Category: Issue Comments

Dundee Corporation has announced:

Further to Dundee Corporation’s (TSX: DC.A and DC.PR.B) (“Dundee” or the “Company”) news release dated August 26, 2014, the Company announces today the applicable dividend rates for its Cumulative 5‐Year Rate Reset First Preference Shares, Series 2 (“Series 2 Shares”) and its Cumulative Floating Rate First Preference Shares, Series 3
(“Series 3 Shares”).

With respect to any Series 2 Shares that remain outstanding on September 30, 2014, holders thereof will be entitled to receive fixed rate cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Dundee and subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the five‐year period commencing on September 30, 2014 to, but excluding September 30, 2019, will be 5.688%, being equal to the sum of the five‐year Government of Canada bond yield as at September 2, 2014, plus 4.10%, as determined in accordance with the terms of the Series 2 Shares.

With respect to any Series 3 Shares that may be issued on September 30, 2014, holders thereof will be entitled to receive floating rate cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of the Company and subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the three‐month period commencing on September 30, 2014 to, but excluding, December 31, 2014, will be 5.04%, being equal to the sum of the three‐month Government of Canada Treasury bill yield as at September 2, 2014, plus 4.10%, as determined in accordance with the terms of the Series 3 Shares.

Beneficial owners of Series 2 Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (EDT) on September 15, 2014. Instructions of conversion are irrevocable.

Beneficial owners should direct any conversion inquiries to their broker or Dundee’s Registrar and Transfer Agent, Computershare Investor Services Inc., at 1‐800‐564‐6253.

It is difficult to formulate a recommendation regarding whether holders of DC.PR.B should convert. The two issues resulting after partial conversion will, of course, form a Strong Pair and may be analyzed with the Pairs Equivalency Calculator. Performing an analysis of all current FixedReset/FloatingReset pairs results in the following chart:

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This chart was created with the assumed price of the new DC FloatingReset set to 25.22, the same as the price of DC.PR.B. According to this, the DC FloatingReset looks a little bit cheap … but not much. To get to the average Breakeven 3-Month Bill Yield of 1.67%, the price would only need to increase by $0.08, to 25.30.

One may, of course, make the argument that the time until the next Exchange Date is greater for DC.PR.B, therefore (given a projection of increasing policy rates) the breakeven rate should be higher, therefore the current price should be somewhat higher than 25.30 and therefore conversion should be favoured … but that’s a matter of opinion, informed or otherwise. I take no position on that – you’re on your own!

Another consideration is the fact that this will be the first Junk Floating Reset. In a logical world this shouldn’t make any difference, since the analysis rests on the idea that the credit quality of each element of the Strong Pair is precisely equal, but since when has the preferred share market been logical? If we look at the other pool of Strong Pairs, the pool that depends upon the prime rate and is predominantly junk (if you believe DBRS) or investment grade (if you believe S&P), one gets a set of break-even rates that implies a much faster increase in Prime, which one may sort-of assume will move in sort-of lockstep with three-month bill rates:

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The average breakeven prime rate is 5.38%, a huge increase over the current 3% and much more than the increase in short-rates implied by extant FloatingResets. Looking at things very simply, if we say that the FixedFloater/Ratchet series of strong pairs implies a rate of 5.38%, 238bp over current, then adding 238bp to the 0.91% current three month bill rate means requiring a break-even 3-month-bill rate of 3.29%, which in turn implies a whopping price of 26.90 for the new DC FloatingReset.

I find none of this particularly convincing and think that holders should either convert or hold according to what makes sense for their own portfolios. Those with a taste for speculation, however, will find the conversion to the FloatingReset attractive, since there’s not much downside and potentially quite a bit of upside.

Dundee Corporation has announced:

that it does not intend to exercise its right to redeem any currently outstanding cumulative 5‐year rate reset first preference shares, series 2 (the “Series 2 Shares”) on September 30, 2014 and, as a result, subject to certain conditions, the holders of the Series 2 Shares have the right, at their option, to convert all or part of their Series 2 Shares on a one for one basis into Cumulative Floating Rate First Preference Shares, Series 3 (the “Series 3 Shares”) as at September 30, 2014. Holders who do not exercise their right to convert their Series 2 Shares into Series 3 Shares will retain their Series 2 Shares, unless automatically converted in accordance with the conditions below.

The foregoing conversions are subject to the conditions that: (i) if, after September 15, 2014, the Company determines that there would be less than 500,000 Series 2 Shares outstanding on September 30, 2014, then all remaining Series 2 Shares will automatically be converted into an equal number of Series 3 Shares on September 30, 2014, and (ii) alternatively, if the Company determines that there would be less than 500,000 Series 3 Shares outstanding on September 30, 2014, no Series 2 Shares will be converted into Series 3 Shares. In either case, Dundee will give written notice to that effect to holders of the Series 2 Shares affected by the preceding minimums on or before September 23, 2014.

The dividend rate applicable to the Series 2 Shares for the 5‐year period commencing on September 30, 2014 to, but excluding September 30, 2019, and the dividend rate applicable to the Series 3 Shares for the 3‐month period commencing on September 30, 2014 to, but excluding December 31, 2014, will be determined and announced by way of a news release on September 2, 2014.

Beneficial owners of Series 2 Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (EDT) on September 15, 2014. Instructions of conversion are irrevocable.

Beneficial owners should direct any conversion inquiries to their broker or Dundee’s Registrar and Transfer Agent, Computershare Investor Services Inc., at 1‐800‐564‐6253.

DBRS has announced that it:

has today changed the trend on its ratings of Atlantic Power Limited Partnership’s (APLP) Issuer Rating (rated B (high)) and its Senior Unsecured Debt & Medium-Term Notes (rated B (high)) to Stable from Negative, and subsequently discontinued these ratings. DBRS has also changed the rating trend of Atlantic Power Preferred Equity Ltd.’s (APPE) Cumulative Preferred Shares (rated at Pfd-5 (high)) to Stable from Negative and has discontinued this rating.

The discontinuation of the ratings of APLP and APPE is due to the request of the issuers.

The company announced in May that:

Consistent with the objective of acting in the best interests of the Company, its shareholders and its other stakeholders, the Company, as also previously disclosed, is committed to evaluating a broad range of potential options. These potential options include further selected asset sales or joint ventures to raise additional capital for growth or potential debt reduction, the acquisition of assets, including in exchange for shares, the dividend level, as well as broader strategic options, including a sale or merger of the Company. The Company has engaged Goldman, Sachs & Co. and Greenhill & Co., LLC to assist the Company in its evaluation of these potential options. No assurance can be given as to how the evaluation of any such potential options may evolve. The Company does not intend to comment further on its evaluation of potential options until it otherwise deems further disclosure is appropriate or required.

This statement was repeated in the 14Q2 10Q.

14Q2 earnings were pretty dreary, with a loss of $0.49 per share. Somebody writing a round-up under the auspices of Sleek Money, whoever they are, claims:

A number of analysts have recently weighed in on AT shares. Analysts at Scotiabank reiterated a “sector underperform” rating on shares of Atlantic Power Corp in a research note on Thursday, June 26th. On a related note, analysts at Imperial Capital initiated coverage on shares of Atlantic Power Corp in a research note on Thursday, June 26th. They set an “outperform” rating and a $7.00 price target on the stock. Finally, analysts at National Bank Financial downgraded shares of Atlantic Power Corp from a “sector perform” rating to an “underperform” rating in a research note on Wednesday, June 25th. Five equities research analysts have rated the stock with a sell rating, two have given a hold rating and one has assigned a buy rating to the company. The company has a consensus rating of “Hold” and an average price target of $4.33.

S&P continues to rate the preferred shares at P-5 [Stable].

Atlantic Power Preferred Equity (a subsidiary that guarantees its parent’s debt) has two series of preferred shares outstanding: AZP.PR.A, a PerpetualDiscount, and AZP.PR.B, a FixedReset. Both are tracked by HIMIPref™; both are relegated to the Scraps index on credit concerns.

