Category: Issue Comments

DBRS has announced that it:

confirmed the Issuer Rating and Senior Unsecured Debt rating of Brookfield Property Partners L.P. (BPP) at BBB (low). Morningstar DBRS also confirmed the ratings on Brookfield Property Finance ULC’s Senior Unsecured Notes and Brookfield Office Properties Inc.’s Senior Unsecured Notes at BBB (low), and Brookfield Office Properties Inc.’s Cumulative Redeemable Preferred Shares, Class AAA at Pfd-3 (low). All trends are Stable. The ratings are based on the credit risk profile of the consolidated entity, including BPP and its subsidiaries (collectively, BPY or the Partnership).

KEY CREDIT RATING CONSIDERATIONS
The Stable trends consider the demonstrated ability of BPY to continue to access alternative sources of capital, including by asset monetization and through support from its parent, Brookfield Corporation (BN; rated “A,” Stable by Morningstar DBRS) by various means, including the downstreaming of capital. Recent examples of parental support include the repayment at maturity of the 4.30% Series 3 Senior Unsecured Notes and the extension of an intercompany revolving credit facility between BN and BPY. In Morningstar DBRS’ view, these examples, among others, continue to demonstrate the willingness and ability of BN to support BPY for the foreseeable future. The Stable trends also consider BPY’s modestly positive operating performance, affirming the stability of cash flow derived from its assets, particularly in its core Office segment, as well as BPY’s high leverage and variable-rate debt exposure and the resultant strain of high interest rates on BPY’s cash flows.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a negative rating action if Morningstar DBRS were to change its views on the level and strength of implicit support provided by BN, or should BPY’s total debt-to-EBITDA not improve as expected such that it remains above 16.0 times (x), or if BPY’s EBITDA interest coverage were to remain below 1.0x on a sustained basis, all else equal. On the other hand, Morningstar DBRS would consider a positive rating action should Morningstar DBRS’ outlook for BPY’s total debt-to-EBITDA improve to 13.0x or better.

FINANCIAL OUTLOOK
Morningstar DBRS has revised its financial risk assessment of BPY modestly lower, based on revised expectations for BPY’s primary credit metrics. In the near to medium term, Morningstar DBRS expects that BPY will continue to demonstrate an improving trend in its total debt-to-EBITDA metric toward the 15x-range (from 16.9x for the last 12 months ended December 31, 2023 (LTM)), and that BPY’s EBITDA interest coverage metric will stabilize near current levels (0.93x for the LTM) and begin improving toward the low 1.0x-range.

CREDIT RATING RATIONALE
The ratings continue to be supported by (1) Morningstar DBRS’ view of implicit support from BN, as detailed above; (2) BPY’s market position as a pre-eminent global real estate company; (3) high-quality assets, particularly BPY’s core Office and Retail segments, with long-term leases to large, recognizable investment-grade-rated tenants; and (4) superior diversification, in particular by property, tenant, and geography. The ratings continue to be constrained by BPY’s weak financial risk assessment as reflected by both its highly leveraged balance sheet; a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to BPY’s Office segment; a higher-risk opportunistic LP Investment segment composed primarily of office, retail, industrial, and multifamily assets, as well as alternatives; and Morningstar DBRS’ assessment of the unmitigated structural subordination of the Senior Unsecured Debt at the BPP level relative to a material amount of debt at its operating subsidiaries.

This follows the downgrade to P-4 by S&P in December, 2023, and the confirmation at Pfd-3(low) by DBRS in May, 2023.

Affected issues are: BPO.PR.A, BPO.PR.C, BPO.PR.E, BPO.PR.G, BPO.PR.I, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T, BPO.PR.W, BPO.PR.X and BPO.PR.Y.

Capital Power Corporation has announced:

that it intends to redeem all of its 6,000,000 issued and outstanding 5.75% Cumulative Minimum Rate Reset Preference Shares, Series 11 (the “Series 11 Shares”) (TSX: CPX.PR.K) on June 30, 2024 (the “Redemption Date”) at a price of $25.00 per share (the “Redemption Price”) for an aggregate total of $150 million, less any tax required to be deducted and withheld by the Company. As June 30, 2024 is not a business day payment of the Redemption Price will occur on July 2, 2024.

