Category: Issue Comments

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.

Partners Value Split Corp. has released its Semi-Annual Report to June 30, 2014.

The company has the following issues outstanding: PVS.PR.A, PVS.PR.B, PVS.PR.C and PVS.PR.D.

Figures of interest are:

MER: I suggest it is best to include the amortization of share issue costs in MER – after all, this is a charge against the stated value of the company. Therefore, expenses were $213,000 (regular expenses) + $710,000 (amortization) = $923,000 for six months on assets of $2.348-billion (see below) or 8bp p.a..

Average Net Assets: We need this to calculate portfolio yield and MER. There were negligible capital transactions, so we’ll just take the average of the beginning and end of period assets (including preferred shares) so: [(1.501-billion + 0.690-billion) + (1.816-billion + 0.690-billon)]/2 = $2.348-billion

Underlying Portfolio Yield: Total Income of $21.0-million divided by average net assets of $2,348-million is 1.79% p.a..

Income Coverage: Net income of $20.846-million less amortization of $0.710-million is $20.136-million to cover senior preferred dividends of $12.993-million is 155%. However, I consider it prudent to include the $5-million stated entitlement of the Junior preferreds, even though less than half of this was actually paid in 2013 because the Juniors can be retracted at any time, which could prove embarrassing in times of extreme stress. So I’d say income coverage is 112%.

This is late … really late! But better late than never.

On August 22, TD Bank announced:

TD Sponsored Companies Inc. (“TDSCI”) is pleased to announce that shareholders of TD Split Inc. (TSX:TDS), 5Banc Split Inc. (TSX:FBS) and Big 8 Split Inc. (TSX:BIG) (collectively, the “Funds”) today approved the proposed change in the administrator and investment manager of the Funds to Timbercreek Asset Management Ltd. (“Timbercreek”) from TDSCI, as more fully described in the Funds’ management information circular dated July 3, 2014.

The Transaction is expected to close in the middle of September 2014, subject to, among other conditions, obtaining all required regulatory approvals, at which time Timbercreek will become the administrator and investment fund manager of each Fund.

On September 19 it was further announced:

TD Sponsored Companies Inc. (“TDSCI”) and Timbercreek Asset Management Ltd. (“Timbercreek”) announced today the completion of the previously announced transaction pursuant to which Timbercreek has acquired the rights to administer and manage TD Split Inc., 5Banc Split Inc. and Big 8 Split Inc. (collectively, the “Funds”).

As a result of the transaction, Timbercreek now acts as administrator and investment fund manager of the Funds.

According to information on SEDAR, to which I am not permitted to link directly because I am a member of the public and the Canadian Securities Administrators have determined that scumbag members of the public are not permitted to link to public documents, but one of which is referenced as “TD Split Inc. Aug 1 2014 10:50:29 ET Management information circular – English PDF 91 K”:

Recently, TDSCI determined that acting as administrator for closed-end funds does not represent a core business focus going forward and is therefore seeking to exit the closed-end fund business at this time. On June 24, 2014, TDSCI and Timbercreek announced that they had entered into a definitive agreement (the ‘‘Transaction’’) pursuant to which Timbercreek agreed to acquire the rights to act as administrator and investment fund manager to the Funds under (i) the administration agreement dated November 15, 2010 between TD Split Inc. and TDSCI, (ii) the administration agreement dated December 15, 2011 between 5Banc Split Inc. and TDSCI and (iii) the administration agreement dated December 15, 2013 between Big 8 Split Inc. and TDSCI (collectively, the ‘‘Administration Agreements’’ and each, an ‘‘Administration Agreement’’).
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Timbercreek Asset Management Ltd. has a value oriented investment philosophy, and specializes in providing conservatively managed, risk averse alternative asset class investment opportunities to institutions, trusts and endowment funds, discretionary investment advisors and qualified individuals. Timbercreek, a wholly owned subsidiary of Timbercreek Asset Management Inc., is an investment management company that employs a conservative and risk averse approach to real estate based investments. Timbercreek Asset Management Inc. is principally owned by 2314716 Ontario Limited, which in turn is principally owned, directly or indirectly, by R. Blair Tamblyn, Ugo Bizzarri and Tye Bousada. Its head office is located at 1000 Yonge Street, Suite 500, Toronto, Ontario, M4W 2K2.

