Category: Issue Comments

The Canadian Imperial Bank of Commerce has announced:

that it has completed the offering of 16 million non-cumulative Rate Reset Class A Preferred Shares Series 39 (the “Series 39 Shares”) priced at $25.00 per share to raise gross proceeds of $400 million.

The offering was made through a syndicate of underwriters led by CIBC World Markets Inc. The Series 39 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.O.

The Series 39 Shares were issued under a prospectus supplement dated June 2, 2014, to CIBC’s short form base shelf prospectus dated March 11, 2014.

CM.PR.O is a FixedReset, 3.90%+232, announced June 2. The issue will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue has had its DBRS rating confirmed at Pfd-2 [Stable].

CM.PR.O traded 1,912,169 shares today (consolidated exchanges) in a range of 24.95-02 before closing at 25.01-02, 128×258. Vital statistics are:

Emera Incorporated has announced:

that it has completed its public offering of eight million Cumulative Rate Reset First Preferred Shares, Series F for aggregate gross proceeds of $200 million. The offering was first announced on May 29, 2014 when Emera entered into an agreement with a syndicate of underwriters in Canada led by Scotiabank. The net proceeds of the offering will be used for general corporate purposes, including repayment of indebtedness under Emera’s credit facilities.

EMA.PR.F is a FixedReset, 4.25%+263, announced May 29. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 375,950 shares today in a tight range of 24.85-90 before closing at 24.85-88, 4×9. Vital statistics are:

Bank of Montreal has announced:

it has closed its domestic public offering of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 29 (the “Preferred Shares Series 29”). The offering was underwritten on a bought deal basis by a syndicate led by BMO Capital Markets. Bank of Montreal issued 16 million Preferred Shares Series 29 at a price of $25 per share to raise gross proceeds of $400 million.

The Preferred Shares Series 29 were issued under a prospectus supplement dated May 30, 2014, to the Bank’s short form base shelf prospectus dated March 13, 2014. Such shares will commence trading on the Toronto Stock Exchange today under the ticker symbol BMO.PR.T.

BMO.PR.T is a FixedReset, 3.90%+224, NVCC-compliant issue announced May 28. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,434,969 (on all exchanges combined) shares today in a range of 24.90-99 before closing at 24.97-00, 44×150. Vital statistics are:

As shown in the follow chart displaying the result of the calculation, Implied Volatility for the BMO series of FixedResets remains very high, above its maximum reasonable value of 40%, implying that the market continues to ascribe a high degree of directionality (i.e., towards $25) for these issues. However, it also appears that the NVCC-compliant issues are trading at a premium yield to the non-compliant issues, so at least there’s some degree of reasonability to relative market prices!

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Mosaic Capital Corporation has announced:

that it has filed and received a receipt for a preliminary short form prospectus in connection with a C$25,000,000 marketed public offering (the Offering”) of units (“Units”) of Mosaic. The Offering will be conducted on a reasonable best efforts basis through a syndicate of agents co-led by Clarus Securities Inc. and Canaccord Genuity Corp. and including Raymond James Ltd., National Bank Financial Inc. and Mackie Research Capital Corporation (the “Agents”). Mosaic has agreed to grant to the Agents an over-allotment option to purchase that number of additional Units equal to 15% of the Units sold pursuant to the Offering at the Offering Price for a period ending 30 days following the closing of the Offering.

Each Unit is comprised of one preferred security in the capital of Mosaic and one quarter (0.25) of one common share purchase warrant (a “Warrant”). Each full Warrant will entitle the holder to purchase one common share (a “Common Share”) in the capital of Mosaic for an exercise price of C$15.50 for 18 months following completion of the Offering. In the event that the 20-day volume weighted average price of the Common Shares listed on the TSX Venture Exchange is equal to or above C$18.00, the expiry date of the Warrants shall be accelerated to a date that is 30 days after notice is given by Mosaic.

The Units will be offered in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland by short form prospectus.

The net proceeds from the Offering will be used to fund Mosaic’s future acquisitions that fit Mosaic’s acquisition criteria and for general corporate purposes.

The Offering is expected to close on or about June 18th, 2014, subject to customary conditions and all regulatory approvals including the approval of the TSX Venture Exchange and of applicable securities regulatory authorities.

According to the Preliminary Prospectus available on SEDAR dated 2014-6-3:

The terms and conditions of the Preferred Securities to be issued pursuant to the Offering will be governed by the indenture dated April 29, 2011 (the “Preferred Securities Indenture”) and will bear the same terms as the issued and outstanding Preferred Securities of Mosaic which are traded on the TSX Venture Exchange (the “Exchange”) under the symbol “M.PR.A”. On June 2, 2014, the last trading day prior to the date of this short form prospectus, the closing price of the Preferred Securities on the Exchange was $11.35. See “Trading Price and Volume”.