As previously announced, the Company’s Board of Directors has declared a quarterly dividend of $0.359375 per Series 11 Share payable on June 28, 2024 (the “Q2 2024 Quarterly Dividend”) to shareholders of record as of June 17, 2024. This will be the final quarterly dividend on the Series 11 Shares.

The Company has provided notice today of the Redemption Price and the Redemption Date to the sole registered holder of the Series 11 Shares in accordance with their terms. Non-registered holders of Series 11 Shares should contact their broker or other intermediary for information regarding the redemption process for the Series 11 Shares in which they hold a beneficial interest.

This follows yesterday’s announcement of the possibility and indicates that the company was able to raise funds at an attractive price on the hybrid bond market – which may be taken as an indication that not only is the preferred share market cheap relative to other markets, but that even junk issuers are able to access financing at a better price.

CPX.PR.K was issued as a FixedReset 5.75%+415M575 issue that commenced trading 2019-5-16 after being announced 2019-5-7. The potential for redemption was announced 2024-5-14. The issue has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader IrateAR for bringing this to my attention!

Update, 2024-6-5: Interesting addendum to the refunding:

DBRS Limited (Morningstar DBRS) assigned a rating of BB with a Stable trend to Capital Power Corporation’s (CPC or the Company) $450 million 8.125% Fixed-to-Fixed Rate Subordinated Notes, Series 2 due June 5, 2054 (Subordinated Notes Series 2). Concurrently, Morningstar DBRS placed CPC’s existing 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 1 due September 9, 2082 (Subordinated Notes Series 1) Under Review with Developing Implications.

The Subordinated Notes Series 1 and Subordinated Notes Series 2 rank equally in right of payment until the occurrence of certain bankruptcy and related events at which time the Subordinated Notes Series 1 would automatically convert into preferred shares. The Subordinated Notes Series 1 would then rank below the Subordinated Notes Series 2. According to Morningstar DBRS’ Hierarchy Principle, as outlined in the Morningstar DBRS “Credit Ratings Global Policy,” the Subordinated Notes Series 1 would be subordinate to the Subordinated Notes Series 2 in the event of insolvency of the Company. Due to our Hierarchy Principle the Subordinated Notes Series 1 should be rated one notch below the Subordinated Notes Series 2, implying a downgrade to BB (low) from BB.

However, CPC has indicated that it is evaluating possible options, including a potential solicitation process to amend the terms so the Subordinated Notes Series 1 rank pari passu in the event of insolvency with the Subordinated Notes Series 2. Based on the Company’s intent to seek noteholder approval to make the subordinated notes pari passu, Morningstar DBRS has placed the Subordinated Notes Series 1 Under Review with Developing Implications. Following a successful process that would result in the Subordinated Notes Series 1 being ranked pari passu in the event of insolvency with the Subordinated Notes Series 2, Morningstar DBRS will remove the Under Review with Developing Implications designation from the Subordinated Notes Series 1 and confirm their rating at BB with a Stable trend. Conversely, a lack of progress to make the notes pari passu over the next few months could result in Morningstar DBRS downgrading the Subordinated Notes Series 1 to BB (low). Morningstar DBRS aims to resolve any Under Review action within 90 days.

Element Fleet Management has announced (in their 24Q1 earnings release, I don’t see a redemption press release):

Capital structure

Redemption of all outstanding 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C

To further optimize the Company’s balance sheet and mature its capital structure, the Company announced today its intention to redeem – in accordance with the terms of the 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C (the “Series C Shares”) as set out in the Company’s articles – all of its 5,126,400 issued and outstanding Series C Shares on June 30, 2024 (the “Share Redemption Date”) for a redemption price equal to CAD$25.00 per Series C Share for an aggregate total amount of approximately US$94.6 million (CAD$128 million), together with all accrued and unpaid dividends up to but excluding the Share Redemption Date (the “Redemption Price”), less any tax required to be deducted and withheld by the Company.

The Company has provided notice today of the Redemption Price and the Share Redemption Date to the sole registered holder of the Series C Shares in accordance with the terms of the Series C Shares as set out in the Company’s articles. Non-registered holders of Series C Shares should contact their broker or other intermediary for information regarding the redemption process for the Series C Shares in which they hold a beneficial interest. The Company’s transfer agent for the Series C Shares is Computershare Investor Services Inc. (“Computershare Investor Services”). Questions regarding the redemption process may be directed to Computershare Investor Services at 1-800-564-6253 or by email to corporateactions@computershare.com.

