Category: Issue Comments

Dundee Corporation announced on May 28:

is confirming the terms of the preference shares to be issued by each of Dundee and DREAM Unlimited Corp. (“DREAM”) pursuant to the previously announced corporate restructuring of Dundee through a tax efficient plan of arrangement (the “Arrangement”).

Dundee’s First Preference Shares, Series 1 have a liquidation value of $25.00 per share. Pursuant to the Arrangement, holders of Dundee’s First Preference Shares, Series 1 will receive, for each such share held, (i) a new First Preference Share, Series 4 of Dundee with a liquidation amount of $17.84 (compared with $18.67, as previously estimated) and an annual dividend of 5%, and (ii) a First Preference Share, Series 1 of DREAM with a liquidation amount of $7.16 (compared with $6.33, as previously estimated) and an annual dividend of 7%, such shares having the redemption rights described below. The combined liquidation value of the two new shares that will be issued will equal the $25.00 original liquidation value of each of Dundee’s First Preference Shares, Series 1.

• • Dundee’s First Preference Shares, Series 4 – Redemption Rights
  • Dundee’s First Preference Shares, Series 4 will be redeemable, at the option of Dundee, at any time prior to June 30, 2013 at $18.38 per share, at any time on or after June 30, 2013 and prior to June 30, 2014 at $18.20 per share, at any time on or after June 30, 2014 and prior to June 30, 2015 at $18.02 per share, and at any time on or after June 30, 2015 at $17.84 per share. In addition, Dundee’s First Preference Shares, Series 4 will be redeemable, at the option of the holder, at any time on or after June 30, 2016 at $17.84 per share.
• • DREAM’s First Preference Shares, Series 1 – Redemption Rights
  • DREAM’s First Preference Shares, Series 1 will be redeemable, at the option of DREAM, at any time prior to June 30, 2013 at $7.37 per share, at any time on or after June 30, 2013 and prior to June 30, 2014 at $7.30 per share, at any time on or after June 30, 2014 and prior to June 30, 2015 at $7.23 per share, and at any time on or after June 30, 2015 at $7.16 per share. In addition, DREAM’s First Preference Shares, Series 1 will be redeemable, at the option of the holder, at any time on or after December 31, 2013 and prior to December 31, 2014 at $7.30 per share, at any time on or after December 31, 2014 and prior to December 31, 2015 at $7.23 per share, and at any time on or after December 31, 2015 at $7.16 per share.

Expected DREAM Capitalization

Based on the number of Class A Subordinate Voting Shares, Class B Common Shares and First Preference Shares, Series 1 of Dundee outstanding as of May 27, 2013, Dundee expects that there will be an aggregate 75,730,459 Class A Subordinate Voting Shares and Class B Common Shares of DREAM outstanding upon completion of the Arrangement, anticipated for May 30, 2013, and 6,000,000 First Preference Shares, Series 1, with an aggregate liquidation amount of approximately $43 million.

Both DC.PR.C and DRM.PR.A will be tracked by HIMIPref™ despite not having credit ratings. This is because they are derived from DC.PR.A, which used to have a credit rating, and has been grandfathered. They will be assigned to the Scraps index on credit concerns.

Vital statistics are:

Morgan Meighen & Associates has announced:

that it has completed its public offering of $75,000,000 (3,000,000 shares), 3.75% Cumulative Redeemable Class A Preference Shares, Series 4 (TSX symbol: CGI.PR.D).

The net proceeds of this offering will be used, together with available cash, to repay a short-term loan used to fund the previously announced redemption of its $75,000,000, 4.65% Cumulative Redeemable Class A Preference Shares, Series 2 (TSX symbol: CGI.PR.B), which was completed on May 29, 2013 for an aggregate amount of $75,716,610 (including accrued and unpaid dividends from March 15, 2013 to May 28, 2013). This redemption was in accordance with the terms of the governing short form prospectus.

CGI.PR.D is a SplitShare, 10-Year Retractible, 3.75%, announced April 29. The issue will be tracked by HIMIPref™ and is assigned to the SplitShares subindex.

CGI.PR.D traded 435,750 shares today in a range of 25.20-30 before closing at 25.25-35, 76×30. Vital statistics are:

Royal Bank of Canada has announced:

its intention, subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI), to redeem all of its issued and outstanding Non-Cumulative First Preferred Shares Series AH (the “Series AH shares”) on July 2, 2013, for cash at a redemption price of $26.00 per share. This is comprised of the $25.00 per share original issue price plus a $1.00 per share redemption premium.

