Category: Issue Comments

AltaGas Ltd. has announced:

it has closed its previously announced public offering of 8,000,000 Cumulative Redeemable Rate Reset Preferred Shares, Series E (the “Series E Preferred Shares”), at a price of $25.00 per Series E Preferred Share (“the Offering”) for aggregate gross proceeds of $200 million, including 2,000,000 Series E Preferred Shares pursuant to the exercise in full of an underwriters’ option.

The Offering was first announced on December 4, 2013 when AltaGas entered into an agreement with a syndicate of underwriters co-led by TD Securities Inc., RBC Capital Markets and Scotiabank.

Net proceeds will be used to reduce outstanding indebtedness and for general corporate purposes.

The Series E Preferred Shares will commence trading today on the Toronto Stock Exchange (“TSX”) under the symbol ALA.PR.E.

ALA.PR.E is a FixedReset, 5.00%+317, announced December 4. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 430,453 shares today in a range of 24.69-00 before closing at 25.00-02, 7×15.

Vital Statistics are:

Standard & Poor’s has announced:

• On Dec. 11, Fortis Inc. announced the US$4.3 billion proposed acquisition of UNS Energy Corp., an Arizona-based holding company that wholly owns Tucson Electric Power Co. (TEP).
• The cash portion proposed for the acquisition is being financed primarily with the issuance of convertible debentures which we view as debt, and the additional debt load pushes Fortis beyond our 10% adjusted funds from operations-to-debt downgrade threshold.
• As a result, we are revising our outlook on Fortis and its Canadian and Caribbean subsidiaries to negative from stable.
• At the same time, we revised our outlook on TEP to positive from stable pending the close of the acquisition.
• We are also affirming all ratings on the companies, including our ‘A-‘ long-term corporate credit rating (CCR) on Fortis and our ‘BBB’ long-term CCR on TEP.

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We expect Fortis to partially finance the cash portion through US$1.8 billion of convertible debentures with a C$239 million overallotment option. The debentures have features that encourage holders to convert, such as interest payments ceasing following closing of the acquisition. However, we treat the debentures as debt until converted. As a result, we expect adjusted funds from operations (AFFO)-to-debt to decline to below 9% until the debentures fully convert to equity. “This is below our 10% downgrade threshold for the rating,” said Standard & Poor’s credit analyst Gerry Hannochko.
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The negative outlook on Fortis reflects our expectation that credit metrics would materially weaken due to the C$1.8 billion of convertible debentures to finance the UNS acquisition. Although we expect that the debentures would have a very high likelihood of conversion, in the meantime, credit metrics would be below our thresholds. We expect to continue to assess the financial risk profile using the low volatility table. Revising the outlook to stable would likely occur when the convertible debentures are converted to equity, lessening the debt burden. If conversion of the debentures does not occur as expected and metrics remain weak, we could lower the rating one notch if the consolidated AFFO-to-total debt deteriorates below 10%.

The DBRS assessment of Review-Developing on FTS was reported on PrefBlog.

Fortis Inc. has several preferred issues trading on the Toronto Exchange: FTS.PR.E (OperatingRetractible); FTS.PR.F and FTS.PR.J (PerpetualDiscount); and FTS.PR.G, FTS.PR.H and FTS.PR.K (FixedReset).

TD Securities announced:

Big 8 Split Inc. (the “Company”) announced today the redemption prices for its 585,093 Class B Preferred Shares (“Old Class B Preferred Shares”), 651,155 Class C Preferred Shares (“Old Class C Preferred Shares”) and 1,236,248 Class A Capital Shares (“Old Capital Shares”) currently outstanding which were called for redemption on October 24, 2013 and will be redeemed in accordance with their terms on December 13, 2013.

