Category: Issue Comments

The Toronto-Dominion Bank has announced:

that it will exercise its right to redeem all of its 10 million outstanding Non-cumulative 5-Year Rate Reset Preferred Shares, Series AA (the “Series AA Shares”) on January 31, 2014 at the price per share of $25.00, for an aggregate total of approximately $250 million.

TD also announced it will exercise its right to redeem all of its 8.8 million outstanding Non-cumulative 5-Year Rate Reset Preferred Shares, Series AC (the “Series AC Shares”) on January 31, 2014 at the price per share of $25.00, for an aggregate total of approximately $220 million.

On December 5, 2013, the Board of Directors of TD declared quarterly dividends of $0.3125 per Series AA Share and $0.35 per Series AC Share. These will be the final dividends on the Series AA Shares and Series AC Shares, respectively, and will be paid in the usual manner on January 31, 2014 to shareholders of record on January 8, 2014, as previously announced. After January 31, 2014, the Series AA Shares and Series AC Shares will cease to be entitled to dividends and the holders of such shares will not be entitled to exercise any right in respect thereof except that of receiving the redemption amount.

Instructions with respect to receipt of the redemption amount will be set out in the Letter of Transmittal to be mailed to registered holders of the Series AA Shares and Series AC Shares shortly. Inquiries should be directed to our Registrar and Transfer Agent, CST Trust Company, at 1-800-387-0825 (or in Toronto 416-682-3860). Beneficial holders who are not directly the registered holder of these shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Further details and instructions will be posted shortly to our website, http://www.td.com/investor-relations/ir-homepage/share-information/preferred-shares/preferred.jsp.

TD.PR.A is a FixedReset, 5.00%+196bp, announced 2008-9-2 and closing 2008-9-12 … on the Friday before the before the Lehman Bankruptcy Weekend.

TD.PR.C is a FixedReset, 5.60%+274, announced 2008-10-27 and settling 2008-11-5 … slap in the middle of the biggest preferred share rout in memory.

It’s somewhat surprising that TD.PR.A was called – 196bp is a fairly modest Issue Reset Spread.

DBRS has announced that it:

has today upgraded the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) to Pfd-4 (high) from Pfd-5 (high). In April 2007 the Company issued 3.1 million Preferred Shares (at $10.00 each), along with an equal number of Class A Shares (at $15.00 each). The termination date for both classes of shares issued is April 30, 2014, but a term extension has been proposed by the Company.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies (the Portfolio). As of September 30, 2013, the Portfolio’s composition was: Industrial Alliance Insurance and Financial Services Inc. (26.0%), Sun Life Financial Inc. (24.9%), Manulife Financial Corporation (24.4%) and Great-West Lifeco Inc. (24.0%). The Portfolio was initially equally weighted and is subject to annual rebalancing.

The Preferred Shares pay a fixed cumulative quarterly distribution of $0.13125 per Preferred Share, yielding 5.25% annually on their issue price of $10.00 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011, due to the net asset value of the Company falling below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013.

On June 10, 2013, DBRS confirmed the ratings of the Preferred Shares at Pfd-5 (high). Since then, the performance of the Company has been positive, with downside protection climbing to its highest levels in over two years (39.5% as of December 12, 2013). In addition, the short-term outlook for the Canadian life insurance industry has improved. As a result, the rating of the Preferred Shares has been upgraded to Pfd-4 (high).

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

The issue’s downgrade to Pfd-5(high) was reported on PrefBlog. LCS.PR.A is not tracked by HIMIPref™ as it is a very small issue – less than 1.7-million units are outstanding.

On November 26, Standard & Poor’s announced:

that it has reviewed its ratings on the corporate industrial and utility companies that were labeled as “under criteria observation” (UCO) after the publishing of its revised Corporate criteria on Nov. 19. The ratings on seven Canadian corporate entities were placed on CreditWatch with positive implications as a result of this review, meaning that they will likely be raised. At the same time, the ratings on three Canadian corporate entities were placed on CreditWatch with negative implications, meaning that they will likely be lowered.

