE exchanged all of the issued and outstanding Series A Preferred Shares, Series C Preferred Shares and Series E Preferred Shares at Bell Aliant Preferred Equity Inc. on the basis of (a) one BCE Series AM Preferred Share for each Series A Preferred Share; (b) one BCE Series AO Preferred Share for each Series C Preferred Share; and (c) one BCE Series AQ Preferred Share for each Series E Preferred Share. Bell Aliant’s preferred shares were delisted from the TSX at the close of trading on November 3, 2014.

The Implied Volatility calculation actually looks pretty good:

ImpVol_BCE_141103
Click for Big
Issue Comments

FTS Outlook Revised By S&P From Negative To Stable

Following the conversion of convertible debentures Standard & Poor’s has announced:

  • •On Oct. 28, 2014, Fortis Inc. announced the receipt of the final installment, C$1.2 billion, of the C$1.8 billion convertible debentures that it used to finance the UNS Energy Corp. transaction.
  • •In addition, holders of more than 99% of C$1.79 billion in principal of the convertible debentures have elected to convert the debt into Fortis common shares.
  • •The conversion will reduce the company’s debt load and lifts the adjusted funds from operations-to-debt metric above the downgrade threshold.
  • •As a result, we are revising our outlook on Fortis and its Canadian and Caribbean subsidiaries to stable from negative.
  • •We are also affirming our ratings on the companies, including our ‘A-‘ long-term corporate credit rating on Fortis.


The stable outlook reflects Standard & Poor’s assessment of the underlying operational and financial stability of Fortis’ operating companies. We expect these operating companies to continue generating stable and predictable cash flow, a key credit strength, which mitigates the relatively weak financial measures for the ratings.

We could lower the ratings on Fortis if the company’s AFFO-to-debt were to fall and stay below 9%. This could happen if Fortis were to employ more leverage or if its larger subsidiaries encountered major financial or operational difficulties or adverse regulatory decisions. Alternatively, investment in assets with materially higher business risks and cash flow variability could also lead to a downgrade.

A positive outlook or upgrade during our two-year forecast horizon would require Fortis to improve its credit metrics on a sustained basis, specifically AFFO-to-debt above 14%. However, we believe this is unlikely given the company’s expansion program.

The previous assessment of a negative outlook was previously reported on PrefBlog.

Fortis Inc. has several preferred issues trading on the Toronto Exchange: FTS.PR.E (OperatingRetractible); FTS.PR.F and FTS.PR.J (PerpetualDiscount); and FTS.PR.G, FTS.PR.H, FTS.PR.K and FTS.PR.M (FixedReset).

Data Changes

LCS.PR.A Added to HIMIPref™ Database

As previously discussed, LCS.PR.A approved a term extension to April 29, 2019, last spring, together with a big fat dividend of 0.575 p.a., paid quarterly. At that time, Brompton also clearly signalled its intent to grow the fund by announcing a treasury offering.

On August 18, 2014, Brompton Funds announced:

it has filed a preliminary short form prospectus with respect to a treasury offering of class A shares and preferred shares.

The Company invests in a portfolio, on an approximately equal weight basis, of common shares of Canada’s four largest publicly-listed life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

The investment objectives of the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.075 per class A share and to provide the opportunity for growth in net asset value per class A share.

The investment objectives of the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.575 per annum and to return the original issue price ($10.00) to holders of preferred shares on the maturity date of the Company, April 29, 2019.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC, and Scotiabank, 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., Industrial Alliance Securities Inc., Mackie Research Capital Corporation, and Manulife Securities Incorporated.

On August 25, 2014, Brompton Funds announced:

that the Company’s treasury offering of class A and preferred shares has been priced at $7.55 per class A share and $10.05 per preferred share. The final class A share and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on August 22, 2014, the most recently calculated net asset value, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering.

The Company intends to file a final prospectus in each of the provinces and territories of Canada in connection with the offering. The offering is expected to close on or about September 3, 2014 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the Toronto Stock Exchange.

On September 3, 2014, Bromption Funds announced:

that it has completed a treasury offering of 2,850,000 class A shares and 2,850,000 preferred shares for aggregate gross proceeds of approximately $50.2 million. The class A shares and preferred shares will continue to trade on the Toronto Stock Exchange under the existing symbols LCS and LCS.PR.A, respectively.

The Company’s treasury offering was priced at $7.55 per class A share and $10.05 per preferred share. The final class A share and preferred share offering prices were determined so as to be non-dilutive to the most recent calculated net asset value per unit of the Company on the date of pricing of the offering, August 22, 2014, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering.

and finally, on September 16, 2014, Brompton Funds announced:

that it has completed the issuance of 84,000 class A shares and 84,000 preferred shares for gross proceeds of approximately $1.5 million. This issuance was pursuant to the exercise of the over-allotment option granted to the agents in connection with the Company’s recently completed treasury offering. Following the exercise of the over-allotment option, total gross proceeds raised pursuant to this offering are approximately $51.6 million.