The Old Class B Preferred Share redemption price is $12.00 per share and the Old Class C Preferred Share redemption price is $12.00 per share, both payable in cash, together with dividends thereon in the amount of $0.2100 per Class B Preferred Share, $0.1725 per Class C Preferred Share, and $0.1275 per Class A Capital Share which have been declared but remain unpaid up to but not including December 13, 2013. The Old Capital Share redemption price is $27.0359 (“Capital Share Redemption Price”) per share, payable either in cash or, if a holder has previously elected, by delivery of a pro rata share of the common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation and Sun Life Financial Inc. (the “Portfolio Shares”) and the holder’s pro rata share of the other net assets of the Company. Payments of the redemption prices for the Old Class B Preferred Shares, Old Class C Preferred Shares and Old Capital Shares will be made by the Company on December 13, 2013.

They have also announced:

Big 8 Split Inc. (the “Company”) announced today that it has completed its treasury offering of 1,719,382 Class D Capital Shares, Series 1 (the “Capital Shares”) and 1,719,382 Class D Preferred Shares, Series 1 (the “Preferred Shares”) for aggregate gross proceeds of $38,686,095 The Capital Shares and Preferred Shares will trade on the Toronto Stock Exchange under the symbols BIG.D and BIG.PR.D, respectively.
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The Preferred Shares were offered at a price of $10.00 per share. Holders of Preferred Shares will be entitled to receive quarterly fixed cumulative preferential distributions equal to $0.1125 per Preferred Share, representing a dividend yield on the offering price of the Preferred Shares of 4.50%. The Capital Shares were offered at a price of $12.50 per share. The Capital Shares will provide holders with a leveraged investment, the value of which is linked to changes in the market price of the Portfolio Shares.

The offering was placed through a group of investment dealers co-led by TD Securities Inc., CIBC and Scotiabank, and that includes BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

DBRS has assigned a provisional rating of Pfd-2(low) to BIG.PR.D:

DBRS has today finalized the provisional rating of Pfd-2 (low) to the Class D Preferred Shares, Series 1 (the Class D Preferred Shares) issued by Big 8 Split Inc. (the Company) and discontinued the ratings of the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) and the Class C Preferred Shares, Series 1 (the Class C Preferred Shares), which have been fully redeemed.
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The Company has advised DBRS that the initial downside protection available to holders of the Class D Preferred Shares is expected to be approximately 52.7% after the payment of all issuance expenses (based on the minimum offering size). Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Class D Preferred Shares at a rate of 4.50% per annum while holders of the Class D Capital Shares are expected to receive all excess dividend income after the Class D Preferred Share distributions and other expenses of the Company have been paid. Based on the current dividend yield on the Portfolio, the initial Class D Preferred Share dividend coverage ratio is expected to be approximately 1.4 times.

The company’s intention to issue BIG.PR.D was reported on PrefBlog.

BIG.PR.D will not be tracked by HIMIPref™. Regrettably, it is too small an issue to provide any assurance of any liquidity at all.

Royal Bank of Canada has announced:

its intention to redeem all of its issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AN (the “Series AN shares”), AP (the “Series AP shares”) and AR (the “Series AR shares”) on February 24, 2014, for cash at a redemption price of $25.00 per share.

There are 9,000,000 Series AN shares outstanding, representing $225 million of capital; 11,000,000 Series AP shares outstanding, representing $275 million of capital; and 14,000,000 Series AR shares outstanding, representing $350 million of capital. The redemption of the Series AN, AP and AR shares will be financed out of the general corporate funds of Royal Bank of Canada.

Separately from the redemption price, the final quarterly dividend of $0.390625, for each of the Series AN, AP and AR shares will be paid in the usual manner on February 24, 2014 to shareholders of record on January 27, 2014.

Not bad! $850-million being redeemed all on the same day … that’s pretty close to 1.5% of the entire Canadian preferred share market! The question remains as to whether all this cash will be recycled out of the market, back into extant issues or into new issues … we will see!