The preferred shares affected, with links to their new websites, are:

• TD Split Inc : TDS.PR.C
  • Tracked by HIMIPref™ but relegated to Scraps index on volume concerns, last mentioned on PrefBlog when upgraded to Pfd-2 by DBRS
• 5Banc Split Inc : FBS.PR.C
  • Tracked by HIMIPref™ but relegated to Scraps index on volume concerns; last mentioned on PrefBlog when upgraded to Pfd-2 by DBRS
• Big 8 Split Inc : BIG.PR.D
  • Not tracked by HIMIPref™, market capitalization of preferreds about $18.5-million according to TMXMoney, last mentioned on PrefBlog when issued to refund BIG.PR.B and BIG.PR.C

DBRS has announced that it:

has today discontinued the Issuer Rating and Preferred Shares rating for Innergex Renewable Energy Inc. (the Company). DBRS notes that this action is unrelated to the credit profile of the Company.
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This is an unsolicited rating. This rating was not initiated at the request of the issuer or rated entity and did not include participation by the issuer or any related third party.

DBRS had downgraded the preferreds to Pfd-4(high) in March, 2013.

Innergex has two issues outstanding, INE.PR.A, a FixedReset 5.00%+279 that commenced trading in September 2010 and INE.PR.C, a Straight Perpetual, 5.75%, that commenced trading in December 2012.

The two issues continue to be rated P-3 by S&P.

Standard & Poor’s has announced:

• •We expect Talisman Energy Inc.’s operating performance, specifically its production and cost profile, to show limited improvement in the next 18-24 months, constraining any significant cash-flow growth.
• •At the same time, we expect Talisman to significantly outspend internally generated cash flow through 2015. Even if the company meets its US$2 billion asset sale target in the next 12-18 months, we do not think its credit profile is commensurate with that of its ‘BBB’ rated peers.
• •As a result, we are lowering our long-term corporate credit and senior unsecured debt ratings on Talisman to ‘BBB-‘ from ‘BBB’.
• •We are also lowering our global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the preferred stock to ‘P-3’ from ‘P-3 (High)’.
• •The stable outlook reflects our view that Talisman’s cash flow from its increasing liquids production combined with any asset sales will allow the company to maintain its funds from operations-to-debt at more than 30% through 2015.

Standard & Poor’s Ratings Services today said it lowered its long-term corporate credit rating on Calgary, Alta.-based Talisman Energy Inc., and its senior unsecured debt rating ‘BBB-‘ from ‘BBB’. At the same time, Standard & Poor’s lowered its global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the stock to ‘P-3’ from ‘P-3 (High)’. Standard & Poor’s also affirmed its ‘A-3’ short-term and commercial paper ratings on Talisman. The outlook is
stable.
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The stable outlook reflects Standard & Poor’s view that Talisman will continue to focus on improving its high-netback liquids production, focus on operational performance, and maintain balance-sheet strength at current levels. The outlook also reflects our expectation that the company’s FFO-to-net debt will remain in the 30%-40% range.

For us to revise the outlook to positive, we would expect Talisman’s business risk profile to improve substantially — for example, if it were to improve its operating costs in line with those of other higher rated E&P peers and production netbacks sustainably. We may also consider a positive action if we expect the company to improve its FFO-to-net adjusted debt to above 40% due to improving operating performance. Better credit metrics due to significant asset sales alone would not be sufficient for a positive rating action.

If Talisman’s capital expenditures accelerate without a clear path for production growth, such that credit measures rise above 3.0x for debt to EBITDA and fall below 30% for FFO to debt, we would consider a negative rating action. Also, material declines in production, realized commodity prices, or deterioration in operating efficiency could lead to a downgrade.