So that was a very nice offering and brought the fund up to a total size of over $90-million, with over 5.6-million units outstanding; so the fund is now of sufficient size that adding it to the investable universe is not guaranteed to be a complete waste of time.

As previously discussed, DBRS upgraded the preferreds to Pfd-4(high) in December 2013, and this rating has just been confirmed, although the ‘Positive Trend’ has been dropped:

As part of the term extension, the fixed cumulative quarterly distributions to the Preferred Shares will be increased to $0.14375 per preferred share starting May 1, 2014, yielding 5.75% annually on their issue price of $10.00 per share (up from 5.25% previously). Holders of the Class A Shares are expected to continue receiving regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011 because the Company’s net asset value fell below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013. On April 21, 2014, DBRS placed the ratings of the Preferred Shares Under Review with Positive Implications. Since then, the performance of the Company has been volatile, with downside protection dropping to 34.8% as of October 17, 2014, from 37.2% as of April 10, 2014. Because of the volatility and recent negative trend, the rating of the Preferred Shares has been confirmed and removed from Under Review with Positive Implications.

A nice feature of the preferreds is that they have a decent monthly retraction feature, as explained in the prospectus:

Except as noted below, holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share. If the NAV per Unit is less than $10.00, plus any accrued and unpaid distributions on the Preferred Shares, the retraction price of a Class A Share will be nil. Any declared and unpaid distributions payable on or before a Retraction Date in respect of Preferred Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date.

This feature was found to be supportive of market prices during the worst depths of the Credit Crunch.

The inclusion of this issue into the database has been backdated to May 1, 2014; this is the first date following the exercise of the Special Retraction Right offered to shareholders after the term extension. The issue with the prior terms has not been incorporated into the database since it was too small; but by adding as of May 1 I can get at least some relevant history.

Issue Comments

BPO.PR.A Firm On Excellent Volume

Brookfield Office Properties Inc., a division of Brookfield Property Partners (NYSE: BPY; TSX: BPY.UN), has announced:

the completion of its previously announced Preferred Shares, Series AA issue in the amount of C$300 million. The offering was underwritten by a syndicate led by RBC Capital Markets, CIBC, Scotia Capital Inc. and TD Securities Inc.

Brookfield Office Properties issued 12.0 million Preferred Shares, Series AA at a price of C$25.00 per share yielding 4.75% per annum for the initial period ending December 31, 2019. Net proceeds from the issue will be used for general corporate purposes, including, but not limited to, repayment of revolving debt, acquisitions, capital expenditures and working capital needs. There are no acquisitions at this time for which Brookfield Office Properties is intending to use the net proceeds of this offering.

The Preferred Shares, Series AA will commence trading on the Toronto Stock Exchange on October 23, 2014 under the ticker symbol BPO.PR.A.

BPO.PR.A is a FixedReset, 4.75%+315, announced October 7. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

BPO.PR.A traded 1,154,714 shares today (consolidated exchanges) in a range of 24.92-25.01 before closing at 24.96-00, 3×177. Vital statistics are:

BPO.PR.A FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-10-23
Maturity Price : 23.13
Evaluated at bid price : 24.95
Bid-YTW : 4.52 %

Implied Volatility is still very high, implying that

  • investors have incorporated a lot of expectation of price directionality in their forecasts for these issues, and
  • investors are paying too much for the lower-reset issues, relative to the higher-reset issues
ImpVol_BPO_FR_141023
Issue Comments

PIC.PR.A To Get Bigger

Strathbridge Asset Management Inc. has announced:

Premium Income Corporation (the “Fund”) (TSX:PIC.A)(TSX:PIC.PR.A) is pleased to announce that it has filed a preliminary short form prospectus relating to a treasury offering of preferred shares and class A shares. Investors may purchase preferred shares or class A shares by way of cash payment or through an exchange of freely tradable shares of the five banks included in the portfolio and of shares of the National Bank of Canada. For any purchase by way of exchange in excess of $1 million purchasers may elect to defer any accrued gains through a tax-deferred rollover.

The Fund invests in a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto- Dominion Bank (the “Banks”). To generate additional returns above the dividend income earned on the Fund’s portfolio, the Fund will selectively write covered call options in respect of some or all of the common shares in the Fund’s portfolio. The Fund may also, from time to time, write cash-covered put options in respect of securities in which the Fund is permitted to invest. The manager and investment manager of the Fund is Strathbridge Asset Management Inc.