Enbridge Inc. has announced:

it has closed its previously announced public offering of Cumulative Redeemable Preference shares, Series 7 (Series 7 Preferred Shares) by a syndicate of underwriters led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc. Enbridge issued 10 million Series 7 Preferred Shares for gross proceeds of $250 million which includes the exercise of the underwriters’ option. The Series 7 Preferred Shares will begin trading on the TSX today under the symbol ENB.PR.J. 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.PR.J is a FixedReset, 4.40%+257, announced December 3. The issue will be tracked by HIMIPref™ and is assigned to the FixedResets subindex.

The issue traded 436,827 shares today within a range of 24.76-89, before closing at 24.80-85, 10×28.

ENB.PR.J is rated Pfd-2(low) by DBRS.

Vital statistics are:

Power Financial Corporation has announced:

the successful completion and closing of an offering of 8,000,000 4.20% Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series T (the “Series T Shares”) priced at $25.00 per share to raise gross proceeds of $200 million.

The issue was bought by an underwriting syndicate co-led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

The Series T Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “PWF.PR.T”. The net proceeds from the issue will be used to supplement the Corporation’s financial resources and for general corporate purposes. The Corporation intends to redeem all of its $175 million First Preferred Shares, Series M on January 31, 2014.

PWF.PR.T is a FixedReset, 4.20%+237, announced December 2. It will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 728,130 shares today in a range of 25.22-35 before closing at 25.27-30, 17×96. Vital statistics are:

Fortis Inc. has announced:

that it has entered into an agreement and plan of merger to acquire UNS Energy Corporation (“UNS Energy”) (NYSE:UNS) for US$60.25 per common share in cash, representing an aggregate purchase price of approximately US$4.3 billion, including the assumption of approximately US$1.8 billion of debt on closing (the “Acquisition”). The closing of the Acquisition, which is expected to occur by the end of 2014, is subject to receipt of UNS Energy common shareholder approval and certain regulatory and government approvals, including approval by the Arizona Corporation Commission (“ACC”), Federal Energy Regulatory Commission and compliance with any applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions.

UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through three subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona. UNS Energy’s fiscal 2012 operating revenues totalled approximately US$1.5 billion and, as at September 30, 2013, UNS Energy had total assets of approximately US$4.3 billion. UNS Energy serves approximately 654,000 electricity and gas customers.

Following the Acquisition, based on pro forma financial information as at September 30, 2013, total assets of Fortis will increase by approximately 33.5% to approximately $23.5 billion and regulated utility assets will comprise approximately 92% of total assets. Regulated assets in Canada and the United States will comprise approximately 55% and 34%, respectively, of total assets. The Corporation’s consolidated rate base is expected to increase by approximately US$3 billion at the time of closing of the Acquisition. Following the Acquisition, Fortis utilities will serve more than 3,000,000 electricity and gas customers.

They also announced a big chunk of financing:

its direct wholly owned subsidiary, FortisUS Holdings Nova Scotia Limited (the “Selling Debentureholder”), has agreed to sell $1,594,000,000 aggregate principal amount of 4.00% convertible unsecured subordinated debentures (“Debentures”) of Fortis in a secondary offering on a “bought deal” basis to the public (the “Public Offering”) and separately has agreed to sell $206,000,000 aggregate principal amount of Debentures to certain institutional investors on a private placement basis (the “Private Placement” and together with the Public Offering, the “Offerings”). In connection with the Public Offering, the underwriters have also been granted an over-allotment option to purchase up to an additional $239,100,000 aggregate principal amount of Debentures at the offering price, within 30 days from the date of the closing of the Public Offering solely to cover over-allotments, if any, and for market stabilization purposes.

All Debentures are being sold on an instalment basis at a price of $1,000 per Debenture, of which $333 is payable on the closing of the Offerings and the remaining $667 is payable on a date (“Final Instalment Date”) to be fixed following satisfaction of all conditions precedent to the closing of Fortis’ acquisition of UNS Energy Corporation (NYSE:UNS).
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The Debentures will mature on January 9, 2024 and will bear interest at an annual rate of 4.00% per $1,000 principal amount of Debentures (an effective annual yield of 12.00% based on a first instalment of $333) until and including the Final Instalment Date, after which the interest rate will be 0%.