In addition, the Bank has also declared a 39-day dividend of $0.150925 per Series AH share covering the period from May 24, 2013 (the date of the last dividend payment), up to but excluding the redemption date of July 2, 2013. This results in a total amount of $26.150925 per share to be paid upon surrender of the Series AH shares.

There are 8,500,000 shares of Series AH outstanding, representing $212.5 million of capital. The redemption of the Series AH shares will be financed out of the general corporate funds of Royal Bank of Canada.

Please visit www.rbc.com/investorrelations/share-information to view tax Questions & Answers relating to this redemption.

The tax Questions & Answers make the point that for tax purposes the redemption price is $25.00 with a $1.00 Deemed Dividend; for many individuals this will make a big difference in their decision as to whether to hold the issue until redemption or to sell it into the market.

Update, 2013-6-25: Removed from TXPR.

DBRS has announced that it:

has today placed the Issuer Rating and the Senior Unsecured Debt & Medium-Term Notes rating, both BB, of Atlantic Power Limited Partnership (APLP) and the Cumulative Preferred Shares rating of Pdf-4 of Atlantic Power Preferred Equity Ltd. Under Review with Negative Implications. 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 (24% of consolidated debt as at April 20, 2013).

The rating action reflects DBRS’s concern over the deterioration of ATP’s credit metrics this past year, which are no longer commensurate with the current ratings, and the challenges facing the Company with respect to carrying out its long-term strategy given its limited financial flexibility. There is a possibility that ATP could breach the consolidated EBITDA-to-interest covenant of 2.25 times (x) and net debt-to-consolidated EBITDA covenant (total leverage ratio) of 7.50x for one or more quarters in 2013 and early 2014, respectively, under its senior credit facility, which could further constrain liquidity. The Company is currently in discussion with the lenders for a waiver to the senior credit facility. ATP also plans to seek a broader amendment to take into account changes in its long-term business development plans after successfully concluding the current discussions. Even if the Company successfully obtains a waiver and/or amendment, DBRS believes that the Company still faces a number of challenges in implementing its long-term business strategy of deleveraging the consolidated balance sheet and financing future project development with 50% debt and 50% equity in the midst of a weak wholesale pricing environment. If the current bank discussions are not successful, the Company plans to cash collateralize the outstanding letters of credit under the facility and terminate the facility prior to any default, in which case, a negative rating action could immediately follow.

DBRS acknowledges that the Company benefits from long-term power contracts (over 90% of ATP’s generation assets), providing cash flow stability. In addition, during 2013, ATP completed the sale of certain projects (see the rating report for more detail). DBRS views the divestitures as a moderately positive factor as the majority of the projects sold had power purchase agreements expiring in 2013 and a portion of the proceeds were used to repay the outstanding borrowings under the senior credit facility.

This follows a similar announcement by S&P.

AZP.PR.A and AZP.PR.B are both tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Brookfield Asset Management has announced:

its intention to redeem all of its outstanding Class A Preference Shares, Series 21 (“Preferred Shares, Series 21”) (TSX:BAM.PR.O) for cash on June 30, 2013. The redemption price for each share will be C$25.00. Holders of Preferred Shares, Series 21 will separately receive all accrued and unpaid interest outstanding on the redemption date. Brookfield intends to use the net proceeds of the issue of Preferred Shares, Series 37 to redeem its Preferred Shares, Series 21 and, to the extent the underwriters’ option is exercised, for general corporate purposes.

The issue of the Series 37 shares has been reported on PrefBlog.

So … they’re refunding a 5.00% Retractible with a 4.90% Straight Perpetual. A nice day’s work!

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 21 (the “Preferred Shares Series 21”), on August 16, 2013, being, pursuant to the share conditions, the first date the Bank may, at its option, redeem the Preferred Shares Series 21 at a price equal to $25.00 per share, together with all declared and unpaid dividends.

Formal notice will be issued toshareholders in accordance with the share conditions. The redemption of the Preferred Shares Series 21 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.

NA.PR.N was one of the first FixedResets brought to market and has a now irrelevant Issue Reset Spread of +205bp. There are less than 3.5-million shares outstanding, as a tender offer in 2011 attracted more than half the float.

NA.PR.N is tracked by HIMIPref™ and is a member of the FixedReset sub-index.