AltaGas Ltd., proud issuer of ALA.PR.A and ALA.PR.E was put on Watch-Negative.

S&P has now announced:

• Standard & Poor’s published its revised corporate criteria Nov. 19, 2013
• We are affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on AltaGas Ltd.
• We are also removing the ratings from CreditWatch, where we placed them with negative implications Nov. 26, 2013, in conjunction with our revised criteria.
• We assess AltaGas’ business risk profile as “strong” and financial risk profile as “significant” based on the medial volatility table.
• The stable outlook reflects our expectations of improving financial metrics in 2014 and 2015 when major capital projects enter service, and the company maintaining its mix of midstream, unregulated power and regulated utility businesses.

…
We believe the combination of acquisitions in 2013 and the Forrest Kerr project entering service mid-2014 will further diversify the company away from commodity-related cash flows such as fractionation margin and power sales in the Alberta market. We estimate that commodity-related cash flows will decline to less than 15% of consolidated cash flows by 2015.
…
The stable outlook reflects our expectations that financial metrics will improve in 2014 and 2015 as Forrest Kerr enters service, AltaGas’ business mix continues to diversify, and commodity exposure declines to less than 15% of cash flows in two years.

Partners Value Split Corp. has released its Annual Report to September 30, 2013.

The company commented on its change of name:

During the year, the Company changed its name from BAM Split Corp. to Partners Value Split Corp. The name change was undertaken as part of our re-branding initiative to align with the holder of the Company’s Class A Voting Shares and Capital Shares, Partners Value Fund Inc.

The company has the following issues outstanding: BNA.PR.B, BNA.PR.C, BNA.PR.D, BNA.PR.E.

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 $403,000 (regular expenses) + $1,421,000 (amortization) = $1,824,000 on assets of $1.925-billion (see below) or 9bp.

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 year assets (including preferred shares) so: [(1,113,857 + 688,259) + (1,359,110 + 689,627)]/2 = $1.925-billion

Underlying Portfolio Yield: Total Income of $31.2-million divided by average net assets of $1,925-million is 1.6%.

Income Coverage: Net income of $30.758-million less amortization of $1.421-million is $29.337-million to cover senior preferred dividends of $26.000-million is 113%. However, I consider it prudent to include the $10-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 81%.

While reviewing material for this month’s edition of PrefLetter, I happened to look at a DBRS issuer rating page for one of the banks and noticed …

… all the preferred shares had been downgraded, not just the CM issues previously reported (or the discontinuation of RY.PR.W, for that matter).

Bank of Montreal: downgraded to Pfd-2(high)

Bank of Nova Scotia: downgraded to Pfd-2(high)

Canadian Imperial Bank of Commerce: downgraded to Pfd-2(high)

Toronto-Dominion Bank, The: downgraded to Pfd-2(high)

Royal Bank of Canada: downgraded to Pfd-2(high)

Somewhat surprisingly, National Bank of Canada appears to have got off scot-free.

There are no press releases. All there is is a reference to a Subscribers Only report titled DBRS: Ratings Impact of Updated Criteria on Bank Preferred and Preferred Hybrids in Canada.

Affected issues are
BNS.PR.A, BNS.PR.B, BNS.PR.K, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.T, BNS.PR.X, BNS.PR.Y, BNS.PR.Z

BMO.PR.J, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.N, BMO.PR.O, BMO.PR.P, BMO.PR.Q, BMO.PR.R

CM.PR.K, CM.PR.L, CM.PR.M

RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G, RY.PR.I, RY.PR.L, RY.PR.N, RY.PR.P, RY.PR.R, RY.PR.T, RY.PR.X, RY.PR.Y

TD.PR.A, TD.PR.C, TD.PR.E, TD.PR.G, TD.PR.I, TD.PR.K, TD.PR.O, TD.PR.P, TD.PR.Q, TD.PR.R, TD.PR.S, TD.PR.T, TD.PR.Y, TD.PR.Z

I have directed an inquiry to DBRS asking whether there will be press releases, as is the normal procedure when a rating changes.