If the Final Instalment Date occurs on a day that is prior to the first anniversary of the closing of the Offering, holders of Debentures who have paid the final instalment on or before the Final Instalment Date will be entitled to receive, on the business day following the Final Instalment Date, in addition to the payment of accrued and unpaid interest to and including the Final Instalment Date, an amount equal to the interest that would have accrued from the day following the Final Instalment Date to, but excluding, the first anniversary of the closing of the Offering had the Debentures remained outstanding until such date (the “Make-Whole Payment”). No Make-Whole Payment will be payable if the Final Instalment Date occurs on or after the first anniversary of the closing of the Offering.

At the option of investors and provided that payment of the final instalment has been made, each Debenture will be convertible into common shares of Fortis (“Common Shares”) at any time after the Final Instalment Date but prior to maturity or redemption by the Corporation at a conversion price of $30.72 per Common Share, being a conversion rate of 32.5521 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in certain circumstances.

The Debentures will not be redeemable except that Fortis will redeem the Debentures at a price equal to their principal amount plus accrued and unpaid interest following the earlier of: (i) notification to holders that the conditions necessary to approve the acquisition of UNS Energy Corporation will not be satisfied; (ii) termination of the acquisition agreement; and (iii) July 2, 2015, if notice of the Final Instalment Date has not been given to investors on or before June 30, 2015. Upon any such redemption, the Corporation will pay for each Debenture: (i) $333 plus accrued and unpaid interest to the holder of the Instalment Receipt; and (ii) $667 to the Selling Debentureholder on behalf of the holder of the Instalment Receipt in satisfaction of the final instalment. In addition, after the Final Instalment Date, any Debentures not converted may be redeemed by Fortis at a price equal to their principal amount plus unpaid interest, which accrued prior to the Final Instalment Date.

At maturity, Fortis will have the right to pay the principal amount due in Common Shares, which will be valued at 95% of their weighted average trading price on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the maturity date.

Mark Chediak and Rebecca Penty of Bloomberg note:

The transaction is Fortis’s second announced purchase of a U.S. utility in the past two years. The company completed its $969 million acquisition of CH Energy Group Inc. in June, after agreeing to freeze rates for New York customers. Fortis has been focused on the U.S. for acquisitions because there are “many more opportunities” than in Canada, where most utilities are owned by the government, Chief Financial Officer Barry Perry said on a conference call last month.

DBRS has announced that it:

has today placed the A (low) Issuer Rating, A (low) Unsecured Debentures and Pfd-2 (low) Preferred Shares ratings of Fortis Inc. (Fortis or the Company) Under Review with Developing Implications. This action follows the announcement that the Company has agreed to acquire UNS Energy Corporation (UNS) for a total consideration of approximately $4.3 billion, including the assumption of $1.8 billion of debt on closing (the Acquisition). The rating action reflects DBRS’s view that the proposed Acquisition would have a modestly negative impact on Fortis’ business risk profile while the impact on the financial risk profile is uncertain since the financing plan has not been finalized.
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The focus of DBRS’s analysis is on Fortis’ non-consolidated capital structure (parent level) and cash flow from the subsidiaries to the parent to service the parent’s debt and corporate expenses. On a non-consolidated basis, the cash flow-to-interest expense ratio was strong at 9.17 times in 9M2013, while debt-to-capital was approximately 21%. DBRS notes that the non-consolidated leverage of 21% is slightly above the acceptable range for a holding company with respect to DBRS’s one-notch criteria. However, this increase is expected to be temporary and the leverage will fall in-line with the current rating category following the completion of the Waneta project. Currently, it is uncertain as to how Fortis plannts to finance the proposed Acquisition. As a result, DBRS has placed the ratings of Fortis Under Review with Developing Implications. DBRS will further review the Company’s financing plan when it is finalized. Upon final review, if the Company finances the proposed Acquisition or any cost overruns of its current projects in such a way that its non-consolidated debt-to-capital structure is significantly above 20% and its other non-consolidated credit metrics deteriorate significantly without corrective action within a reasonable time frame, then negative rating action is likely to occur.