Dividend 15 Split Corp II has announced:

that the Notice of Special Meeting of Shareholders and Management Information Circular relating to the previously announced special meeting of the holders of the Company’s Preferred Shares and Class A Shares, to be held at 10:30 a.m. (Eastern standard time) on June 3, 2013, has been mailed to the shareholders.

The purpose of the meeting is to consider a special resolution to allow Class A and Preferred shareholders to continue their investment beyond the currently scheduled termination date of December 1, 2014. Under the proposal, the termination date would be extended by 5 years to December 1, 2019.

If the extension is approved, Class A and Preferred shareholders will be provided with a Special Retraction right which is designed to provide them with an opportunity to retract their shares and receive a retraction price that is calculated in the same way that such price would be calculated if the Company were to terminate on December 1, 2014 as originally contemplated.

The term extension proposal is being brought to shareholders well in advance of the scheduled 2014-12-1 termination date; I guess markets are good enough that management thinks they can get a good positive vote – particularly since Capital Unitholders have now received five consecutive distributions but with a valuation of $15.90 as of May 15 (compared to a NAV test of $15.00), their future entitlements are looking a little uncertain. However, just to make sure of a positive vote, the information circular specifies:

The Company will also pay a dealer whose clients hold Shares of the Company a fee of $0.05 in respect of each Preferred Share and $0.10 in respect of each Class A Share voted by the client of such dealer in favour of the matters set forth in the Notice of Special Meeting of Shareholders, to a maximum of $1,000 per beneficial holder, and provided that such client does not retract the Shares so voted pursuant to the Special Retraction Right (as defined below).

Specifically:

Shareholders are being asked at the Meeting to consider and, if thought advisable, to approve a special resolution (the Special Resolution) authorizing the Board of Directors to amend the articles of incorporation of the Company, as amended (the Articles) to:

(i) extend the term of the Company initially to December 1, 2019 while providing Shareholders with retraction rights which will effectively provide them with the same rights on such extension that they would have had if the scheduled termination date of the Company were not to be so extended,

(ii) provide the Company with the various means to ensure that, following any exercise of such special retraction right, the number of outstanding Preferred Shares and the number of outstanding Class A Shares is the same,

(iii) from and after December 1, 2019, provide the Board of Directors with the right to extend the term of the Company for further terms of five years each, while also providing Shareholders with retraction rights which will effectively provide them
with the same rights on any such extension that they would have had if the term of the Company were not to be so extended,

(iv) provide the Company with the means to ensure that, following any exercise of such retraction right, the number of outstanding Preferred Shares and the number of outstanding Class A Shares is the same,

(v) from and after December 1, 2019, provide the Company with the right to set the rate at which dividends or other distributions will be paid on the Preferred Shares for the ensuing five year renewal term, and

(vi) permit the Company to be terminated prior to any scheduled termination date if the Preferred Shares or the Class A Shares are delisted from the Toronto Stock Exchange (TSX) or if the net asset value of the Company declines to less than $5
million.

Current retraction rights will continue:

If the Special Resolution is approved, the Preferred Shares and the Class A Shares will continue to be listed and trade on the TSX and holders will also continue to have their normal monthly and annual retraction rights, as described in the Annual Information Form, until the final redemption of all the Shares.

However – and this is important – if the term extension is approved, the Special Retraction Date is very soon:

If the extension of the Termination Date is approved, a Shareholder who retracts a Class A Share under the 2013 Special Retraction Right will receive a retraction price per Class A Share equal to the net asset value per Unit calculated on June 28, 2013, less $10.00. A Shareholder who retracts a Preferred Share under the Special Retraction Right will receive a retraction price per Preferred Share equal to the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on June 28, 2013. Shareholders wishing to take advantage of the 2013 Special Retraction Right must surrender their Shares for retraction no later than the close of business on June 26, 2013. Payment for the Class A Shares or Preferred Shares so tendered for retraction pursuant to the 2013 Special Retraction Right will be made no later than July 11, 2013.

The term extension is reasonable enough, although I’m irritated that it’s occurring so much in advance of the scheduled liquidation date and that the company is spending up to $0.15 / Unit on proxy solicitation fees. I recommend that DF.PR.A shareholders vote in favour of the term extension.

