Category: Issue Comments

Brompton Group has announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus with respect to a treasury offering of class A and preferred shares. The class A and preferred share offering prices will be set at levels that ensure that existing unitholders are not diluted.
Dividend Growth Split Corp. invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Upon closing of the offering, the portfolio will consist of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	CI Financial Corporation	Shaw Communications Inc.
Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce	IGM Financial Inc.	TELUS Corporation
Manulife Financial Corporation	National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	BCE Inc.	Enbridge Inc.
Bank of Montreal	The Toronto-Dominion Bank	Rogers Communications Inc.	TransCanada Corporation

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share, and to provide the opportunity for growth in net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions currently in the amount of $0.13125 per preferred share, representing a yield on the original issue price of 5.25% per annum and to return the original issue price to holders of preferred shares on the maturity date of the Company, November 28, 2019.

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

DGS.PR.A was last mentioned on PrefBlog when I reviewed their 14H1 Semi-Annual Report. DGS.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Update, 2014-11-22: The offering has been priced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce that the Company’s treasury offering of class A and preferred shares has been priced at $9.55 per class A share and $10.10 per preferred share. The final class A and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on November 20, 2014, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering and after payment of certain offering costs by the Company’s manager.
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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 December 2, 2014 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the Toronto Stock Exchange.

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

Update, 2014-12-2: The offering was quite successful!

Dividend Growth Split Corp. (the “Company”) is pleased to announce that it has completed a treasury offering of 3,200,000 class A shares and 4,180,248 preferred shares for aggregate gross proceeds of approximately $72.8 million. The class A shares and preferred shares will continue to trade on the Toronto Stock Exchange under the existing symbols DGS (class A shares) and DGS.PR.A (preferred shares).

Strathbridge Asset Management Inc. has announced:

that the Board of Directors of the Manager (in the case of all Funds other than Premium Income Corporation, S Split Corp. and World Financial Split Corp.) and the Board of Directors of each of Premium Income Corporation, S Split Corp. and World Financial Split Corp. have approved a proposal to change the investment restrictions and/or the investment strategy of the Funds.

The purpose of the proposal is to permit the Manager to have greater flexibility in managing each Fund’s portfolio securities and includes (i) increasing the extent to which the Fund may invest in certain portfolio securities (known as the basket) to enhance returns beyond the Fund’s core portfolio holdings, (ii) enabling the Fund to invest in other investment funds to assist in achieving its investment objectives in an efficient manner, (iii) enabling the Fund to invest up to 10% of its net assets to purchase call options on securities in which it is permitted to invest and (iv) enabling the Manager to invest portfolio assets entirely in cash or cash equivalents in its discretion for defensive or other purposes. While some of the Funds currently have the authority to implement one or more of these strategies, the Manager would like all of its Funds to be able to employ such strategies as and when needed for the benefit of its securityholders.

A special meeting of securityholders of the Funds has been called to consider and vote upon the proposal. Further details of the proposal will be outlined in a joint management information circular to be prepared and delivered to securityholders of record of each of the Funds on November 21, 2014.

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

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.

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%.

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.

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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.

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.

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