Fortis Inc. has several preferred issues trading on the Toronto Exchange: FTS.PR.E (OperatingRetractible); FTS.PR.F and FTS.PR.J (PerpetualDiscount); and FTS.PR.G, FTS.PR.H and FTS.PR.K (FixedReset).

DBRS has announced that it:

has today discontinued its rating of Royal Bank of Canada’s (RBC) Non-Cumulative First Preferred Shares, Series W (Series W). DBRS had placed the Series W, which is convertible to common equity at the issuer’s option, Under Review with Negative Implications on August 17, 2011.

This action follows the application of the updated “DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities,” which was released earlier today. In the updated criteria, the ratings principles for contingent capital instruments (CoCo) indicate that DBRS may not rate CoCo instruments in cases where their triggers are inadequately defined, where they have poorly specified mechanisms for conversion or where the probabilities of their activation are difficult to predict and not closely tied to the issuer’s credit position. If the level of difficulty in assessing these risks is high enough, DBRS may be unable to assign a rating to the instrument.

Because the trigger for conversion into common equity is inadequately defined, DBRS has concluded it is unable to assign a rating to the Series W. Although DBRS believes conversion of the Series W is not likely, the lack of trigger control has led DBRS to conclude the instrument cannot be rated under the updated criteria. This action does not reflect any change in DBRS’s view of RBC’s credit profile and is not related to any issuer-specific credit events.

The Review-Negative was reported on PrefBlog.

As previously noted on PrefBlog, S&P does not discriminate between RY.PR.W and other RY preferred issues.

DBRS has announced that it:

has today downgraded three convertible Non-Cumulative Class A Preferred Shares, Series 26, 27 and 29 of Canadian Imperial Bank of Commerce (CIBC) to Pfd-2 from Pfd-1 (low). The Under Review with Negative Implications status has been removed and the trends are Stable. This action follows the release earlier today of the updated “DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities.”

DBRS had placed the Series 26, 27 and 29 preferred shares, which at the time were convertible to common equity at the issuer’s option, Under Review with Negative Implications on August 17, 2011. Subsequently, CIBC irrevocably passed control of the trigger to the Office of the Superintendent of Financial Institutions (OSFI) to be used only for a non-viability event under OSFI’s capital guidelines. As a result, OSFI confirmed the three series as non-viability contingent capital (NVCC) qualifying instruments.

Under the updated criteria, DBRS has determined that the OSFI NVCC trigger represents a very remote conversion probability and consequently DBRS has rated these instruments Pfd-2, which is the equivalent of four notches below CIBC’s intrinsic assessment of AA (low).

This action does not reflect any change in DBRS’s view of CIBC’s credit profile and is not related to any issuer-specific credit events.

Other rating actions taken today as a result of the criteria update are being published separately.

DBRS has published the DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities:

a) Notching for Preferred Securities Relative to Intrinsic Assessment

Preferred shares are equity instruments that typically pay fixed dividends or floating rate dividends linked to certain index rates. These instruments generally rank above common equity and below the various forms of sub-debt. As preferred dividends have to be approved by the Board of Directors for each payment period, preferred dividends can be halted without resulting in a default on a bank’s debt. Typically, such a halt in dividends has to be preceded by a halt in payment of dividends on common equity.

Certain hybrid instruments can be converted to preferred shares under certain conditions. Typically, these conditions are specified to occur when a bank is under significant stress and its capital position has weakened severely. DBRS treats these instruments like preferred shares in terms of notching.