DF.PR.A was last mentioned on PrefBlog when their 2011 Annual Report and 12H1 Semi-Annual Report was discussed. DF.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Dividend 15 Corp. has announced:

that the Notice of Special Meeting of Shareholders and Management Information Circular relating to the previously announced special meeting of the holders of the Company’s Preferred Shares and Class A Shares, to be held at 10:00 a.m. (Eastern standard time) on June 3, 2013, has been mailed to the shareholders.

The primary purpose of the meeting is to consider a special resolution to allow Class A and Preferred shareholders to continue their investment beyond the currently scheduled termination date of December 1, 2014. Under the proposal, the termination date would be extended by 5 years to December 1, 2019.

If the extension is approved, Class A and Preferred shareholders will be provided with a Special Retraction right which is designed to provide them with an opportunity to retract their shares and receive a retraction price that is calculated in the same way that such price would be calculated if Dividend 15 were to terminate on December 1, 2014 as originally contemplated.

The term extension proposal is being brought to shareholders well in advance of the scheduled 2014-12-1 termination date; I guess markets are good enough that management thinks they can get a good positive vote! Just to make sure, though, the information circular specifies:

The Company will also pay a dealer whose clients hold Shares of the Company a fee of $0.05 in respect of each Preferred Share and $0.10 in respect of each Class A Share voted by the client of such dealer in favour of the Extension Special Resolution, to a maximum of $1,000 per beneficial holder, and provided that such client does not retract the Shares so voted pursuant to the Special Retraction Right (as defined below).

Specifically:

Shareholders are being asked at the Meeting to consider and, if thought advisable, to approve a special resolution (the Extension Special Resolution) (the text of which is set out in Appendix A to this Circular) authorizing the Board of Directors to amend the articles of incorporation of the Company, as amended (the Articles) to

(i) extend the term of the Company initially to December 1, 2019 while providing Shareholders with retraction rights which will effectively provide them with the same rights on such extension that they would have had if the scheduled termination date of the Company were not to be so extended,

(ii) provide the Company with the various means to ensure that, following any exercise of such special retraction right, the number of outstanding Preferred Shares and the number of outstanding Class A Shares is the same,

(iii) from and after December 1, 2019, provide the Board of Directors with the right to extend the term of the Company for further terms of five years each, while also providing Shareholders with retraction rights which will effectively provide them with the same rights on any such extension that they would have had if the term of the Company were not to be so extended,

(iv) provide the Company with the means to ensure that, following any exercise of such retraction right, the number of outstanding Preferred Shares and the number of outstanding Class A Shares is the same,

(v) from and after December 1, 2019, provide the Company with the right to set the rate at which dividends or other distributions will be paid on the Preferred Shares for the ensuing five year renewal term, and

(vi) permit the Company to be terminated prior to any scheduled termination date if the Preferred Shares or the Class A Shares are delisted from the Toronto Stock Exchange (TSX) or if the net asset value of the Company declines to less than $5
million.

Shareholders are being asked at the Meeting to consider and, if thought advisable, to approve a special resolution (the Merger Special Resolution) (the text of which is set out in Appendix B to this Circular) approving the transfer of the cash assets of Capital Gains Income STREAMS Corporation and Income STREAMS III Corporation (the STREAMS Companies) into the Company through the amalgamation of the STREAMS Companies with the Company (the Merger) and all matters relating to the Merger including the agreement attached to the Circular as Appendix C, as more particularly described in the Circular.

No change in the preferred share dividend rate is proposed (at least, not until 2019). The current retraction privileges are being retained:

If the Special Resolution is approved, the Preferred Shares and the Class A Shares will continue to be listed and trade on the TSX and holders will also continue to have their normal monthly and annual retraction rights, as described in the Annual Information Form, until the final redemption of all the Shares.

However – and this is important! – the Special Retraction Right is effective very soon!

If the extension of the Termination Date is approved, a Shareholder who retracts a Class A Share under the 2013 Special Retraction Right will receive a retraction price per Class A Share equal to the net asset value per Unit calculated on June 28, 2013, less $10.00. A Shareholder who retracts a Preferred Share under the Special Retraction Right will receive a retraction price per Preferred Share equal to the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on June 28, 2013. Shareholders wishing to take advantage of the 2013 Special Retraction Right must surrender their Shares for retraction no later than the close of business on June 26, 2013. Payment for the Class A Shares or Preferred Shares so tendered for retraction
pursuant to the 2013 Special Retraction Right will be made no later than July 11, 2013.

