Category: Issue Comments

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series AZ. Royal Bank of Canada issued 20 million Preferred Shares Series AZ 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 AZ will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.Z.

The Preferred Shares Series AZ were issued under a prospectus supplement dated January 23, 2014 to the bank’s short form base shelf prospectus dated
December 20, 2013.

RY.PR.Z is a NVCC-compliant FixedReset, 4.00%+221, announced January 21. This issue will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 1,429,936 shares today in a range of 24.75-97 before closing at 24.95-96, 26×77. Vital statistics are:

Standard & Poor’s has announced:

• •Calgary-based Shaw Communications Inc. has notably improved its credit ratios in the last few quarters.
• •We are affirming our ‘BBB-‘ corporate credit rating on Shaw and revising the outlook to positive from stable.
• •The positive outlook reflects the potential of an upgrade in the next 12-18 months should the company demonstrate its commitment to managing adjusted debt to EBITDA at the mid-2x area and its operating performance is consistent with our base-case scenario.

…
Shaw’s subscription-based cable operations are the primary driver for the ratings given that this segment generates the majority of the company’s revenue, operating income, and cash flow and offers good asset protection to creditors, in our opinion. Shaw’s business risk profile is also supported by our assessment of the company’s management and governance as satisfactory.

Tempering factors, in our view, include rising competitive risks; video subscriber losses owing to the more ubiquitous triple- and quad-play offerings from well-capitalized telecom rivals and cord cutting; rising regulatory risk as regulators look for ways to unbundle video distribution (we estimate that Shaw has about 50% overall revenue exposure to video); potential for margin pressure stemming from a declining subscriber base and ongoing retention efforts; slowing overall revenue growth given a mature addressable market; the company’s historically acquisitive growth strategy; and the high capital expenditures, in general, needed to sustain competitiveness and maintain service differentiation.
…
The positive outlook reflects the potential of an upgrade in the next 12-18
months should the company demonstrate its commitment to managing adjusted debt to EBITDA at the mid-2x area and operating performance is consistent with our base-case scenario.

We could revise our outlook to stable should higher competition (likely from Telus) materially affect profitability or if substantive debt-funded shareholder distributions or acquisitions cause Shaw’s adjusted debt-to-EBITDA ratio to increase to the 3x area for a prolonged period.

SJR.PR.A commenced trading at the end of May, 2011. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The extension and new dividend of 3.83% on BNS.PR.R was previously reported on PrefBlog.

On January 16, Scotiabank announced:

announced that 2,623,056 of its 12,000,000 Non-cumulative 5-Year Rate Reset Preferred Shares Series 22 of Scotiabank (the “Preferred Shares Series 22”) have been elected for conversion on January 26, 2014, on a one-for-one basis, into Non-cumulative Floating Rate Preferred Shares Series 23 of Scotiabank (the “Preferred Shares Series 23”). Consequently, on January 26, 2014, Scotiabank will have 9,376,944 Preferred Shares Series 22 and 2,623,056 Preferred Shares Series 23 issued and outstanding. The Preferred Shares Series 22 and Preferred Shares Series 23 will be listed on the Toronto Stock Exchange under the symbols BNS.PR.R and BNS.PR.C, respectively.

It is most interesting that less than a quarter of the FixedResets were converted to FloatingResets; previous conversions have been around the 50% range. I guess T-bill yields aren’t about to skyrocket anymore, or something!

BNS.PR.C will be tracked by HIMIPref™ and assigned to the FloatingResets sub-index. As it is not NVCC-compliant, a ‘Deemed Maturity’ entry, at par on 2022-1-31, has been added to the call schedule.

The issue closed today at 24.96-20, 5×10, on zero volume. Vital statistics are:

The pricing of this issue is well-behaved relative to that (and ONLY to that) of its Strong Pair, BNS.PR.R. The break-even three month bill rate to its next Exchange Date is 1.77%, compared to the average of all six FixedReset/FloatingReset pairs now outstanding of 1.79%. This implies a steady rise in three month bill yields (other paths will yield the same average, of course) to about 2.70% over the next five years, which I do not consider unreasonable.