The Bank of Nova Scotia has announced:

that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 24 of Scotiabank on January 26, 2014 at a price equal to $25.00 per share, together with all declared and unpaid dividends. Formal notice will be issued to shareholders in accordance with the related share conditions.

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

Series 24 is BNS.PR.S, a FixedReset 6.25+384, which was issued as part of the consideration for Sun Life’s interest in CI, and not very well publicized. It closed 2008-12-12 and was tracked by HIMIPref™ for a while; tracking ceased on 2009-3-13 when not a single share had traded amidst total silence from the principals. While I confess I haven’t been doing much checking since then, it looks like the situation hasn’t changed.

But now it’s being redeemed and the world can recommence spinning on its axis.

The Bank of Nova Scotia has announced:

that it does not intend to exercise its right to redeem the currently outstanding Non-cumulative 5-Year Rate Reset Preferred Shares Series 22 of Scotiabank (the “Preferred Shares Series 22”) on January 26, 2014 and, as a result, subject to certain conditions, the holders of Preferred Shares Series 22 have the right to convert all or part of their Preferred Shares Series 22 on a one-for-one basis into Non-cumulative Floating Rate Preferred Shares Series 23 of Scotiabank (the “Preferred Shares Series 23”) on January 26, 2014. Holders who do not exercise their right to convert their Preferred Shares Series 22 into Preferred Shares Series 23 on such date will retain their Preferred Shares Series 22.

The foregoing conversions are subject to the conditions that: (i) if Scotiabank determines that there would be less than one million Preferred Shares Series 22 outstanding after January 26, 2014, then all remaining Preferred Shares Series 22 will automatically be converted into Preferred Shares Series 23 on a one-for-one basis on January 26, 2014, and (ii) alternatively, if Scotiabank determines that there would be less than one million Preferred Share Series 23 outstanding after January 26, 2014, no Preferred Shares Series 22 will be converted into Preferred Shares Series 23. In either case, Scotiabank shall give a written notice to that effect to holders of Series 22 Preferred Shares no later than January 17, 2014.

The dividend rate applicable to the Preferred Shares Series 22 for the five-year period commencing on January 26, 2014 and ending on January 25, 2019, and the dividend rate applicable to the Preferred Shares Series 23 for the three-month period commencing on January 26, 2014, and ending on April 25, 2014, will be determined on December 27, 2013 and announced by way of a press release on December 30, 2013.

Beneficial owners of Preferred Shares Series 22 who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (Toronto time) on January 13, 2014.

Series 22 trades as BNS.PR.R, a FixedReset 5.00%+188, announced 2008-8-26 and closing 2013-9-9 2008-9-9.

It is not my usual practice to announce excitedly that issues have not been called for redemption, but this is something of a special case…

Earlier today I reported that RY.PR.N, RY.PR.P and RY.PR.R have been called for redemption, but Royal Bank has five, count ’em, five issues callable on 2014-2-24 and the announcement covered only three. The two not announced were RY.PR.I and RY.PR.L.

RY.PR.I is a FixedReset, 5.00%+193, announced 2008-9-9 and closed 2008-9-16.

RY.PR.L is a FixedReset, 5.60%+267, announced 2008-10-23 and closed 2008-11-3.

These Issue Reset Spreads may be compared with those of the called issues, 350bp, 419bp and 450bp, respectively.

Given that the five year GOC yield is now about 1.82%, and assuming that there is no change from this number at the time of calculation of the dividend reset, RY.PR.I will reset at 3.75%, a decline of 25% from the initial dividend rate, while RY.PR.L will reset at 4.49%, a decline of 20%. My mailbox will shortly fill up with angry queries from preferred shareholders.

This difference in treatment is a wonderful illustration of the point I have been making from the time the structure was developed:

A call at par only five years hence is not a good thing; the bank will exercise the option only if redemption is in its own best interest
…
It must never be forgotten that buying a perpetual issue, even one that is “almost certain” to be called, or one that will adjust its dividends to account for changing market conditions, represents exposure to the chance that the issuer will get into trouble and that with perpetuals there is no opportunity to simply let the dubious debt mature.

