Category: Issue Comments

The Toronto-Dominion Bank has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding 10 million Non-Cumulative 5-Year Rate Reset Preferred Shares, Series Y (the “Series Y Shares”) of TD on October 31, 2013. As a result and subject to certain conditions set out in the prospectus dated July 7, 2008 relating to the issuance of the Series Y Shares, the holders of the Series Y Shares have the right to convert all or part of their Series Y Shares, on a one-for-one basis, into Non-Cumulative Floating Rate Preferred Shares, Series Z (the “Series Z Shares”) of TD on October 31, 2013. Holders who do not exercise their right to convert their Series Y Shares into Series Z Shares on such date will continue to hold their Series Y Shares.

The foregoing conversion right is subject to the conditions that: (i) if TD determines that there would be less than 1,000,000 Series Z Shares outstanding after October 31, 2013, then holders of Series Y Shares will not be entitled to convert their shares into Series Z Shares, and (ii) alternatively, if TD determines that there would remain outstanding less than 1,000,000 Series Y Shares after October 31, 2013, then all remaining Series Y Shares will automatically be converted into Series Z Shares on a one-for-one basis on October 31, 2013. In either case, TD will give written notice to that effect to holders of Series Y Shares no later than October 24, 2013.

The dividend rate applicable to the Series Y Shares for the 5-year period from and including October 31, 2013 to but excluding October 31, 2018, and the dividend rate applicable to the Series Z Shares for the 3-month period from and including October 31, 2013 to but excluding January 31, 2014, will be determined and announced by way of a press release on October 1, 2013.

Beneficial owners of Series Y Shares who wish to exercise their conversion right 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 exercise, which is 5:00 p.m. (Toronto time) on October 16, 2013.

The current GOC5 rate is 1.91%, so pending the official announcement October 1, we may assume the new rate will be 3.59%, or $0.8975 p.a. This represents a steep decline from the original rate of 5.10% (or $1.275 p.a.), so my mailbox will be filling up shortly with outraged queries from casual investors.

We can examine the comparables with the help of the Pairs Equivalency Calculator:

The closing bid for TD.PR.Y yesterday was 25.01; assuming this holds after the conversion privilege is no longer available then the average implied three-month bill rate of 2.26% calculated above in turn implies a bid on the new issue of 25.39.

So, as of right now, it looks like conversion is recommended. Naturally, investors will want to wait until the last moment before making a decision.

Additionally, it will be noted that although the deadline for notifying the company is October 16, intermediary brokers will almost always have earlier internal deadlines. Also, it is normal that trades must be settled before notice can be given … so for most brokers, I suggest that the last day for trading the issue in the hopes of reaping enormous profits on conversion will be Wednesday October 9 (remember there is a skip-day for Thanksgiving). This strategy didn’t work very well for the BMO.PR.M / BMO.PR.R conversion, when the price of BMO.PR.M was supported by the conversion privilege and promptly sank after the last trading day to settle prior to the notification date. But there will be some who try!

Quadravest Capital Management Inc. has announced:

Dividend 15 Split Corp. (the “Company”) is pleased to announce that it has completed the overnight marketing of up to 1,866,380 Preferred Shares and up to 1,866,380 Class A Shares. Total proceeds of the offering are expected to be approximately $38 million [Footnote]. Due to strong demand the Company increased the size of the offering from its original target. The offering was co-led by National Bank Financial, CIBC World Markets and RBC Capital Markets and also included BMO Nesbitt Burns Inc. and TD Securities Inc. The sales period of this overnight offering has now ended.

[Footnote reads:] (1) Offering includes public transaction and private placement

The overnight offering was reported on PrefBlog yesterday.

DBRS has announced that it:

has today upgraded the rating of the Class B Preferred Shares, Series 1 (the Preferred Shares), issued by R Split III Corp. (the Company) to Pfd-2 from Pfd-2 (low). Approximately 1.23 million Preferred Shares were issued at $13.60 each on May 31, 2012, following the redemption of the Class A Preferred Shares in accordance with their original terms as part of a share capital reorganization. The final redemption date for the Preferred Shares is May 31, 2017.

The net proceeds from the issuance of the Preferred Shares were used by the Company to purchase common shares (the Portfolio) of Royal Bank of Canada (RBC; rated AA, Stable by DBRS).
…
Downside protection available to holders of the Preferred Shares increased to 68.8% as of September 12, 2013, compared to 66.3% on April 18, 2013. In addition, RBC raised its dividends on August 29, 2013, increasing quarterly distributions by four cents to 67 cents per share. This dividend boost increases the Preferred Share distribution coverage ratio to 2.6 times (up from 2.3 times in April 2013). The upgrade of the rating of the Preferred Shares is based primarily on the increasing level of downside protection available and the improved distribution coverage ratio.