Following their redemption on June 30, 2024, the Series C Shares will be de-listed from and no longer trade on the Toronto Stock Exchange (“TSX”).

The Company also currently anticipates using a portion of its free cash flow to redeem all its outstanding 5.903% Cumulative 5-Year Rate Reset Preferred Shares Series E (due September 2024) for an approximate aggregate total amount of US$98.2 million (CAD$133 million).

This announcement validates their earlier anticipation of a redemption.

EFN.PR.C was announced 2014-2-26 as a FixedReset, 6.50%+481, but was not added to HIMIPref™ at that time as the company did not have a credit rating. The company received an initial rating from DBRS on 2015-9-24 and HIMIPref™ commenced tracking its four issues then outstanding shortly thereafter. The extension of the issue was announced 2019-5-22 and it was later announced that EFN.PR.C would reset at 6.210% effective June 30, 2019. I recommended against conversion and there was no conversion. The issue has been tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader IrateAR for bringing this to my attention!

Capital Power Corporation has announced:

that it is considering an offering of hybrid subordinated debt securities (the “Notes”) in Canada under its short form base shelf prospectus dated June 10, 2022.

If a successful offering is priced and completed, the Company intends to allocate an amount equal to the net proceeds from the sale of the Notes to repay certain amounts drawn on the Company’s credit facilities (which include amounts drawn for the acquisition of a 50% interest in New Harquahala Generating Company, LLC, and a 100% interest in CXA La Paloma, LLC, and related expenses, development purposes and in respect of ongoing operations), to potentially redeem all of the Company’s outstanding Cumulative Minimum Rate Reset Preferred Shares, Series 11 (TSX: CPX.PR.K) (the “Preferred Shares”), and for general corporate purposes.

There is no certainty that Capital Power will ultimately complete the offering being considered, or as to the timing or terms on which such an offering might be completed. This press release does not constitute a notice of redemption of the Preferred Shares and there is no certainty that the Company will redeem the Preferred Shares.

A preliminary prospectus supplement to the Company’s short form base shelf prospectus dated June 10, 2022 in respect of the potential offering of Notes has been filed with the securities regulatory authorities in each of the provinces and territories of Canada. Any potential offering, if and when launched, would only be made pursuant to a final prospectus supplement to the short form base shelf prospectus of the Company dated June 10, 2022. The short form base shelf prospectus and preliminary prospectus supplement contain important detailed information about the Notes. Copies of these documents are available electronically on the System for Electronic Document Analysis and Retrieval + at www.sedarplus.ca. Investors should read the short form base shelf prospectus and preliminary prospectus supplement, or any final prospectus supplement, before making an investment decision.

CPX.PR.K was issued as a FixedReset 5.75%+415M575 issue that commenced trading 2019-5-16 after being announced 2019-5-7. It has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Whether or not a redemption comes to pass, I suggest that this is good news for the Canadian preferred share market. The fact that the company can even consider redeeming the preferred issue using proceeds of an issue on the hybrid bond market is at least a small sign that refinancing there is not restricted to investment-grade banks – even the junkier issuers can participate! Of course, the massive 415bp spread over GOC-5 – and the minimum reset guarantee – make this an easier decision than most, but at least it’s another data point to reinforce the indication provided by ALA in November, 2023 that such money was available.

Thanks to Assiduous Reader IrateAR for bringing this to my attention!

Geez, it’s been a long time since I reported the first day of trading for a new issue!

Further to the information in the post Infrastructure Dividend Split Corp., Maybe?, Middlefield has announced (but not yet on their website):

Infrastructure Dividend Split Corp. (the “Company”), is pleased to announce that the Company has completed its initial public offering of 5,264,370 preferred shares for total gross proceeds of $52,643,700. The class A and preferred shares are listed on the Toronto Stock Exchange under the symbols IS and IS.PR.A, respectively.

