Category: Issue Comments

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.

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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).

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:

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

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.

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.

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

S Split Corp. (the “Fund”) (TSX:SBN)(TSX:SBN.PR.A) is pleased to announce that holders of Class A Shares and holders of Preferred Shares of the Fund have approved a proposal to extend the term of the Fund for seven years beyond its scheduled termination date of December 1, 2014, and for automatic successive seven-year terms after November 31, 2021.

As a result, holders of Class A Shares will continue to benefit from the potential for leveraged capital appreciation in a portfolio consisting of common shares of The Bank of Nova Scotia and monthly distributions of 6.0% per annum of the net asset value of the Class A Shares. Holders of Preferred Shares will continue to benefit from fixed cumulative preferential monthly cash dividends in the amount of $0.043750 per Preferred Share representing a yield of 5.25% per annum on the original issue price of $10.00 per Preferred Share.

As part of the extension of the term of the Fund, the Fund will also make other changes, including: (i) provide a special redemption right to enable holders of Class A Shares and Preferred Shares to retract their shares on December 1, 2014 on the same terms that would have applied had the Fund redeemed all Class A Shares and Preferred Shares in accordance with the existing terms of such shares; (ii) change the monthly retraction prices for the Class A Shares and the Preferred Shares such that monthly retraction prices are calculated by reference to market price in addition to net asset value; and (iii) consolidate the Class A Shares or redeem the Preferred Shares on a pro rata basis, as the case may be, in order to maintain the same number of Class A Shares and Preferred Shares outstanding.

Shareholders who exercise the special redemption right will receive the amount which they would have received had the December 1, 2014 termination date not been extended. Payments for shares tendered pursuant to the Special Retraction Right will be made no later than 10 business days after December 1, 2014, provided that such shares have been surrendered for redemption on or prior to 5:00 p.m. (Toronto time) on November 17, 2014. The retraction price per Class A Share to be received by a holder of Class A Shares under the Special Retraction Right will be equal to the greater of (a) the NAV per Unit on December 1, 2014 (the “Special Retraction Date”) minus $10.00 and (b) nil. The retraction price per Preferred Share to be received by a holder of Preferred Shares under the Special Retraction Right will be equal to the lesser of: (a) $10.00; and (b) the NAV of the Fund divided by the number of Preferred Shares outstanding on the Special Retraction Date. Any declared and unpaid distributions payable on or before the Special Retraction Date in respect of Class A Shares or Preferred Shares tendered for retraction on the Special Retraction Date will also be paid on the retraction payment date.

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

The term extension was proposed on September 8, 2014.

The Information Circular dated 2014-9-11 has some more details (note that the Class A shares are the Capital Units):

No distributions may be paid on the Class A Shares if (a) the distributions payable on the Preferred Shares are in arrears; or (b) the NAV per Unit is equal to or less than $16.50. In addition, the Fund will not pay special distributions, meaning distributions in excess of the targeted 6.0% per annum monthly distribution, on the Class A Shares if after payment of the distribution the NAV per Unit would be less than $25.00 unless the Fund would need to make such distribution so as to fully recover refundable taxes.
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Holders of Class A Shares and Preferred Shares are being asked to extend the term of the Fund for an additional seven years by changing the redemption date of the Class A Shares and the Preferred Shares to November 30, 2021. The redemption date will be further extended for successive seven-year terms thereafter and shareholders will be able to retract their Class A Shares or Preferred Shares at NAV prior to any such additional extension. In such circumstances, the Fund will provide at least 30 days’ notice to shareholders of the retraction date by way of press release.