The term extension is reasonable enough, although I’m irritated that it’s occurring so much in advance of the scheduled liquidation date and that the company is spending up to $0.15 / Unit on proxy solicitation fees. I recommend that DFN.PR.A shareholders vote in favour of the term extension and merger.

DFN.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-3 by DBRS. DFN.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Standard & Poor’s has announced:

• •Following a review of Canada-based Manulife Financial Corp. (MFC) group under our revised insurance criteria, we are raising our counterparty credit rating on MFC to ‘A’ from ‘A-‘ and affirming our ‘AA-‘ financial strength ratings on Manufacturers Life Insurance Co. and core subsidiaries. The outlook is stable.
• •Since more than half its earnings come from outside the U.S., the ratings on MFC, which are now two notches below its group credit profile, are consistent with our criteria for non-U.S. insurance holding companies.
• •The ratings reflect our view of the group’s very strong business and financial risk profiles, based on its highly diverse franchise, leading market positions and very strong capital and earnings.
• •The stable outlook reflects our view that Manulife will sustain its very strong competitive position, very strong capital adequacy, and earnings capabilities.

…
More than half of MFC’s earnings are now from Canada and other non-U.S. sources, with Asia/Pacific growing the fastest. The narrower notching in Canada relative to the U.S. primarily reflects that the same regulator, the Office of the Superintendent of Financial Institutions (OSFI), supervises and regulates both the life insurance holding company and its operating subsidiaries. Under this regime, the regulator places limited restrictions on dividends between Canadian insurance operating companies and their parent regulated holding company.
…
Globally, Manulife faces low industry and country risk because its core businesses are in largely stable, major global markets, predominately Canada and the U.S. Within Canada, Manulife faces very low industry and country risk reflecting our view of very low country and low industry risks for its life insurance operations. Our view of Manulife’s country risk arises from the stable economic growth prospects, relatively effective and stable political institutions, sophisticated financial systems, and strong payment culture in Canada. In our view, Manulife’s life insurance operations are exposed to low Canadian industry risks due to high barriers to entry in a market dominated by a small number of life insurers and a strong institutional framework where the primary regulator, OSFI, maintains highly effective oversight of the industry. OSFI’s primary solvency metric, the minimum continuing capital and surplus requirement (MCCSR) ratio, comprehensively captures all insurance risks in each domestic life insurer and their international subsidiaries. Low industry risk also reflects that insurance products in Canada generally have less aggressive guarantees as well as a strong industry track record of very tight asset-liability matching. This is necessitated by a financial reporting and regulatory framework that applies fair-value accounting principles equally to both sides of the balance sheet. The framework also tends to be pro-cyclical, resulting in an earlier recognition of long-term adverse macroeconomic effects and relatively conservative reported financial results.
…
Geographically, Manulife’s premiums and deposits, as well as assets under management, are widely distributed: the U.S. represents 48% and 55%, respectively; Canada 24% and 25%; Asia 18% and 15%; and corporate and other, 10% and 5%, as of year-end 2012. The company’s strong market position reflects its top-three position among insurers in Canada, top-five position among individual life insurers in the U.S., and strong presence in key Asia-Pacific markets. Its core earnings are well balanced throughout its global operations: U.S. contributing 38%, Asia 33%, and Canada 29% as of year-end 2012.
…
We could lower the ratings if, contrary to our expectations:

• •Manulife develops a deficiency in its ERM practices that leads us to view its ERM as merely adequate rather than strong;
• •Manulife’s very strong competitive position weakens due to a loss of market position or brand strength; or
• •Capital adequacy deteriorates and becomes materially deficient at the ‘AA’ confidence level as measured by our capital model.

We could also lower the ratings on MFC by widening the notching if, contrary to our expectations, earnings from the U.S. come to dominate the group’s earnings on a sustained basis.

While a positive rating action is also unlikely in the next 24 months, we could raise the rating if Manulife’s operating performance strengthens and consistently outperforms global peers, or if capital and earnings strengthen further to a level supportive of higher ratings.

S&P is surprisingly effusive in its praise for OSFI; but for those on the verge of getting carried away, I urge a comparison between the quoted levels of US and Canadian profitability, as measured by the relative contributions of premiums, deposits and AUM vs. profit.

MFC has the following preferred share issues outstanding:

• MFC.PR.A, OperatingRetractible
• MFC.PR.B, MFC.PR.C, DeemedRetractible
• MFC.PR.D, MFC.PR.E, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, FixedReset