RBS.PR.B is not tracked by HIMIPref™ – too small! It was last mentioned on PrefBlog when the offering was completed in May, 2012.

Standard and Poor’s has announced:

• We are revising our outlook on Brookfield Asset Management Inc. to stable from negative.
• At the same time, we are affirming our ratings on the company, including our ‘A-‘ long-term and ‘A-2’ short-term corporate credit ratings.
• We base the outlook revision on our view that Brookfield’s credit measures have improved to levels within our target range for the rating on a sustainable basis, primarily because of improved funds from operations (FFO) generation.
• Our estimate of Brookfield’s year-end 2013 FFO incorporates strong growth (before gains), driven by improved performance across most of the company’s operating platforms.

…
We view Brookfield’s portfolio diversity favorably and believe that the considerable level of diversification in the cash-generating assets of the investment platforms provides the company with strong insulation against geographic or asset-type-specific underperformance. Furthermore, Brookfield has a global investment portfolio with 80% of assets located in developed countries, with relatively more stable economic, political, and legal frameworks, such as the U.S., Canada, and Australia, and 20% in the growing and more volatile markets in Asia and South America. We believe the flexibility of having a high percent of invested assets in listed entities provides an additional level of liquidity that supports Brookfield’s ability to pay its corporate obligations in case of a sharper-than-expected decline in FFO or an unexpected cash need. In our opinion, Brookfield management has substantial noncore assets and financial instruments that can be quickly monetized.

The stable outlook reflects our view that debt at the corporate level has steadied and that FFO from investments has improved and should continue to increase modestly. Hence, FFO to debt at the company has improved to levels within our targets on a sustainable basis. We view Brookfield as an operating holding company and our target credit measure ranges recognize that its investments have become increasingly more liquid and provide strong financial flexibility. At the current rating level, we expect Brookfield to maintain FFO to debt of between 28%-38% and FFO coverage between 4.2x-5.5x as well as for it to maintain an investment strategy consistent with an operating holding company.

Coincidentally, this happened on the same day as Desjardins rhapsodized over the common stock:

Desjardins Securities reiterated its “top pick” rating on Brookfield Asset Management Inc., saying it is “comfortable” the Toronto-company’s shares have the potential to double in price within five years.

The company’s focus on real estate, infrastructure, power generation and asset management make it attractive to institutional and retail investors who are in search of yield but wary of “fragile” equity markets, Desjardins analysts Michael Goldberg and Bradley Romain wrote in a research report today.

Brookfield Asset Management is the proud issuer of:

FixedResets BAM.PF.A, BAM.PF.B, BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X, BAM.PR.Z
Floaters BAM.PR.B, BAM.PR.C, BAM.PR.K
RatchetRate BAM.PR.E
FixedFloater BAM.PR.G
OperatingRetractible BAM.PR.J
Straight Perpetual BAM.PR.M, BAM.PR.N, BAM.PF.C

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 20 of Scotiabank (the “Preferred Shares Series 20”) on October 26, 2013 and, as a result, subject to certain conditions, the holders of Preferred Shares Series 20 have the right to convert all or part of their Preferred Shares Series 20 on a one-for-one basis into Non-cumulative Floating Rate Preferred Shares Series 21 of Scotiabank (the “Preferred Shares Series 21”) on October 26, 2013. Holders who do not exercise their right to convert their Preferred Shares Series 20 into Preferred Shares Series 21 on such date will retain their Preferred Shares Series 20.

The foregoing conversions are subject to the conditions that: (i) if Scotiabank determines that there would be less than one million Preferred Shares Series 20 outstanding after October 26, 2013, then all remaining Preferred Shares Series 20 will automatically be converted into Preferred Shares Series 21 on a one-for-one basis on October 26, 2013, and (ii) alternatively, if Scotiabank determines that there would be less than one million Preferred Share Series 21 outstanding after October 26, 2013, no Preferred Shares Series 20 will be converted into Preferred Shares Series 21. In either case, Scotiabank shall give a written notice to that effect to holders of Series 20 Preferred Shares no later than October 19, 2013.