As preferred shares are equity, various governments during the current crisis have acted to have banks that are under some stress exchange these instruments to bolster their common equity. In some cases, this step has been accomplished through voluntary exchanges. In other cases, banks have engaged in forced exchanges, which DBRS considers tantamount to default. In some cases, preferred shares have been wiped out. This process has helped to bolster these banks’ common equity and helped them avoid being put into receivership. Thus, while senior debt and even subordinated debt have continued to pay as agreed, preferred shares have been subject to greater risk of default. Accordingly, preferred shares and instruments that convert to preferreds are notched from the IA and the notching is wider than for sub debt. Reflecting this increased risk, preferreds are notched by three notches from a bank’s intrinsic assessment.

While the base notching as discussed above is the starting point for rating bank preferred shares, DBRS policy permits wider notching than this base notching to reflect any unique characteristics of individual banks. Various factors may be considered. Notching could be increased by a weaker capital structure, including a higher proportion of preferred shares. Actions taken to reduce or halt common dividends (recognizing that these actions are the first buffer) could also increase notching. Other unique stresses within the domestic financial system, such as expected actions by external parties (regulators, governments) could also add notches.

b) Higher Risk of Nonpayment or Loss on Bank Preferreds Compared to Corporate Preferreds

Compared to other corporate issuers, banks are highly leveraged and may face greater losses relative to the size of their capital bases. Banks therefore may more readily resort to actions to generate common equity; including halting preferred dividends combined with exchange offers. In some cases, regulators or government authorities may require banks to take adverse action against preferreds as a condition of receiving support. Differences in the regimes for resolving distressed banks are also a factor, as these regimes often differ from the bankruptcy laws governing distressed corporates, particularly in giving the resolution authority more powers during resolution. Such actions can include halting preferred dividends or forced exchanges for common shares and/or cash2. Given these differences, DBRS typically notches bank preferred share securities three notches rather than the two notches typically used for non-banking entities.

Due to the NVCC status, S&P downgraded CM.PR.D and CM.PR.E in 2011 (it does not rate CM.PR.G). The action of DBRS in placing the issues on Watch-Negative was reported on PrefBlog.

CM.PR.D, CM.PR.E and CM.PR.G are all tracked by HIMIPref™ all are included in the PerpetualPremium (not DeemedRetractible!) subindex.

The National Bank of Canada has announced:

its intention to redeem all of its remaining issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 24 (the “Preferred Shares Series 24”) together with all of its remaining issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 26 (the “Preferred Shares Series 26”) on February 15, 2014 (the “Redemption Date”).

Pursuant to the share conditions, on the Redemption Date, the Bank may, at its option, redeem the Preferred Shares Series 24 and the Preferred Shares Series 26 at a price equal to $25.00 per share together with all declared and unpaid dividends. The declared dividends payable on February 15, 2014 will be paid to shareholders of record on January 10, 2014.

Formal notice will be issued to shareholders in accordance with the share conditions. The redemption of the Preferred Shares Series 24 and the Preferred Shares Series 26 is subject to the approval of the Office of the Superintendent of Financial Institutions and is part of the Bank’s ongoing management of its regulatory capital.

The Bank recommends shareholders consult with their tax advisors to determine the appropriate treatment and impact of the redemptions.
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This press release includes certain forward-looking statements. These forward-looking statements include the Bank’s intentions regarding the redemption of the Preferred Shares Series 24 and the Preferred Shares Series 26. These statements are inherently subject to significant risks, uncertainties and changes in circumstances, many of which are beyond the control of the Bank, including the obtaining of regulatory approval required to complete the proposed redemption. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf.

NA.PR.O was last mentioned on PrefBlog when it was removed from TXPR following a substantial issuer bid. It was a FixedReset, 6.60%+463, announced 2009-1-5.

NA.PR.P was also a subject of the issuer bid. It was a FixedReset, 6.60%+479, announced 2009-1-22.