Category: Issue Comments

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.

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.