The Preferred Securities are undated, perpetual securities having no fixed maturity date or redemption date. Each Preferred Security carries an entitlement to a monthly distribution in the amount of $0.0833 ($1.00 per annum) which is payable monthly in arrears on or about the 15th day of the succeeding month. The first monthly distribution on the Preferred Securities to be issued in connection with the Offering will be paid on or about the 15th day of the month following their issuance. Monthly distributions are cumulative but may be indefinitely deferred by Mosaic. For Canadian income tax purposes, the monthly distribution in respect of the Preferred Securities is considered interest income in the hands of the recipient. The Preferred Securities are unsecured and subordinated obligations of Mosaic ranking pari passu among themselves but subordinated and postponed to all of Mosaic’s senior indebtedness. The Preferred Securities do not carry any voting rights and may be redeemed or purchased for cancellation at any time by Mosaic. See “Details of the Offering – Preferred Securities” and “Certain Canadian Federal Income Tax Considerations” for particulars pertaining to the Preferred Securities.
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Principal Amount
Each Preferred Security represents $10 in principal amount.
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The Preferred Securities are undated, perpetual securities having no fixed maturity date or redemption date. The Preferred Securities are not redeemable by the holder at any time or in any circumstances. Notwithstanding any default of Mosaic under the terms of the Preferred Securities Indenture (including any default in the payment of interest), the principal amount under any or all of the Preferred Securities will only become due and payable upon a liquidation, dissolution or bankruptcy of Mosaic.
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The Preferred Securities are unsecured and subordinated obligations of Mosaic ranking pari passu among themselves but subordinated and postponed to all indebtedness, liabilities and obligations of Mosaic which, by the terms of the instrument creating or evidencing such indebtedness, liabilities or obligations, is not expressed to rank in right of payment in subordination to or pari passu with the indebtedness evidenced by the Preferred Securities or any of them. The obligations under the Preferred Securities rank senior to the Common Shares.
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The Preferred Securities are redeemable by Mosaic at any time at Mosaic’s option, in whole or in part (in which case they will be redeemed on a pro-rata basis), upon payment in respect of each Preferred Security of the “Redemption Price” which means, in respect of each Preferred Security, the greater of: (i) the amount of $10 dollars, being the principal amount thereof; and (ii) the market price (as defined in the Preferred Securities Indenture) of such Preferred Security; and, in each case, shall also include all accrued and unpaid interest on such Preferred Security (including any unpaid deferred interest, if any) up to but excluding the date of redemption. Mosaic will satisfy the Redemption Price by way of cash payment to the holders of Preferred Securities being redeemed.
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Each Preferred Security bears simple interest at a rate of 10% per annum from the date of issuance upon the $10 principal amount thereof which, therefore, gives rise to an entitlement to a monthly distribution in the amount of $0.0833 ($1.00 per annum) which is payable monthly in arrears on or about the 15th day of the succeeding month. Interest payable on the Preferred Securities is cumulative and non-compounding. Each period from and including the first day of a month to and including the last day of the month is herein referred to as an “Interest Period”. The current Interest Period is one month. Subject to the terms of the Preferred Securities Indenture, Mosaic may change the Interest Period in its discretion provided that it shall be no greater than six months in duration. Holders of Preferred Securities of record on June 30, 2014 will be entitled to receive distributions for the June Interest Period.

Thanks to Assiduous Reader AP for alerting me to this. The TSX Venture Exchange is something I don’t pay a lot of attention to, but since I had the information in my lap, I thought I’d pass it on.

M.PR.A is not tracked by HIMIPref™ as it does not have a credit rating. This is not because I can’t come to my own views regarding credit quality, or because I worship the Credit Rating Agencies, but because I feel the threat of an imminent downgrade from a major agency does an excellent job of focussing the minds of the directors and management that they have a problem that really should be addressed. A ‘Review-Negative’ by Hymas Investment Management does not have quite the same effect.

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 40 issue in the amount of C$300,000,000. The offering was underwritten by a syndicate led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc.

Brookfield issued 12,000,000 Series 40 Shares at a price of C$25.00 per share, for total gross proceeds of C$300,000,000. Holders of the Series 40 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.50% 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 2.86%. The Series 40 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.F.

BAM.PF.F is a FixedReset, 4.50%+286, announced May 27.

BAM.PF.F traded 760,707 (consolidated exchanges) shares today in a range of 24.80-97 before closing at 24.94-95, 194×19. It will be tracked by HIMIPref™ and has been added to the FixedResets subindex.