The dividend rate applicable to the Preferred Shares Series 20 for the five-year period commencing on October 26, 2013 and ending on October 25, 2018, and the dividend rate applicable to the Preferred Shares Series 21for the three-month period commencing on October 26, 2013, and ending on January 25, 2014, will be determined and announced by way of a press release on September 27, 2013.

Beneficial owners of Preferred Shares Series 20 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 October 11, 2013.

The current GOC5 rate is 2.02%, so pending the official announcement September 27, we may assume the new rate will be 3.72%, or $0.93 p.a. This represents a steep decline from the original rate of 5.00% (or $1.25 p.a.), so my mailbox will be filling up shortly with outraged queries from casual investors.

We can examine the comparables with the help of the Pairs Equivalency Calculator:

The closing bid for BNS.PR.Q today was 25.18; assuming this holds after the conversion privilege is no longer available then the average implied three-month bill rate of 2.29% calculated above in turn implies a bid on the new issue of 25.47.

So, as of right now, it looks like conversion is recommended. Naturally, investors will want to wait until the last moment before making a decision.

Additionally, it will be noted that although the deadline for notifying the company is October 11, intermediary brokers will almost always have earlier internal deadlines. Also, it is normal that trades must be settled before notice can be given … so for most brokers, I suggest that the last day for trading the issue in the hopes of reaping enormous profits on conversion will be Monday October 7. This strategy didn’t work very well for the BMO.PR.M / BMO.PR.R conversion, when the price of BMO.PR.M was supported by the conversion privilege and promptly sank after the last trading day to settle prior to the notification date. But there will be some who try!

The Bank of Nova Scotia has announced:

that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 12 of Scotiabank (the “Preferred Shares Series 12”) on October 29, 2013 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 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.

BNS.PR.J is a DeemedRetractible, paying 5.25%.

Update, 2013-10-31: Removed from TXPR.

Brompton Split Banc Corp. has released its Semi-Annual Report to June 30, 2013.

Figures of interest are:

MER: 0.98%

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $153.6-million, compared to $148.3-million on June 30, so call it an average of $151.0-million. Since the number of units outstanding didn’t change, we can stop there.

Underlying Portfolio Yield: Semi-annual dividends and security lending income received of 3,255,566 divided by average net assets of 151.0-million is 4.31% p.a.

Income Coverage: Net Investment Income of 2,528,389, divided by Preferred Share Distributions of 1,633,624 is 155%.

TransCanada Corporation has announced:

that TransCanada PipeLines Limited (the “Company”) authorized the redemption of all the Company’s four million outstanding 5.60 per cent Cumulative Redeemable First Preferred Shares Series U (Series U Shares) on October 15, 2013. The Series U Shares will be redeemed at a price of $50 per share plus $0.5907 representing accrued and unpaid dividends to such redemption date. The total face value of the outstanding Series U Shares is $200 million and they carry an aggregate of $11.2 million in annualized dividends.

The redemption of the Series U Shares will be administered by Computershare Trust Company of Canada. The Series U Shares trade on the Toronto Stock Exchange under the symbol TCA.Pr.X.

Update: Now, why would TransCanada redeem these shares when they’ve gone out of style recently? Well … have a look at SEDAR and particularly the Preliminary Short Form Prospectus issues September 9 … I’m not allowed to link to this document directly, because the Canadian Securities Administrators, many of whom will eventually get new jobs at the banks and CDS, have awarded a monopoly on the electronic publication of public securities documents to CDS; CDS, naturally, abuses this monopoly by refusing to allow external links to this public information.

Anyway, this prospectus is for more MTNs. On July 19 they issued $300-million of debentures priced at 99.521 with a coupon of 4.55% … and TCA.PR.X has a coupon of 5.6% … and that 5.6% is dividends ….

DBRS has announced that it:

has today taken a range of rating actions on ten structured preferred shares.
…
Equity performance has been positive over the past year, with the S&P/TSX Composite Index rising by 7.0% from July 31, 2012, to July 31, 2013. All ten Issuers experienced stable or increasing net asset values (NAVs) over that same period, with those exposed primarily to Canadian financial institutions outperforming more diversified funds. Notwithstanding the positive performance over the past year, the ratings assigned to the many of the Preferred Shares continue to be constrained by distributions paid to holders of the Capital Shares, which depress NAVs and downside protection levels. Other key rating factors include the downside protection volatility in recent months, the credit quality and diversification of each Portfolio and the expected maturity date of the Preferred Shares of each Issuer. One Preferred Share was upgraded, primarily based on the level and stability of the downside protection over the past year.