Category: Issue Comments

DBRS has announced that it:

has today placed Emera Inc.’s (Emera or the Company) Issuer Rating and related ratings Under Review with Developing Implications. This rating action follows the announcement of the Company’s acquisition of the Bridgeport Energy, Tiverton and Rumford gas-fired generation facilities (the Portfolio) from Capital Power L.P. (rated BBB; the Acquisition). The Acquisition, total value of approximately USD $541 million, is expected to close in the fourth quarter of 2013, subject to various approvals.

The Portfolio is located in Connecticut, Rhode Island and Maine (the U.S. Northeast region) and has approximately 1,050 MW of total non-contracted generation capacity. All output from the facilities is sold into the New England power market. This Acquisition would increase Emera’s installed capacity in New England, as well as the Company’s total generation assets.

Business Risk Profile – Modestly Negative Based on its preliminary review, DBRS views the proposed acquisition as modestly negative with respect to Emera’s existing business risk profile. Upon completion of the Acquisition, this non-contracted portfolio would account for approximately 25% of Emera’s total generation capacity, exposing the Company to the currently low wholesale pricing environment.

Financial Risk Profile – Neutral to Negative DBRS expects the Company to fund the Acquisition in a prudent manner, such that there would be minimal impact on its deconsolidated leverage. The Company had a deconsolidated debt-to-capital ratio of 34.2% as of December 31, 2012. As noted in DBRS’s press release dated December 14, 2012 (“DBRS Changes Trend on Emera Inc. to Stable from Negative”), the Stable trend reflects DBRS’s expectation that Emera will continue to reduce its non-consolidated debt-to-capital ratio, in the medium term, to below 30%, to be in line with its current rating category. Should Emera’s financing strategy deviate from the aforementioned leverage improvement, there could be negative rating implications.

Emera’s press release states:

Emera plans to finance the purchase with cash and short term credit resources on closing; and ultimately expects to finance the acquisition with a combination of debt and equity consistent with maintaining its strong financial position and existing credit ratings. The transaction is subject to certain regulatory approvals and is expected to close by the end of 2013.

“Emera is making this investment for the long term,” said Mr. Huskilson. “The earnings profile is modest in the early years, but we have acquired these facilities at a fair price and we expect their value will increase over time, as we optimize within our portfolio, as older, less efficient assets in the region are retired, and more intermittent renewable generation is added to the system.”

EMA has three preferred share issues outstanding: EMA.PR.A and EMA.PR.C (both FixedReset) and EMA.PR.E (PerpetualDiscount). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

BMO.PR.R, the new issue recently partially converted from BMO.PR.M started trading today at a fine premium to its Strong Pair.

Regrettably for those seeking to make easy money on the stock market, the closing price for BMO.PR.M on August 7, 2013, the last day of trading for regular settlement on or prior to the conversion deadline date of August 12, was …. 24.89, so there hasn’t been much profit for those buying BMO.PR.M for the sole purpose of converting and flipping; or, to put it another way, the conversion privilege supported the price of BMO.PR.M until the last moment.

BMO.PR.R will be tracked by HIMIPref™. It will be allocated to the FixedReset subindex for now, but will be transferred to a new FloatingReset subindex as soon as enough of this type of share exists.

Vital statistics are:

The Bank of Montreal has announced:

that 5,732,609 of its 12 million Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 16 (the “Preferred Shares Series 16”) will be converted on August 26, 2013, on a one-for-one basis, into Non-Cumulative Floating Rate Class B Preferred Shares, Series 17 of the Bank (the “Preferred Shares Series 17”). As a result, on August 26, 2013, the Bank will have 6,267,391 Preferred Shares Series 16 and 5,732,609 Preferred Shares Series 17 issued and outstanding. The Preferred Shares Series 16 and Preferred Shares Series 17 will be listed on the Toronto Stock Exchange under the symbols BMO.PR.M and BMO.PR.R, respectively.

Manulife Financial has announced:

that the Funds’ boards of directors have approved a proposal for each Fund to, among other things, grant securityholders an additional option to allow them to continue their investment in each Fund beyond the currently scheduled termination date of December 2, 2013.