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TransCanada Corporation has announced:

that TransCanada PipeLines Limited (the “Company”) authorized the redemption of all of the Company’s four million outstanding 5.60 per cent Cumulative Redeemable First Preferred Shares Series Y (Series Y Shares) on March 5, 2014. The Series Y Shares will be redeemed at a price of $50 per share plus $0.2455 representing accrued and unpaid dividends to such redemption date. The total face value of the outstanding Series Y Shares is $200 million and they carry an aggregate of $11.2 million in annualized dividends.

Redemption of the Series Y Shares will be administered by Computershare Trust Company of Canada. The Series Y Shares trade on the Toronto Stock Exchange under the symbol TCA.Pr.Y. The regular quarterly dividend of $0.70 per share for the period up to but excluding February 1, 2014 to be paid on February 3, 2014 to shareholders of record at the close of business on December 31, 2013 will be paid as previously announced.

The Series Y Shares will be delisted on or about March 5, 2014.

Its sister issue, TCA.PR.X was redeemed last October.

Royal Bank of Canada has announced:

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AJ (the “Series AJ shares”) and Series AL (the “Series AL shares”) and Non-Cumulative Floating Rate First Preferred Shares Series AK (the “Series AK shares”) and Series AM (the “Series AM shares”).

With respect to any Series AJ and Series AL shares that remain outstanding after February 24, 2014, holders of the Series AJ and Series AL shares will be entitled to receive quarterly fixed non-cumulative preferential cash dividends, as and when declared by the Board of Directors of the Royal Bank of Canada, subject to the provisions of the Bank Act (Canada).

The dividend rate for the 5-year period from and including February 24, 2014 to but excluding February 24, 2019 will be 3.52% for Series AJ shares, being equal to the 5-Year Government of Canada bond yield determined as of January 24, 2014 plus 1.93%, as determined in accordance with the terms of the Series AJ shares.

The dividend rate for the 5-year period from and including February 24, 2014 to but excluding February 24, 2019 will be 4.26% for Series AL shares, being equal to the 5-Year Government of Canada bond yield determined as of January 24, 2014 plus 2.67%, as determined in accordance with the terms of the Series AL shares.

With respect to any Series AK shares that may be issued on February 24, 2014, holders of the Series AK shares will be entitled to receive quarterly floating rate non-cumulative preferential cash dividends, calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365, as and when declared by the Board of Directors of Royal Bank of Canada, subject to the provisions of the Bank Act (Canada). The dividend rate for the floating rate period from and including February 24, 2014 to but excluding May 24, 2014 will be 2.82%, being equal to the 3-month Government of Canada Treasury Bill yield determined as of January 24, 2014 plus 1.93%, as determined in accordance with the terms of the Series AK shares.

With respect to any Series AM shares that may be issued on February 24, 2014, holders of the Series AM shares will be entitled to receive quarterly floating rate non-cumulative preferential cash dividends, calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365, as and when declared by the Board of Directors of Royal Bank of Canada, subject to the provisions of the Bank Act (Canada). The dividend rate for the floating rate period from and including February 24, 2014 to but excluding May 24, 2014 will be 3.56%, being equal to the 3-month Government of Canada Treasury Bill yield determined as of January 24, 2014 plus 2.67%, as determined in accordance with the terms of the Series AM shares.

Beneficial owners of Series AJ shares and Series AL shares who wish to exercise their conversion rights should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right on or prior to the deadline for notice of intention to convert, which is 5:00 p.m. (EST) on February 10, 2014.

These issues were last mentioned on PrefBlog when the extension became official.

I make no recommendation regarding whether or not to convert. Strong Pair theory and its calculator imply that the expected average 3-Month T-Bill rate over the next five years will be about 1.90% (compared with the current 0.90%) and I have no strong feelings that this is too high or too low. Investors should make a decision based on the purpose of the issue in their portfolio.

