Category: Issue Comments

Canadian Life Companies Split Corp. has released its Annual Report to November 30, 2013.

I won’t ding them for underperforming their chosen index over the past five years because banks have strongly outperformed insurers through the period – but I will ding them for not using an index comprised of insurers only!

Figures of interest are:

MER: 2.31% of the whole unit value, excluding one time initial offering expenses. However, “Warrant Subscription Fees” … according to the Management Information Circular (SEDAR, 2012-3-21):

The Company will pay a subscription fee of $0.25 per Unit in respect of each subscription procured by a CDS Participant on behalf of their clients.

which is nice work if you can get it.

Average Net Assets: We need this to calculate portfolio yield; unfortunately the number of units changed dramatically over the year, which makes it more approximate. The Total Assets of the fund at year end was $196.0-million, compared to $112.2-million a year prior, so call it an average of $154.1-million. Total Preferred Share Distribution was $6.799-million, at $0.625/share implies an average of 10.88-million units, at an average NAV of ((14.34 + 12.48) / 2 = 13.41, so call it $145.9-million. Which is actually reasonably close, so let’s call the Average Net Assets $150-million.

Underlying Portfolio Yield: Dividends received of $4.51-million divided by average net assets of $150-million is 3.01%.

Income Coverage: Dividends of 4.51-million less expenses before Warrant Subscription Fees (because they aren’t recurring) of 1.61-million is 2.90-million, to cover preferred dividends of 6.80-million is 43%

Life & Banc Split Corp. has released its Semi-Annual Report to June 30, 2013.

Figures of interest are:

MER: 1.03% of the whole unit value, “excluding the Preferred share distributions and issuance costs”.

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $225.8-million, compared to $234.8-million on June 30, so call it an average of $230-million.

Underlying Portfolio Yield: Income received of $4.736-million divided by average net assets of $230-million, multiplied by two because it’s semiannual is 4.12%.

Income Coverage: Net investment income of $3.576-million divided by preferred share dividends of $3.582-million is 100%.

Morgan Meighen & Associates has released the 2013 Annual Report for Canadian General Investments, Limited.

The closed-end fund has two series of preferred shares outstanding, CGI.PR.C and CGI.PR.D, which I consider to be Split Shares as they are backed by an investment portfolio rather than by an operating company.

MER: The Management Expense Ratio, excluding leverage costs (dividends on preference shares and interest and financing charges) is 1.66%

Average Net Assets: We need this to calculate portfolio yield and MER. The capital transactions (refunding of preferred shares) were a wash, so we’ll just take the average of the beginning and end of year assets (including preferred shares): [(454,782+150,000) + (533,397 + 148,210)]/2 = $643.2-million

Underlying Portfolio Yield: Total Income of $14.8-million divided by average net assets of $643.2-million is 2.3%.

Income Coverage: Net income of $6.723-million (after expenses, before preferred dividends) preferred dividends of $6.019-million is 112%.

Asset Coverage: Because CGI doesn’t have a “unit value”, in the sense that one unit is one capital unit and one preferred share, it is convenient to work this out every six months and make any necessary adjustments from this figure. At December 31, 2013, the fund has net assets (for the capital units) of 533,397-million and preferred shares of 148,210-million, so asset coverage is almost exactly 4.6:1

The Bank of Nova Scotia has announced:

that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 26 (“Series 26 Shares”) and Non-cumulative Preferred Shares Series 28 (“Series 28 Shares”) of Scotiabank on April 26, 2014 at a price equal to $25.00 per share (the “Redemption Price”). As April 26, 2014 is a Saturday, the Redemption Price will be paid on Monday, April 28, 2014. Formal notice will be issued to shareholders in accordance with the share conditions.

The redemptions have been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank.

On March 4, 2014, the Board of Directors of Scotiabank declared quarterly dividends of $0.390625 per Series 26 Share and $0.390625 per Series 28 Share. These will be the final dividends on the Series 26 Shares and Series 28 Shares, respectively, and will be paid in the usual manner on April 28, 2014 to shareholders of record at the close of business on April 1, 2014, as previously announced. After April 28, 2014, the Series 26 Shares and the Series 28 Shares will cease to be entitled to dividends.

Neither of these redemption calls should come as a surprise. Series 26 (BNS.PR.T) has an Issue Reset Spread of 414bp; Series 28 (BNS.PR.X) resets at 446bp.

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 38 (“Series 38 Preferred Shares”) issue in the amount of C$200,000,000. The offering was underwritten by a syndicate led by TD Securities Inc., CIBC, RBC Capital Markets and Scotiabank.

Brookfield issued 8,000,000 Series 38 Preferred Shares at a price of C$25.00 per share, for total gross proceeds of C$200,000,000. Holders of the Series 38 Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.40% annually for the initial period ending March 31, 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 2.55%. The Series 38 Preferred Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.E.

BAM.PF.E is a FixedReset, 4.40%+255, announced March 6. It will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 78,180 shares today in a range of 24.60-84 before closing at 24.60-64, 37×60. Vital statistics are:

Enbridge Inc. has announced:

that it has closed its previously announced public offering of Cumulative Redeemable Preference Shares, Series 9 (the “Series 9 Preferred Shares”) by a syndicate of underwriters led by TD Securities Inc., CIBC, RBC Capital Markets and Scotiabank. Enbridge issued 11 million Series 9 Preferred Shares for gross proceeds of $275 million. The Series 9 Preferred Shares will begin trading on the TSX today under the symbol ENB.PF.A. Proceeds will be used to partially fund capital projects, reduce existing indebtedness and for other general corporate purposes of the Corporation and its affiliates.