Assiduous Readers might also wish to admire my PrefBlog posts Fixed-Resets : Critchley Likes, Ruggins Doesn’t and Critchley of Financial Post: Fixed-Resets Good!.

Well, in this case it was not the issuer getting into trouble, but rather a change in market conditions that has led to the (presumed) extension, but that’s just a quibble. Its a wonderful illustration anyway, and I will cite it until all my Assiduous Readers beg for relief. Who would have thought that a pair of issues with issue dates bracketting the Lehman bankruptcy would be left outstanding five years later?

Mind you, it will be noted that the presumed extension cannot yet be deemed a fact. According to the prospectus for RY.PR.I and the prospectus for RY.PR.L:

We will give notice of any redemption to registered holders not more than 60 days and not less than 30 days prior to the redemption date.

… so they’ve still got lots of time to change their minds one way or another if the market goes blahooey.

Manulife Financial Corporation has announced:

– Manulife Asset Management Limited, the manager of Copernican World Banks Split Inc. (TSX: CBW.PR.A; CBW) (“Copernican World Banks”), today announced that due to the number of Preferred Shares retracted under the Special Retraction Right, the board of directors has decided, as described in the management information circular dated September 27, 2013, not to proceed with the Proposal and will take the necessary steps to dissolve Copernican World Banks. Copernican World Banks will redeem all Class A Shares and Preferred Shares on December 2, 2013. The payment date for the final redemption will be December 12, 2013. The Preferred Shares and Class A Shares of Copernican World Banks will be delisted from the Toronto Stock Exchange at the close of business November 28, 2013.

Holders of Preferred Shares of Copernican World Banks will be entitled to receive a final redemption price per Preferred Share equal to the lesser of i) $10 plus any accrued and unpaid distributions thereon and ii) the net asset value (the “NAV”) of Copernican World Banks on December 2, 2013 divided by the total number of Preferred Shares of Copernican World Banks then outstanding. Holders of Class A Shares of Copernican World Banks will be entitled to receive a final redemption price per Class A Share equal to the greater of i) the NAV per Unit on December 2, 2013 minus $10 and any accrued and unpaid distributions on a Preferred Share, and ii) nil. A Unit means a notional unit consisting of one Preferred Share and one Class A Share. The manager expects that proceeds to the Class A shareholders will be nil as a result of the final redemption.

According to a product summary prepared as of month-end, the NAV was 4.61.

The abortive intention to extend term was reported on PrefBlog.

Manulife Financial has announced:

Manulife Asset Management Limited, the manager of Copernican International Financial Split Corp. (TSX: CIR.PR.A; CIR) (“Copernican Financial Split”), today announced that due to the number of Preferred Shares retracted under the Special Retraction Right, the board of directors has decided, as described in the management information circular dated September 27, 2013, not to proceed with the Proposal and will take the necessary steps to dissolve Copernican Financial Split. Copernican Financial Split will redeem all Class A Shares and Preferred Shares on December 2, 2013. The payment date for the final redemption will be December 12, 2013. The Preferred Shares and Class A Shares of Copernican Financial Split will be delisted from the Toronto Stock Exchange at the close of business November 28, 2013.

Holders of Preferred Shares of Copernican Financial Split will be entitled to receive a final redemption price per Preferred Share equal to the lesser of i) $10 plus any accrued and unpaid distributions thereon and ii) the net asset value (the “NAV”) of Copernican Financial Split on December 2, 2013 divided by the total number of Preferred Shares of Copernican Financial Split then outstanding. Holders of Class A Shares of Copernican Financial Split will be entitled to receive a final redemption price per Class A Share equal to the greater of i) the NAV per Unit on December 2, 2013 minus $10 and any accrued and unpaid distributions on a Preferred Share, and ii) nil. A Unit means a notional unit consisting of one Preferred Share and one Class A Share. The manager expects that the proceeds to Class A shareholders will be nil as a result of the final redemption.

According to a product summary prepared as of November 30, the NAV was $6.29 at month end.

The abortive extension of CIR.PR.A was reported on PrefBlog.