By approving the proposal for each Fund, securityholders will have the opportunity to benefit from a recovering market backdrop. The proposal for each Fund will include, among other things, the following:

• The term of Copernican World Banks Split Inc. and Copernican International Financial Split Corp. may be extended for an additional term of five years. In addition, the termination date of the Funds may be extended further for successive terms of five years thereafter, as determined by the Board; and
• Current redemption rights of the Class A shareholders and Preferred shareholders will remain unchanged and securityholders will be provided with an additional special retraction right providing an option to retract either Preferred shares or Class A shares at the end of the term (and each successive term thereafter) and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on December 2nd, 2013.

A special meeting of securityholders of the Funds has been called and will be held on or about November 15, 2013 to consider and vote upon the proposal for each Fund and any ancillary matters (the “Special Meetings”). Securityholders of record of the Funds at the close of business on or about September 18, 2013 are entitled to receive notice of and vote at the Special Meetings, with respect to their Fund. Further details of the proposal for each Fund will be outlined in a management information circular that will be delivered to securityholders in connection with the Special Meetings.

The proposal for each Fund remains subject to review by the Funds independent review committee.

As of July 31, CIR had a NAVPU of $5.94 compare to the preferreds’ par value of $10.00. The latter link also notes:

Pursuant to the terms of the Management Agreement, the Manager is entitled to a fee of 1.95% per annum of the NAV calculated daily and payable monthly plus an amount calculated daily and payable quarterly the Company equal to the service fee (the “Service Fee”) payable to the registered dealers, plus applicable taxes, including Harmonized Sales Tax. The Manager is responsible for the payment of the Portfolio Advisor’s and the Sub-Advisor’s fees.
…
The Manager calculates and pays to registered dealers whose clients hold Class A Shares a Service Fee calculated daily and payable quarterly in arrears at an annual rate equal to 0.40% annually of the value of the Class A Shares held by clients of the sales representatives of such registered dealers, plus applicable taxes, if any. For these purposes, the value of a Class A Share on any given business day will be the NAV per Unit less $10.00 and less the amount of any accrued and unpaid distributions on a Preferred Share.

The former links notes:

MER: 2.60%

Expenses can be expensive for a small public fund!

I must, of course, reserve judgement on a voting recommendation until I have seen the proposal. But I cannot imagine anything the company could do to convince a rational investor to vote in favour of their proposal. Other than cut fees to the bone. Ha-ha.

However, at least Manulife is allowing a special retraction this time, so a positive vote can be effectively vetoed by individual holders.

CIR.PR.A is not tracked by HIMIPref™. The last mention of it on PrefBlog occurred when DBRS discontinued the rating in 2009.

Manulife Financial Corporation has announced:

that the Funds’ boards of directors have approved a proposal for each Fund to, among other things, grant securityholders an additional option to allow them to continue their investment in each Fund beyond the currently scheduled termination date of December 2, 2013.

By approving the proposal for each Fund, securityholders will have the opportunity to benefit from a recovering market backdrop. The proposal for each Fund will include, among other things, the following:

• The term of Copernican World Banks Split Inc. and Copernican International Financial Split Corp. may be extended for an additional term of five years. In addition, the termination date of the Funds may be extended further for successive terms of five years thereafter, as determined by the Board; and
• Current redemption rights of the Class A shareholders and Preferred shareholders will remain unchanged and securityholders will be provided with an additional special retraction right providing an option to retract either Preferred shares or Class A shares at the end of the term (and each successive term thereafter) and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on December 2nd, 2013.

A special meeting of securityholders of the Funds has been called and will be held on or about November 15, 2013 to consider and vote upon the proposal for each Fund and any ancillary matters (the “Special Meetings”). Securityholders of record of the Funds at the close of business on or about September 18, 2013 are entitled to receive notice of and vote at the Special Meetings, with respect to their Fund. Further details of the proposal for each Fund will be outlined in a management information circular that will be delivered to securityholders in connection with the Special Meetings.

The proposal for each Fund remains subject to review by the Funds independent review committee.