The Fund proposes to extend the redemption date to November 30, 2021, with possible additional extensions of the term of the Fund, so that it may continue to provide shareholders with the opportunity to participate in the performance of the Portfolio.
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Following the Reorganization, the Fund would initially maintain the current dividend rate on the Preferred Shares at 5.25% per annum on the $10.00 original issue price. However, the Board of Directors would be permitted to change the dividend rate on the Preferred Shares to reflect future market conditions following November 30, 2021. Any such change would be announced by way of the press release issued in connection with such extension of the term of the Fund.
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To preserve the rights that were originally provided to holders of Class A Shares and Preferred Shares, the Fund proposes to amend the terms of such shares to permit holders of such shares to retract such shares (the “Special Retraction Right”) on December 1, 2014 (the “Special Retraction Date”) on the terms on which such shares would have been redeemed had the December 1, 2014 redemption date not been extended.
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If more Class A Shares than Preferred Shares are retracted under the Special Retraction Right, the Fund will redeem Preferred Shares (the “Call Right”) on a pro rata basis to ensure an equal number of Class A Shares and Preferred Shares remain outstanding from and after the effective date of the Reorganization.
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Going forward, the Annual Valuation Date, which is the time at which the annual concurrent retraction right may be exercised, will be changed to the November Valuation Date from the June Valuation Date, commencing in 2015. In addition, the Special Retraction Right will replace the annual concurrent retraction right in each year in which the Fund’s existing term is subsequently extended.
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Shareholders whose Preferred Shares are retracted on a Valuation Date are entitled to receive a retraction price per share (the “Preferred NAV Retraction Price”) equal to 95% of the lesser of (a) the NAV per Unit as of the applicable Valuation Date less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (b) $10.00.
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Under the Reorganization, the monthly retraction price for the Preferred Shares will be changed and shareholders whose Preferred Shares are retracted on a Valuation Date will be entitled to receive a retraction price per share equal to the lesser of:
(a) the Preferred NAV Retraction Price; and
(b) 95% of the lesser of (i) the Unit Market Price less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (ii) $10.00.
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Class A Market Price means the weighted average trading price of the Class A Shares on the principal stock exchange on which the Class A Shares are listed (or, if the Class A Shares are not listed on any stock exchange, on the principal market on which the Class A Shares are quoted for trading) for the 10 trading days immediately preceding the applicable Valuation Date.
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Unit Market Price means the sum of the Class A Market Price and the Preferred Market Price.

So on the bright side, it’s nice to see that big fat 5.25% coupon being extended for another seven years. Regrettably, the incorporation of “Unit Market Price” in the preferred share retraction price formula means that monthly retractions will no longer act as a price support in times of crisis; the chance of making a fast whopping profit when the units are trading below NAV has now disappeared. On the other hand, since there is no longer a price support, maybe the preferred shares will fall even more in such a crisis and become even more attractive purchases. We will see!

From the original prospectus:

Annual Concurrent Retraction: A holder of Class A Shares may concurrently retract an equal number of Class A Shares and Preferred Shares on the June Valuation Date of each year (the ‘‘Annual Valuation Date’’) at a retraction price equal to the NAV per Unit on that date, less any costs associated with the retraction, including commissions and other such costs, if any, related to the liquidation of any portion of the Company’s portfolio required to fund such retraction. The Class A Shares and the Preferred Shares must be surrendered for retraction at least 10 business days prior to the Annual Valuation Date. Payment of the proceeds of retraction will be made on or before the fifteenth business day of the following month. Such retractions are subject to a Retraction Fee. See ‘‘Details of the Offering — Retraction Fee’’.

The above isn’t affected by the extension, which is good. Some Split Share Corporations have provisions whereby the Capital Units can be retracted at the NAV on the annual date, with any imbalance of Capital Units over retracted Preferred Shares being made up by a par call. This is bad for holders, since calls are bad.

SBN.PR.A is a small issue, with only 2.9-million shares outstanding according to TMXMoney. Consequently, volumes are low.

SBN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on both volume and credit concerns. It was last mentioned on PrefBlog with respect to the 2010 Annual Report.

DBRS has announced that it:

has today upgraded Laurentian Bank of Canada’s (Laurentian or the Bank) long-term ratings, including its Issuer Rating and Deposits & Senior Debt ratings, to A (low) from BBB (high) and its NVCC Preferred Share rating to Pfd-3 from Pfd-3 (low). DBRS has also confirmed Laurentian’s Short-Term Instruments rating at R-1 (low). All trends are now Stable.
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The ratings upgrade resolves the positive trend which DBRS has held on Laurentian’s long-term ratings for two years. Laurentian’s credit profile has benefitted from diversification both geographically, through increased presence outside of Québec, and by business line, notably with the growth of B2B Bank. Efficiency at the Bank has been more recently trending in the right direction, and management has targeted further efficiency improvements over the medium term, particularly through the expansion of higher margin products and business lines which, if realized, should support the earnings profile of the Bank. DBRS anticipates that efficiency and geographic diversity should continue to improve, particularly as B2B Bank becomes a larger contributor. The rating is supported by the Bank’s overall lower-risk business profile, which is focused on retail lending funded by retail deposits, real estate and mid-market commercial financing, serves financial advisors and brokers through B2B Bank and includes a mid-sized Montréal-based capital markets business. Its high-cost structure and remaining geographic concentration remain challenging.