The Bank of Montreal has announced:

its intention to redeem all of its $150,000,000 Non-cumulative 5-Year Rate Reset Class B Preferred Shares Series 18 (“Preferred Shares Series 18”) on February 25, 2014.

The Preferred Shares Series 18 are redeemable at Bank of Montreal’s option on February 25, 2014, at a redemption price of $25.00 per share together with declared and unpaid dividends to the date fixed for redemption. Payment of the redemption price will be made by Bank of Montreal on or after February 25, 2014, upon surrender of the Preferred Shares Series 18.

Separately from the payment of the redemption price, the final quarterly dividend of $0.40625 per share for the Preferred Shares Series 18 will be paid in the usual manner on February 25, 2014, to shareholders of record on February 1, 2014.

Notice will be delivered to holders of the Preferred Shares Series 18 in accordance with the terms outlined in the Preferred Shares Series 18 prospectus.

BMO.PR.N is a FixedReset, 6.50%+383, that settled 2008-12-11 after being announced November 25 – a time when the preferred share market was not having a nice time. With an Issue Reset Spread of 383bp, there hasn’t been any real doubt about the redemption – still, BMO left the official announcement until the last minute!

All of the February Exchange Dates have now been accounted for; the next batch comes at the end of April, with BNS.PR.T, BNS.PR.X, CM.PR.L, TD.PR.E and TD.PR.G on the block. The minimum Issue Reset Spread amongst these issues is 414bp, so there’s not much doubt about what’s going to happen.

Brompton Group has announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus with respect to a treasury offering of class A and preferred shares. The class A and preferred share offering prices will be set at levels that ensure that existing unitholders are not diluted.

Dividend Growth Split Corp. invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Currently, the portfolio consists of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	AGF Management Limited	Shaw Communications Inc.
Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce	IGM Financial Inc.	TELUS Corporation
Manulife Financial Corporation	National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	Manitoba Telecom Services	Enbridge Inc.
Bank of Montreal	The Toronto-Dominion Bank	Rogers Communications Inc.	TransCanada Corporation

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share, and to provide the opportunity for growth in net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions currently in the amount of $0.13125 per preferred share, representing a yield on the original issue price of 5.25% per annum, and to return the original issue price to holders of preferred shares on the original November 30, 2014 maturity date.

On October 1, 2013, the Company announced an extension of the maturity date of the class A and preferred shares of the Company for an additional 5 year term to November 28, 2019, subject to extension for successive terms of up to 5 years. The preferred share dividend rate for the extended term will be announced at least 60 days prior to the original November 30, 2014 maturity date. The new dividend rate will be determined based on then-current market yields for preferred shares with similar terms.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc. and includes BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Mackie Research Capital Corporation, and Manulife Securities Incorporated.

DGS.PR.A was last mentioned on PrefBlog when it got bigger last October. DGS.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

In December I deduced that RY.PR.I and RY.PR.L would not be called on their Exchange Date of 2014-2-24, but warned:

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.

Well, there’s been a distinct lack of blahooeyness in the market over the past month, and today Royal Bank of Canada announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series AJ (the “Series AJ shares”) or Series AL (the “Series AL shares”) on February 24, 2014. There are currently 16,000,000 Series AJ shares and 12,000,000 Series AL shares outstanding.

Subject to certain conditions set out in the prospectus supplement dated September 9, 2008 relating to the issuance of the Series AJ shares, the holders of the Series AJ shares have the right to convert all or part of their Series AJ shares, on a one-for-one basis, into Non-Cumulative Floating Rate First Preferred Shares, Series AK (the “Series AK shares”) on February 24, 2014.

Subject to certain conditions set out in the prospectus supplement dated October 27, 2008 relating to the issuance of the Series AL shares, the holders of the Series AL shares have the right to convert all or part of their Series AL shares, on a one-for-one basis, into Non-Cumulative Floating Rate First Preferred Shares, Series AM (the “Series AM shares”) on February 24, 2014. On such date, holders who do not exercise their right to convert their Series AJ shares or Series AL shares into Series AK or Series AM shares, as the case may be, will continue to hold their Series AJ and Series AL shares.