As of July 31, 2013, CBW had a NAVPU of $4.55 compared to its par value of $10. The latter link also notes:

Pursuant to the terms of the Management Agreement, the Manager is entitled to a fee of 1.95% per annum of the NAV calculated daily and payable monthly plus an amount calculated daily and payable quarterly by the Company equal to the service fee (the “Service Fee”) payable to the registered dealers, plus applicable taxes, including Harmonized Sales Tax. The Manager is responsible for the payment of the Portfolio Advisor’s and the Sub-Advisor’s fees.
…
The Manager calculates and pays to registered dealers whose clients hold Class A Shares a Service Fee calculated daily and payable quarterly in arrears at an annual rate equal to 0.40% annually of the value of the Class A Shares held by clients of the sales representatives of such registered dealers, plus applicable taxes, if any. For these purposes, the value of a Class A Share on any given business day will be the NAV per Unit less $10.00 and less the amount of any accrued and unpaid distributions on a Preferred
Share.

On the other hand, the former link notes:

MER: 2.76%

Expenses can be expensive for a small public fund!

I must, of course, reserve judgement on a voting recommendation until I have seen the proposal. But I cannot imagine anything the company could do to convince a rational investor to vote in favour of their proposal. Other than cut fees to the bone. Ha-ha.

However, at least Manulife is allowing a special retraction this time, so a positive vote can be effectively vetoed by individual holders.

CBW.PR.A is not tracked by HIMIPref™. The last mention of it on PrefBlog occurred when DBRS discontinued the rating in 2009.

DBRS has announced:

Since DBRS’s latest report on Bell Canada, Industry Canada has restated its intention of establishing four wireless carriers in each region of the country. DBRS notes that a viable fourth competitor with strong financial backing could cause the competitive environment to intensify. DBRS believes the potential implications of increased competition for the Company’s operating performance and equity valuations could make less-conservative financial management more compelling for Bell Canada. In DBRS’s view, the addition of a strong fourth bidder in the 700 MHz wireless spectrum auction could materially increase the price for spectrum. These factors could make it more difficult for Bell Canada to reach its intended leverage target within DBRS’s stated 24-month timeframe. DBRS notes that failure by Bell Canada to deleverage as expected could result in a negative rating action.

Furthermore, DBRS feels that a strong fourth industry player could heighten competition such that even more conservative financial management may be required for BCE Inc./Bell Canada’s credit risk profile to remain commensurate with its current rating categories. DBRS will continue to carefully monitor the operating performance and financial management of Bell Canada, particularly in the context of an evolving competitive environment.

BCE has a large number of preferred share issues outstanding:
Ratchet Rate: BCE.PR.B, BCE.PR.D, BCE.PR.E, BCE.PR.H, BCE.PR.J, BCE.PR.S and BCE.PR.Y
FixedFloater: BCE.PR.A, BCE.PR.C, BCE.PR.F, BCE.PR.G, BCE.PR.I, BCE.PR.R, BCE.PR.T and BCE.PR.Z
FixedReset: BCE.PR.K

All are tracked by HIMIPref™; all are consigned to the Scraps index on credit concerns.

DBRS has announced that it:

has today downgraded the Issuer Rating and the Senior Unsecured Debt & Medium-Term Notes of Atlantic Power Limited Partnership (APLP) to B (high) from BB, and the rating of Atlantic Power Preferred Equity Ltd.’s Cumulative Preferred Shares to Pfd-5 (high) from Pfd-4. The trends on all ratings are now Negative. The ratings of APLP are based on the credit quality of Atlantic Power Corporation (ATP or the Company; not rated by DBRS) given that APLP guarantees the majority of ATP’s debt at the holding company level (22% of consolidated debt as at June 30, 2013).
…
The Negative trend reflects DBRS’s view that the Company’s key ratios could weaken further as a meaningful recovery of the wholesale power market will be challenging. The wholesale electricity market outlook remains weak and creates uncertainties associated with the renewal of certain long-term contracts, such as Selkirk (expires in August 2014), Tunis (December 2014) and Greeley (August 2013). In the absence of business environment improvement, ATP will likely have to execute a combination of the following to improve its financial profile: (1) capital and operating expense spending curtailment, (2) dividend reduction and (3) further asset sales. If ATP is successful in implementing a sustainable recovery, which would be largely influenced by the timing of the electricity price recovery, DBRS could consider changing the trend to Stable. However, should ongoing weak business fundamentals remain and key financial metrics deteriorate further, DBRS will likely take a further negative rating action.