Vital statistics are:

The issue is trading comparatively with its siblings, according to Implied Volatility Theory:

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The highest spread issue is BAM.PR.P, a FixedReset 7.00%+445, which has been called for redemption. It is of interest that the implied volatility is greater than 40%, which implies that Black-Scholes has broken down, presumably due to a marketplace assumption of directionality in prices.

Canadian Life Companies Split Corp has announced:

all LFE.WT.B 2014 warrants were exercised for total gross proceeds of $97.9 million bringing the Company’s net assets to approximately $229.1 million. For every warrant exercised, holders received one Preferred Share and one Class A Share of the Company. The warrants expired on June 2, 2014. The proceeds from the warrant exercise are being used by the Company to invest in a portfolio of four publicly traded Canadian life insurance companies as follows: Great-West Lifeco Inc., Industrial Alliance Insurance & Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

As discussed at the time of the 2012 reorganization, those who surrendered one LFE.WT.B and $12.60 received one LFE and one LFE.PR.B. Exercise was firmly in the money at the time of warrant expiry 2014-6-2.

Given the May 30 NAV of about $13.74 after dilution from the warrants and payment of exercise fees to the brokers, The Net Assets of $229.1-million imply there are now 16.67-million units outstanding, a healthy increase from the 12.49-million outstanding 2013-11-30 and 13.14-million outstanding 2014-1-31.

TD.PF.A, a FixedReset, 3.90%+224, NVCC-compliant issue announced May 26 settled today. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex. It is rated Pfd-2 [Stable] by DBRS.

The issue traded 1,167,517 shares today in a range of 24.85-95 before closing at 24.94-95, 125×476. Vital statistics are:

TD.PF.A appears to be cheap according to Implied Volatility Theory relative to its lower-reset cousins, TD.PR.S and TD.PR.Y, but it must be remembered that the two comparators are not NVCC compliant.

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Assiduous Readers with good memories will remember the Mystery of the POW.PR.F Sinking Fund; the company is “make all reasonable efforts to purchase for cancellation on the open market 20,000 shares per quarter, such number being cumulative only in the same calendar year,”, but the quota was not fulfilled in 2008 or in any of the past three calendar years.

So I wrote a letter:

In the prospectus and as summarized on your website, POW.PR.F has a sinking fund provision by which Power Corporation is required to make its best efforts to purchase 80,000 shares per annum of this issue.

I note that, as disclosed in your Annual Reports, purchases have actually been as follows:
2013 12,000 shares
2012 40,000 shares
2011 77,300 shares
2010 80,000 shares
2009 80,000 shares
2008 60,000 shares

I have two questions:
• Why has the company not purchased the full amount of 80,000 shares in each of the past three years?
• Is the purchase of shares subject to the Normal Course Issuer Bid provisions of the Toronto Stock Exchange?

I have received a reply (emphasis from original):

In response to your first question, the Corporation is not subject to a best efforts obligation to purchase 80,000 per annum of the First Preferred Shares, 1986 Series. The Corporation has fulfilled its obligation to make all reasonable efforts to purchase the specified number of shares at a price not exceeding $50,00, if and to the extent that such shares were available for purchase.

In response to your second query, the purchase of these shares, while being completed through Toronto Stock Exchange facilities, is not subject to Normal Course Issuer Bid provisions.

Well, mea culpa on the “reasonable” vs. “best” efforts question, but I’m still confused. I have examined the HIMIPref™ database and created the following histogram of the offer prices:

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So: the offer price never exceeded $50.00, not even once, on any trading day in the three calendar years of interest (on six occasions, the offer was exactly $50.00). So it’s time to write another letter and try to nail down the meaning of the word “reasonable”.

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BB. Royal Bank of Canada issued 20 million Preferred Shares Series BB at a price of $25 per share to raise gross proceeds of $500 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BB will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.H.

The Preferred Shares Series BB were issued under a prospectus supplement dated May 27, 2014 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.H is a FixedReset, 3.90%+226, NVCC-Compliant issue announced May 23. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex. It is regrettable that the Toronto Exchange has recycled the ticker of the previous RY.PR.H, redeemed less than a year ago.

The issue traded a healthy 1,328,901 shares today in an unusually wide range of 24.64-99 before closing at 24.86-88, 37×72. The issue was affected by a late-afternoon collapse in the market; it was trading firmly in the 90s prior to 3pm, as reflected in the Volume Weighted Average Price: 24.944985. Vital Statistics are:

The two NVCC-compliant issues are priced comparatively with their non-compliant cousins according to Implied Volatility Theory:

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