The Company invests in a diversified, actively managed portfolio of dividend-paying securities of issuers operating in the infrastructure sector. The investment strategy of the Company is to initially invest in a portfolio of approximately 15 dividend-paying issuers operating in the infrastructure sector that Middlefield Capital Corporation (the “Advisor”), the investment advisor of the Company, believes offers investors the potential for both income through attractive dividend yields and capital appreciation and that it believes are undervalued and well-positioned to benefit from the Advisor’s outlook for a gradual reduction in interest rates, the continuation of global decarbonization, and favourable demographics (such as a growing middle class and urbanization).

The Company’s investment objectives for the:

Class A shares are to provide holders with:

(i) non-cumulative monthly cash distributions; and
(ii) the opportunity for capital appreciation through exposure to the portfolio

Preferred shares are to:

(i) provide holders with fixed cumulative preferential quarterly cash distributions; and
(ii) return the original issue price of $10.00 to holders upon maturity

The initial target distribution yield for the class A shares is 10.0% per annum based on the notional $15 issue price (or $0.125 per month or $1.50 per annum). On May 1, 2024, the Company announced that the first distribution on Class A shares will be payable to shareholders of record as at May 10th, 2024, and payable on or about May 15th, 2024.

The initial target distribution yield for the preferred shares is 7.2% per annum based on the original subscription price (or $0.18 per quarter or $0.72 per annum).

The syndicate of agents was co-led by CIBC Capital Markets, RBC Capital Markets, and Scotiabank, and included Canaccord Genuity Corp., National Bank Financial Inc., Hampton Securities Limited, BMO Capital Markets, iA Private Wealth Inc., Raymond James Ltd., Manulife Wealth Incorporated, Echelon Wealth Partners Inc., Wellington-Altus Private Wealth Inc., Desjardins Securities Inc. and Research Capital Corporation.

For further information, please visit our website at www.middlefield.com or contact Nancy Tham in our Sales and Marketing Department at 1.888.890.1868.

Fifty-two million is a nice size for a start-up SplitShare preferred, so it’s now been added to HIMIPref™

The prospectus is available on the fund’s main web page:

The Company intends that an equal number of Preferred Shares and Class A Shares will be outstanding at all material times. Following completion of the Offering, the Company may undertake further offerings of Preferred Shares or Class A Shares in order that an equal number of Preferred Shares and Class A Shares is outstanding at all material times.
…
The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return $10.00 to holders on April 30, 2029 (the “Maturity Date”), subject to extension for successive terms of up to five years each as determined by the Company’s board of directors (the “Board of Directors”). The quarterly cash distribution until April 30, 2029 will be $0.18 per Preferred Share $0.72 per annum), representing a yield of 7.2% per annum on the issue price of $10.00 per Preferred Share.
…
Holders of record of Preferred Shares on the last business day of each of April, July, October and January will be entitled to receive fixed, cumulative preferential quarterly cash distributions equal to $0.18 per Preferred Share until April 30, 2029. On an annualized basis, this would represent a yield on the $10.00 Preferred Share issue price of 7.2% per annum. Such quarterly distributions are expected to be paid by the Company before the last business day of the month following the period in respect of which the distribution was payable. Based on the expected closing date of the Offering, currently being May 8, 2024 (the “Closing Date”), the initial distribution is expected to be payable to the holders of Preferred Shares of record on July 31, 2024. The first distribution will be pro-rated to reflect the period from the Closing Date to July 31, 2024.
…
No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution by the Company, the net asset value (“NAV” or “Net Asset Value”) per “Unit”, comprised of one Preferred Share and one Class A Share, would be less than $15.00 following the payment of such distributions.
…
…in order to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit, the Company will be required to generate an average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%. The Portfolio is currently expected to generate dividend income of approximately 6.73% per annum. Accordingly, the Portfolio would be required to generate an additional approximately 3.65% per annum, including from dividend growth and realized capital appreciation, in order for the Company to distribute the targeted amount on the Class A Shares.
…
The Preferred Shares have been provisionally rated Pfd-3 (high) by DBRS Limited.
…
Monthly: Preferred Shares may be surrendered at any time for retraction to TSX Trust Company (in such capacity, the “Registrar and Transfer Agent”), the Company’s registrar and transfer agent, but will be retracted only on the second last business day of a month (the “Retraction Date”). Preferred Shares surrendered for retraction by 5:00 p.m. (Toronto time) on or before the twentieth business day prior to the Retraction Date will be retracted on such Retraction Date and the holder will be paid on or before the last business day of the following month (the “Retraction Payment Date”).

Holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share. Any declared and unpaid distributions payable on or before a Retraction Date in respect of Preferred Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date. Subject to the terms of the Recirculation Agreement (as defined under “Redemptions and Retractions”), on any monthly retraction of Preferred Shares the Company will purchase or cause to be purchased for cancellation an equal number of Class A Shares in the market so that there will be an equal number of Preferred Shares and Class A Shares outstanding at all material times.
…
Annual management fee of 1.10% of the NAV of the Company calculated and payable monthly, based on the average NAV for that month, plus applicable taxes, provided that the management fee payable to the Manager shall not be paid in respect of the NAV attributable to any assets invested in the securities of any investment funds (including mutual funds) managed by the Manager or an affiliate of the Manager.
…
As the distributions to holders of Preferred Shares are expected to qualify as eligible dividends, the pre-tax equivalent yield for an individual in Ontario subject to the highest marginal tax rate (53.53%) on an annualized basis would be approximately 9.4% per annum.

How can one not love the bit about “to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit … average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%.” Afficionados of SplitShare Credit Quality will knpw that given the presence of a cash drag, this requirement is highly sensitive to the price volatility of the underlying portfolio. Innumerate idiots, such as Capital Unit buyers and regulators, will remain blissfully ignorant of such high-school level math. But whatever, as long as the preferreds have a nice chunk of first-loss protection courtesy of the Capital Unitholders’ savings and the ‘minimum NAVPU rule’, this is not a major concern here.

DBRS has not yet confirmed its provisional Pfd-3(high) rating, but I can’t imagine any kind of problem with it.

The issue closed today on excellent volume of 839,091 shares. Vital Statistics are:

Update, 2024-05-09: DBRS has announced:

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of Pfd-3 (high) assigned to the Preferred Shares issued by Infrastructure Dividend Split Corp. (the Company), managed by Middlefield Limited (the Manager).
…
Based on the initial asset coverage of 2.5x, the initial downside protection available to holders of the Preferred Shares is approximately 59% (after issuance fee and offering expenses). Downside protection available to the Preferred Shares consists of the NAV of the Class A Shares. The fixed distributions of dividends on the Preferred Shares will be funded from the dividends received on the securities in the Portfolio, which are expected to cover more than 1x the annual Preferred Shares distributions. The payment of regular monthly distributions to the holders of the Class A Shares, totalling $1.50 per annum, may reduce the downside protection over time. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 4.9% per year over the next five years. The grind in the portfolio is mitigated by a 1.5x NAV test.

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series R (Series R Shares) (TSX: ENB.PR.T) on June 3, 2024. As a result, subject to certain conditions, the holders of the Series R Shares have the right to convert all or part of their Series R Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series S of Enbridge (Series S Shares) on June 3, 2024. Holders who do not exercise their right to convert their Series R Shares into Series S Shares will retain their Series R Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series R Shares outstanding after June 3, 2024, then all remaining Series R Shares will automatically be converted into Series S Shares on a one-for-one basis on June 3, 2024; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series S Shares outstanding after June 3, 2024, no Series R Shares will be converted into Series S Shares. There are currently 16,000,000 Series R Shares outstanding.

With respect to any Series R Shares that remain outstanding after June 3, 2024, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series R Shares for the five-year period commencing on June 3, 2024 to, but excluding, June 1, 2029 will be 6.314% percent, being equal to the five-year Government of Canada bond yield of 3.814% percent determined as of today plus 2.50 percent in accordance with the terms of the Series R Shares.

With respect to any Series S Shares that may be issued on June 3, 2024, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series S Shares for the three-month floating rate period commencing on June 3, 2024 to, but excluding, September 1, 2024 will be 1.82951 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 4.94 percent plus 2.50 percent in accordance with the terms of the Series S Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series R Shares who wish to exercise their right of conversion during the conversion period, which runs from May 2, 2024 until 5:00 p.m. (EST) on May 17, 2024, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.T was issued as a FixedReset, 4.00%+250, that commenced trading 2012-12-5 after being announced 2012-11-26. It reset At 4.073% effective 2019-6-1. I recommended against conversion and there was no conversion. It is tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Readers niagara and CanSiamCyp for bringing this to my attention!

Update, 2024-5-22: No conversion. Thanks, NK!