These issues were recently downgraded to P-5 by S&P.

Standard & Poor’s has announced:

• We are revising our outlook on Montreal-based Bombardier Inc. to negative from stable.
• The outlook revision follows two recently announced delays to the first flight of Bombardier’s CSeries plane. We believe these delays create a heightened risk of further capital costs for the CSeries program, as well
  as a possible delay in our expected timeline for the recovery of Bombardier’s credit metrics.

• The negative outlook reflects our opinion that Bombardier will be challenged in the next 24 months to improve its credit metrics to be commensurate with a ‘BB’ rating.
• We are also affirming our ‘BB’ long-term corporate credit rating on the company.

…
As of June 30, 2013, the company’s adjusted debt-to-EBITDA leverage ratio was 9x, which we view as very weak for a ‘BB’ rating. The negative outlook also reflects our opinion that Bombardier could be challenged in the next 24 months to improve its credit metrics to be commensurate with a ‘BB’ rating.
…
We could downgrade the company if it is unable to achieve an adjusted debt-to-EBITDA leverage ratio of 8x or lower at year-end 2013. In addition, we could lower our rating on Bombardier if there are further delays in the CSeries program, resulting in increased capital expenditures that would ultimately delay improvement in the adjusted leverage ratio from our current expectations in the next two years and weaken our assessment of the company’s financial risk profile. Furthermore, should Bombardier’s liquidity deteriorate to a point where we believe it will need additional funds over the next two years, we could downgrade the company.

A return to a stable outlook would require Bombardier to be on a definitive path to successfully placing the CSeries into service, which in our view, would support the recovery of its credit metrics, including a funds from operations-to-debt ratio of about 12% or higher by year-end 2014.

This follows the Review-Negative from DBRS.

Bombardier has three series of preferreds outstanding: BBD.PR.B (Ratchet Rate); BBD.PR.C (PerpetualDiscount) and BBD.PR.D (FixedFloater). All are tracked by HIMIPref™; all are assigned to the Scraps index on Credit concerns.

Financial 15 Split Corp. has released its Semi-Annual Report to May 31, 2013.

Figures of interest are:

MER: 1.19%

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $133.2-million, compared to $147.0-million on May 31, so call it an average of $140.1-million. Total Preferred Share Distribution for the six months was $2.427-million, at $0.525/share p.a. implies an average of 9.25-million units, at an average NAV of ((15.89 + 14.37) / 2 = 15.13, so call it $140.0-million. Pretty close! Call the average net assets $140-million

Underlying Portfolio Yield: Semi-annual dividends received (net of withholding) of 2,066,050 divided by average net assets of 140-million is 2.95%

Income Coverage: Net Investment Income of 1,218,283, divided by Preferred Share Distributions of 2,426,598 is 50.2%.

Dividend 15 Split Corp. has released its Semi-Annual Report to May 31, 2013.

Figures of interest are:

MER: 1.29% of the whole unit value, excluding one time initial offering expenses.

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $307.8-million, compared to $320.1-million on May 31, so call it an average of $314-million. Total Preferred Share Distribution for the six months was $4.363-million, at $0.525/share p.a. implies an average of 16.62-million units, at an average NAV of ((19.22 + 18.45) / 2 = 18.84, so call it $313.1-million. Pretty close! Call the average net assets $314-million

Underlying Portfolio Yield: Dividends received of $5.779-million divided by average net assets of $314-million, multiplied by two because it’s semiannual is 3.68%.

Income Coverage: Dividends of 5.779-million less expenses before issuance fees of 2.055-million is 3.72-million, to cover preferred dividends of 4.36-million is 85%.