The preferred shares pay fixed cumulative preferential quarterly cash distributions in the amount of $0.215625 ($0.8625 per annum) per preferred share representing a yield of 5.75% on the original issue price of $15.00. The class A shares currently pay quarterly distributions in the amount $0.20319 ($0.81276 per annum) per class A share.

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

For further information, please contact Investor Relations at 416.681.3966, toll free at 1.800.725.7172, email at info@strathbridge.com or visit www.strathbridge.com.

PIC.PR.A was last mentioned on PrefBlog at the time of its rights expiry in December 2012. PIC.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2014-10-30: Strathbridge has announced:

Premium Income Corporation (the “Fund”) (TSX:PIC.A)(TSX:PIC.PR.A) is pleased to announce the exchange ratios for the Fund’s exchange option with respect to its follow-on offering. Under the exchange option, investors could purchase Units of the Fund, consisting of one Class A share and one Preferred share by way of an exchange of freely tradable shares of the five banks included in the Fund’s portfolio and of shares of the National Bank of Canada (the “Exchange Eligible Issuers”). For any purchase by way of exchange in excess of $1 million purchasers may elect to defer any accrued gains by completing a joint election with the Fund to achieve a tax-deferred rollover.

Under the exchange option, the number of Units issuable in exchange for shares of any Exchange Eligible Issuer was determined by dividing the adjusted weighted average trading price of the respective Exchange Eligible Issuer on the TSX for the three consecutive trading days ended October 28, 2014 by the Unit Offering price of $24.52 (consisting of one Class A Share at a price of $8.92 and one Preferred Share at a price of $15.60). Fractional Units will not be issued. The following table outlines the adjusted weighted average trading price and the exchange ratio for each respective Exchange Eligible Issuer. The Exchange Ratio indicates the number of Units of the Fund to be received for each share of an Exchange Eligible Issuer.

Exchange Eligible Issuer TSX Ticker Symbol Adjusted Weighted Average Trading Price Exchange Ratio
Bank of Montreal BMO $81.04 3.3051
The Bank of Nova Scotia BNS $68.15 2.7794
Canadian Imperial Bank of Commerce CM $101.48 4.1387
National Bank of Canada NA $52.59 2.1448
Royal Bank of Canada RY $79.19 3.2296
The Toronto-Dominion Bank TD $54.47 2.2215

The Fund invests in a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (the “Banks”). To generate additional returns above the dividend income earned on the Fund’s portfolio, the Fund will selectively write covered call options in respect of some or all of the common shares in the Fund’s portfolio. The Fund may also, from time to time, write cash-covered put options in respect of securities in which the Fund is permitted to invest. The manager and investment manager of the Fund is Strathbridge Asset Management Inc.

The Fund intends to file a final prospectus tomorrow morning (October 31, 2014) in each of the Provinces of Canada in connection with the offering. The offering is expected to close on or about November 10, 2014 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the TSX.

The Preferred shares pay fixed cumulative preferential quarterly cash distributions in the amount of $0.215625 ($0.8625 per annum) per Preferred share representing a yield of 5.75% on the original issue price of $15.00. The Class A shares currently pay quarterly distributions in the amount $0.20319 ($0.81276 per annum) per Class A share.

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

Update, 2014-11-28: They raised $22.1-million:

Premium Income Corporation (the “Fund”) is pleased to announce that it has completed a treasury offering of 900,000 class A shares and 900,000 preferred shares for aggregate gross proceeds of $22.1 million. The class A shares were priced at $8.92 per share and the preferred shares were priced at $15.60 per share. The pricing of the issue was determined so as to be non-dilutive to the most recently calculated net asset value per unit on the date of the pricing of the issue. The class A shares and the preferred shares will continue to trade on the Toronto Stock Exchange under the existing ticker symbols PIC.A and PIC.PR.A respectively.

Issue Comments

RY.PR.Y Called For Redemption

Royal Bank of Canada finally announced:

its intention to redeem all of its issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AX (the “Series AX shares”) on November 24, 2014, for cash at a redemption price of $25.00 per share.

There are 13,000,000 Series AX shares outstanding, representing $325 million of capital. The redemption of the Series AX shares will be financed out of the general corporate funds of Royal Bank of Canada.

Separately from the redemption price, the final quarterly dividend of $0.38125 per share for the Series AX shares will be paid in the usual manner on November 24, 2014 to shareholders of record on October 27, 2014.

No surprises here, since the issue commenced trading April 29, 2009 and came with a massive Issue Reset Spread of 413bp. It is tracked by HIMIPref™ and has been assigned to the FixedReset index since inception.