ENB.PF.A is a FixedReset, 4.40%+266, announced March 4. The issue will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 496,550 shares today in a range of 24.85-97 before closing at 24.95-96, 23×50. Vital statistics are:

Update, 2014-3-26: It is interesting to note that Enbridge has issued 50-year paper at 4.56%.

DBRS has announced that it:

has today upgraded the rating of the Class C Preferred Shares, Series 1 (the Class C Preferred Shares), issued by AllBanc Split Corp. (the Company) to Pfd-2 from Pfd-2 (low). On March 8, 2013, the Company issued 1,177,652 Class C Preferred Shares and 560,000 Class A Capital Shares (the Capital Shares) as part of a share capital reorganization, where all previously outstanding Class B Preferred Shares, Series 1 were fully redeemed. The final redemption date for the both classes of shares is March 8, 2018.

Net proceeds of the offering were used to purchase additional common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (the Portfolio). Dividends received on the Portfolio are used to pay a fixed cumulative quarterly distribution to holders of the Class C Preferred Shares, yielding 4.00% annually on the initial issue price of $31.64. Increases in the dividend distribution policies of the underlying banks in the past year have boosted the dividend coverage ratio to 2.6 times. Holders of the Capital Shares are expected to receive all excess dividend income after the Class C Preferred Share distributions and other expenses of the Company have been paid.

The net asset value of the Company initially fell shortly after issuance, but has been generally increasing since the end of June 2013. Downside protection rose from 51.5% on June 20, 2013, to 60.2% on November 21, 2013, and has been fluctuating around 59% since then. As a result, the rating of the Class C Preferred Shares has been upgraded to Pfd-2 from Pfd-2 (low).

ABK.PR.C was last mentioned at the end of February when it announced a partial call for redemption. It is tracked by HIMIPref™ but relegated to the Scraps index on volume concerns.

Brookfield Asset Management Inc. has announced (as part of a new issue announcement):

its intention to redeem all of its outstanding Class A Preferred Shares, Series 12 (TSX:BAM.PR.J) for cash on April 6, 2014. The redemption price for each Preferred Share, Series 12 will be C$26.00 plus accrued and unpaid dividends thereon (for greater certainty, excluding declared dividends with a record date prior to the redemption date).

You gotta love the redemption date. It’s a Sunday.

One should always be wary of investment managers cherry-picking their past recommendations, but I will admit that I have a certain fondness for BAM.PR.J which was a long-time favourite recommendation in PrefLetter in the ‘Operating Retractible’ category. BAM issues weakened immediately following the Canadian ABCP collapse in August, 2007, and stayed very weak for a long time. For instance, I recommended it in December, 2008, near the bottom of the market at 14.00-25. I hope everybody loaded up!

It should also be noted that this issue is being redeemed at a premium ($26 vs. issue price of $25) and the premium is taxable as a Deemed Dividend, rather than as a capital gain. If we may assume that the issue will trade marginally below the total Future Value if held to redemption until it is actually redeemed, investors will want to think carefully about the choice between selling the issue in the market (incurring commission and getting slightly less than the full redemption amount, but being taxed on the premium as a capital gain) or holding to redemption (and being taxed on the premium as a dividend).

Algonquin Power & Utilities Corp. has announced:

the closing of the previously announced offering of Cumulative Rate Reset Preferred Shares, Series D (the “Series D Shares”). APUC issued a total of 4,000,000 Series D Shares at $25.00 per share for aggregate gross proceeds of $100 million.

The holders of the Series D Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.25 per share, payable quarterly, as and when declared by the board of directors of APUC. The Series D Shares will yield 5.00% per cent annually, for the initial period ending on March 31, 2019.

The offering was made on a bought deal basis through a syndicate of underwriters led by CIBC and TD Securities Inc.

The Series D Shares will commence trading on the Toronto Stock Exchange today, March 5, 2014, under the symbol AQN.PR.D.

The net proceeds of the offering will be used to partially finance certain of APUC’s previously disclosed growth opportunities, reduce amounts outstanding on APUC’s credit facilities and for general corporate purposes.

AQN.PR.D is a FixedReset, 5.00%+328, announced February 24. It will be tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The issue traded 86,910 shares today in a range of 24.25-64 before closing at 24.26-38, 10×3. Vital statistics are:

The Canadian Imperial Bank of Commerce has announced:

its intention to redeem all of its issued and outstanding Non-cumulative Rate Reset Class A Preferred Shares Series 35 for cash. The redemptions will occur on April 30, 2014. The redemption price is $25.00 per Series 35 share.

The $0.406250 per share quarterly dividend announced on February 27, 2014 will be the final dividend on the Series 35 shares and will be paid on April 28, 2014 to shareholders of record on March 28, 2014.

Holders of the Series 35 shares should contact the financial institution, broker or other intermediary through which they hold the shares to confirm how they will receive their redemption proceeds.

Series 35 trades as CM.PR.L, which settled on February 4, 2009 after having been announced January 26, 2009 as a FixedReset, 6.50%+447.

With an Issue Reset Spread of 447bp, the call for redemption comes as no surprise.