Category: Issue Comments

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.

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.

…
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.
…
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.
…
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.
…
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.