TD Securities has announced:

TDb 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 Priority Equity 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., TD Securities Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp. and Raymond James.

The Priority Equity Shares will be offered at a price of $10.20 per Priority Equity Share to yield 5.15% on the issue price and the Class A Shares will be offered at a price of $6.10 per Class A Share to yield 9.83% on the issue price. The closing price on the TSX of each of the Priority Equity Shares and Class A Shares on August 15, 2014 was $10.29 and $6.17, respectively.

Since inception of the Company, the aggregate dividends paid on the Priority Equity Shares have been $3.67 per share and the aggregate dividends paid on the Class A Shares have been $3.05 per share, for a combined total of $6.72. 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 common shares of Toronto-Dominion Bank, a leading Canadian Financial institution.

XTD.PR.A was last mentioned on PrefBlog when it was entered the Protection Plan during the depths of the Credit Crunch.

XTD.PR.A is not tracked by HIMIPref™ since it is too small … but this can always change!

Post and headline corrected to reflect correct ticker, as pointed out by prefQC in the comments

Update, 2014-8-19: The offering was successful:

TDb Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 1,500,000 Priority Equity Shares and up to 1,500,000 Class A Shares. Total proceeds of the offering are expected to be approximately $24.45 million.

The Company has granted the dealers an overallotment of 225,000 units if exercised, bringing the total proceeds to $28.1 million

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

The sales period of the overnight offering has now ended.

The Priority Equity Shares will be offered at a price of $10.20 per Priority Equity Share to yield 5.15% on the issue price and the Class A Shares will be offered at a price of $6.10 per Class A Share to yield 9.83% on the issue price. The closing price on the TSX of each of the Priority Equity Shares and Class A Shares on August 18, 2014 was $10.20 and $6.28, respectively.

The net proceeds of the secondary offering will be used by the Company to invest in common shares of Toronto-Dominion Bank, a leading Canadian Financial institution.

Brompton Funds has announced:

Brompton Lifeco 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 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.

LCS.PR.A was last mentioned on PrefBlog in connection with a similar exercise last April.

LCS.PR.A is not tracked by HIMIPref™ as it is a small issue. There are slightly less than 2.7-million units outstanding but it’s growing rapidly and things could change!

Manulife Financial Corporation has announced:

that it has completed its offering of 14 million Non-cumulative Rate Reset Class 1 Shares Series 17 (the “Series 17 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $350 million.

The offering was underwritten by a syndicate of investment dealers co-led by Scotia Capital Inc., RBC Capital Markets and TD Securities. The Series 17 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR. M.

The Series 17 Preferred Shares were issued under a prospectus supplement dated August 11, 2014 to Manulife’s short form base shelf prospectus dated June 23, 2014.

MFC.PR.M is a FixedReset, 3.90%+236, announced August 11. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,121,407 shares today (consolidated exchanges) in a range of 24.90-99 before closing at 24.97-99, 10×557. Vital statistics are:

Implied Volatility theory suggests that this issue is priced in-line with the other MFC FixedResets, with a fair value of 25.07. The outlier on the chart, with the highest Issue Reset Spread, is MFC.PR.E, which has been called for redemption.

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Update: On review, I find that I forgot to put a DeemedMaturity entry into the embedded option schedule. This has been fixed.

TransAlta Corporation has announced:

it has completed its public offering (the “Offering”) of 6,600,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series G (the “Series G Shares”) at a price of $25.00 per Series G Share.

The Offering, previously announced on August 6, 2014, includes the partial exercise of the underwriters’ option of an additional 600,000 Series G Shares for proceeds of an additional $15 million bringing the aggregate gross proceeds of the Offering to $165 million. The net proceeds of the Offering will be used for general corporate purposes in support of our business, to reduce short term indebtedness and to fund capital investments of the Corporation and its affiliates.

The Series G Shares were offered to the Canadian public through a syndicate of underwriters led by RBC Capital Markets, CIBC and Scotiabank by way of a prospectus supplement that was filed on August 8, 2014 with securities regulatory authorities in Canada under TransAlta’s short form base shelf prospectus dated December 9, 2013.