The affected issues are:

LB.PR.F and LB.PR.H were last mentioned on PrefBlog when they were downgraded by S&P earlier this month. Both are tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

I was a bit embarrassed to be so late reporting on the sale of the TD Sponsored Companies to Timbercreek, but I can take solace in the fact that DBRS was even later:

DBRS has today placed the following ratings Under Review with Developing Implications:

— Class C Preferred Shares, Series 1 rated Pfd-2, issued by TD Split Inc.
— Class C Preferred Shares, Series 1 rated Pfd-2, issued by 5Banc Split Inc.
— Class D Preferred Shares, Series 1 rated Pfd-2 (low), issued by Big 8 Split Inc.

On August 22, 2014, shareholders of TD Split Inc., 5Banc Split Inc. and Big 8 Split Inc. (collectively, the Funds) approved the proposed change in the administrator and investment manager of the Funds to Timbercreek Asset Management Ltd. from TD Securities. The transaction closed and became effective on September 19, 2014.

The rating actions reflect the fact that DBRS takes into consideration the quality of investment manager and/or administrator of the portfolio. Due diligence must be conducted to determine whether the change will be material to the ratings of the Funds.

Dividend Growth Split Corp. has released its Semi-Annual Report to June 30, 2014.

Figures of interest are:

MER: According to the report:

Excluding the Preferred share distributions and issuance costs, MER per Class A share was 0.98% for the first six months of 2014 compared to 1.04% in 2013. This ratio is more representative of the ongoing efficiency of the administration of the Fund.

Average Net Assets: We need this to calculate portfolio yield, and it’s a nightmare due to the share issuance.The average of the beginning and end of period assets is: (224.5-million + 184.6-million)/2 = 204.6-million. Distributions paid on preferred shares were $2,913,292, at $0.525 p.a. for half a year, implies an average of 11.098-million units outstanding, at an average NAVPU of 18.70, implies average assets of $207.5-million, which is surprisingly close. So call the average assets $206-million.

Underlying Portfolio Yield: Total Income (dividends, securities lending and interest) of $4.40-million over half a year divided by average net assets of $206-million is 4.3% p.a..

Income Coverage: Net income before realized and unrealized capital gains and before share issuance costs is $3.29-million to cover preferred dividends of $2.98-million is 110%.

Another late post!

On August 12, 2014, Quadravest announced:

Financial 15 Split Corp. (the “Company”) announces that it will issue Rights to all Class A Shareholders thereby allowing existing shareholders to increase their investment in the Company. Each Class A Shareholder will be entitled to receive one Right for each Class A Share held as of the record date of August 25, 2014. Six Rights will entitle the holder to purchase a Unit consisting of one Class A Share at $10.25 and one Preferred Share at $10.00 for the total subscription price of $20.25. The Rights are exercisable at any time once issued and will expire at 5:00 p.m. (EST) on September 19, 2014.

The net proceeds from the subscription of Units will be used to acquire additional securities in accordance with the Company’s investment objectives. The exercise price is consistent with current trading prices and accretive to the most recently published net asset value per Unit. The offering is expected to increase the trading liquidity of the Company and reduce the management expense ratio.

Both the Preferred Shares and Class A Shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “FTN.PR.A” and “FTN” respectively. The Rights will be listed and will trade on the TSX until 12:00 noon (EST) on September 19, 2014. The Rights will be eligible for exercise on and following August 26, 2014.

The Company invests in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, Manulife Financial Corporation, Sun Life Financial, Great-West Lifeco, CI
Financial Corp, Bank of America, Citigroup Inc., Goldman Sachs Group, JP Morgan Chase & Co. and Wells Fargo & Co.

This was followed by an announcement on September 22:

Financial 15 Split Corp. (the “Company”) is pleased to announce that it has issued 2,020,098 Class A shares and 2,020,098 Preferred shares pursuant to its recently completed rights offering. Total proceeds amounted to $40.9 million. Holders of rights were given the opportunity to purchase one Class A share at $10.25 and one Preferred share at $10.00 for total price per unit of $20.25.

Financial 15 invests in a high quality portfolio of North American financial institutions and is benefiting from strong share price performance of Canadian and US banks. The Company invests in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, Manulife Financial Corporation, Sun Life Financial, Great-West Lifeco, CI Financial Corp, Bank of America, Citigroup Inc., Goldman Sachs Group, JP Morgan Chase & Co. and Wells Fargo & Co.

FTN.PR.A was last mentioned on PrefBlog in connection with its 14H1 Semi-Annual Report. FTN.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.