TLM.PR.A is a FixedReset 4.20%+277, announced 2011-12-5 and closing 2011-12-14 to market disdain. The underwriters needed to slash prices to clear their inventory. It was downgraded to Pfd-3 [Trend Negative] by DBRS last September.

The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Update, 2014-10-14: Talisman has also been downgraded by Moody’s, but they don’t rate the preferreds:

The Baa3 senior unsecured rating reflects Talisman’s sizable reserves, production and valuable other assets, tempered by the execution risks of an ongoing major shift in strategy and capital spending and dividends that outstrip internal cash flow generation. While production has declined due largely to asset sales, we expect modest production growth in 2015 from existing assets given the use of development capital in Southeast Asia, the Eagle Ford and Columbia. However, we expect an overall decline in reserves and production, cash flow, debt and negative free cash flow over the next 12 to 18 months as asset sales take place. When the strategic re-positioning is complete, we believe that Talisman will be positioned as a Baa3-rated company, with internally generated cash flow that can largely fund its negative free cash flow in the North Sea and an asset base that can provide growth opportunities and improvements in Talisman’s very high finding and development costs and very weak leveraged full-cycle ratio.

National Bank of Canada has announced:

that it has closed its domestic public offering of non-cumulative 5-year rate reset first preferred shares series 32 (the “Series 32 Preferred Shares”). National Bank issued 12 million Series 32 Preferred Shares at a price of $25.00 per share to raise gross proceeds of $300 million.

The offering was underwritten by a syndicate led by National Bank Financial Inc.

The Series 32 Preferred Shares will commence trading on the Toronto Stock Exchange today under the ticker symbol NA.PR.W.

The Series 32 Preferred Shares were issued under a prospectus supplement dated October 2, 2014 to National Bank’s short form base shelf prospectus dated October 5, 2012.

NA.PR.W will be tracked by HIMIPref™. It is still rated Pfd-2(low) by DBRS, as confirmed on July 7, so despite being considered junk by S&P, it will be added to the FixedResets subindex.

The issue traded 740,000 shares today (consolidated exchanges) in a range of 24.76-97 before closing at 24.78-82, 1×12. Vital statistics are:

Update, 2014-10-11: NA.PR.W is a FixedReset, 3.90%+225, announced September 30.

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 42 issue in the amount of C$300,000,000. The offering was underwritten by a syndicate led by TD Securities Inc., RBC Capital Markets, CIBC and Scotiabank.

Brookfield issued 12,000,000 Series 42 Shares at a price of C$25.00 per share, for total gross proceeds of C$300,000,000. Holders of the Series 42 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.50% annually for the initial period ending June 30, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.84%. The Series 42 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.G.

BAM.PF.G is a FixedReset, 4.50%+284, announced October 1. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,056,420 shares today (consolidated exchanges) in a range of 24.95-05 before closing at what TMX Money claims to be a locked market at 25.00, 6×10, with the bid on the TSX and the offer on Pure. Vital statistics are:

The Implied Volatility calculation for the BAM FixedResets is interesting, partly because of the very high level of Implied Volatility, but mainly because it highlights a huge gap that has opened up between BAM.PR.R (FixedReset 5.40%+230, commenced trading January, 2010) and BAM.PR.T (FixedReset 4.50%+231, commenced trading October, 2010). These are now bid at 25.4 and 24.55, respectively, despite having virtually identical Issue Reset Spreads. The next Exchange Dates for these issues differ by only nine months, which is really to short a time to introduce complicated arguments about the expected path of interest rates which would be wrong anyway. There should be some pricing difference due to the difference in the dividends currently paid, but the BAM.PR.R has only 7 payments to go until reset – the total dividend advantage is just under forty cents; one might reasonably expect the price difference to be a little under forty cents (given discounting of the dividend stream and the effect of price on post-reset expected dividend yield). But it ain’t.