Holders of Series G Shares are entitled to receive a cumulative quarterly fixed dividend yielding 5.30% annually for the initial period ending September 30, 2019. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.80%. Holders of Series G Shares will have the right, at their option, to convert their Series G shares into Cumulative Redeemable Floating Rate First Preferred Shares, Series H (the “Series H Shares”), subject to certain conditions, on September 30, 2019 and on September 30 every five years thereafter. Holders of Series H Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.80%. The Series G Shares are listed on the Toronto Stock Exchange under the ticker symbol TA.PR.J.

TA.PR.J is a FixedReset, 5.30%+380, announced August 6. It will be tracked by HIMIPref™ and has been assigned to the Scraps index on credit concerns.

The issue traded 307,925 shares today (consolidated exchanges) in a range of 24.65-84 before closing at 24.72-75, 204×92. Vital statistics are:

Implied Volatility theory suggests that this issue is about $0.50 expensive, being fairly priced at 24.22 compared to its closing bid of 24.72. TA.PR.F, on the other hand, is about $0.66 cheap, fairly priced at 22.36 compared to its closing bid of 21.70.

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Manulife Financial Corp. has announced:

its intention to redeem all of its outstanding 14,000,000 Non-cumulative Rate Reset Class 1 Shares Series 1 (“Series 1 Preferred Shares”) for cash on September 19, 2014. The Series 1 Preferred Shares are redeemable at Manulife’s option on September 19, 2014, at a redemption price per Series 1 Preferred Share equal to C$25.00 for an aggregate total of C$350 million. Formal notice will be delivered to holders of Series 1 Preferred Shares in accordance with the terms outlined in the share provisions for the Series 1 Preferred Shares.

Separately from the redemption price, the final quarterly dividend of C$0.35 per Series 1 Preferred Share will be paid in the usual manner on September 19, 2014 to shareholders of record on August 19, 2014. After the Series 1 Preferred Shares are redeemed, holders of Series 1 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.

No surprise here – with an Issue Reset Spread of 323bp, this was rather expensive money for them. They have separately announced their intention to issue at +236.

MFC.PR.E commenced trading 2009-6-3 after being announced 2009-5-25.

Canadian Life Companies Split Corp has released its Semi-Annual Report to May 31, 2014.

Figures of interest are:

MER: 1.43% of the whole unit value, “presented to reflect the normal operating expenses of the Company excluding
any one time secondary offering expenses.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $190.0-million, compared to $199.9-million on May 31, so call it an average of $195.0-million. Preferred share dividends of $4,229,154 were paid over the half year at 0.625 p.a., implying average units outstanding of 13.53-million, at an average NAVPU of about $14.05, implies $190.2-million. That’s reasonably good agreement! Say the Average Net Assets are $192.6-million.

Underlying Portfolio Yield: Income received of $2,871,701 divided by average net assets of $194.7-million, multiplied by two because it’s semiannual is 2.98%.

Income Coverage: Net investment income of $1,873,801 (after adding back warrant subscription fees) divided by preferred share dividends of $4,229,154 is a rather low 44% – but consistent with the figure for 2013.

Financial 15 Split Corp has released its Semi-Annual Report to May 31, 2014.

Figures of interest are:

MER: 1.60% of the whole unit value, “presented to reflect the normal operating expenses of the Company excluding any one time secondary offering expenses.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $185.2-million, compared to $209.3-million on May 31, so call it an average of $197.2-million. Preferred share dividends of $3,219,876 were paid over the half year at 0.525 p.a., implying average units outstanding of 12.27-million, at an average NAVPU of about $15.75, implies $193.2-million. That’s reasonably good agreement! Say the Average Net Assets are $194.7-million.

Underlying Portfolio Yield: Income received of $2,687,593 divided by average net assets of $194.7-million, multiplied by two because it’s semiannual is 2.76%.

Income Coverage: Net investment income of $1,015,649 divided by preferred share dividends of $3,219,876 is a very low 32%.

The Income Coverage is substantially lower than the calculation performed from the 2013 Annual Report. This may be related to their issuance of $34.5-million in units last January.