The foregoing conversion rights are subject to the following:

i. if Royal Bank of Canada determines that there would be less than 1,000,000 Series AK shares or less than 1,000,000 Series AM shares outstanding after February 24, 2014, then holders of Series AJ or Series AL shares will not be entitled to convert their shares into Series AK or Series AM shares, as the case may be, and

ii. alternatively, if Royal Bank of Canada determines that there would remain outstanding less than 1,000,000 Series AJ or less than 1,000,000 Series AL shares after February 24, 2014, then all remaining Series AJ or AL shares will automatically be converted into Series AK or AM shares, as the case may be, on a one-for-one basis on February 24, 2014.

In either case, Royal Bank of Canada will give written notice to that effect to holders of Series AJ and AL shares no later than February 17, 2014.

The dividend rates applicable for the Series AJ and AL shares for the 5-year period from and including February 24, 2014 to but excluding February 24, 2019, and the dividend rates applicable to the Series AK and AM shares for the 3-month period from and including February 24, 2014 to but excluding May 24, 2014, will be determined and announced by way of a press release on January 24, 2014.

Beneficial owners of Series AJ shares and Series AL shares who wish to exercise their conversion rights, should communicate with their broker or other nominee to obtain instructions for exercising such rights during the conversion period, which runs from January 24, 2014, until 5:00 p.m. (EST) on February 10, 2014.

It is obviously too early to make a firm recommendation regarding conversion into FloatingResets since the fixed rate is not yet known, but at the moment all the FloatingReset / FixedReset pairs are trading with an entirely reasonable levels of Implied Average Three-Month Bill yield, so no convincing argument can be made either way.

TransCanada Corporation has announced:

that it has completed its public offering of cumulative redeemable first preferred shares, series 9 (the “Series 9 Preferred Shares”). TransCanada issued 18 million Series 9 Preferred Shares for aggregate gross proceeds of $450 million through a syndicate of underwriters co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

The Series 9 Preferred Shares will begin trading today on the TSX under the symbol TRP.PR.E.

TRP.PR.E is a FixedReset, 4.25%+235, announced January 13. It will be tracked by HIMIPref™ and assigned to the FixedReset subindex.

The issue traded 490,441 shares today in a range of 24.90-99 before closing at 24.86-95, 40×101. Vital statistics are:

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of 10,000,000 cumulative redeemable rate reset class A preferred shares, series 5 (the “Series 5 Preferred Shares”) for aggregate gross proceeds of $250 million (the “Offering”).

The Offering was announced on January 7, 2014 when Pembina entered into an agreement with a syndicate of underwriters led by Scotiabank and RBC Capital Markets. Due to strong investor demand, the size of the Offering was increased from an originally proposed offering of 6,000,000 Series 5 Preferred Shares plus an underwriters’ option to purchase up to an additional 2,000,000 Series 5 Preferred Shares (for aggregate gross proceeds of $200 million assuming the underwriters’ option had been exercised in full).

Proceeds from the Offering will be used to partially fund Pembina’s 2014 capital expenditure program, including capital expenditures relating to Pembina’s current expansion and growth projects, to reduce indebtedness under the Company’s credit facilities, and for general corporate purposes of the Company and its affiliates.

The Series 5 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol PPL.PR.E.

Pembina’s Board of Directors also declared an initial dividend of $0.1507 per Series 5 Preferred Share for the period from January 16, 2014 to February 28, 2014 which is payable on March 1, 2014 to shareholders of record at the close of business on February 1, 2014.

Future dividends on the Series 5 Preferred Shares are expected to be $0.3125 quarterly, or $1.25 per share on an annualized basis, payable on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, for the initial fixed rate period to but excluding June 1, 2019.

All of Pembina’s dividends are designated “eligible dividends” for Canadian income tax purposes.

PPL.PR.E is a FixedReset, 5.00%+300, announced January 7. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 761,612 shares today in a range of 24.90-09 before closing at 25.05-06, 3×20. Vital statistics are: