Category: Issue Comments

As reported on PrefBlog, DBRS confirmed BAM, but changed the trend to negative on March 5. Apparently, they found the experience so exciting that they have done it again:

DBRS has today confirmed the ratings of Brookfield Asset Management Inc. (BAM or the Company). The ratings pertain to BAM at the corporate level and remain on a Negative trend since the last trend change on March 5, 2013. The trend change followed the downgrade of the Issuer Rating of BAM’s subsidiary, Brookfield Office Properties Inc. (BOP), to BBB from BBB (high) and reflects that BAM’s ratings are under pressure because of BOP’s weaker credit quality, as well as the sustained high debt level at BAM’s corporate level. The downgrade of BOP’s rating reflects increased uncertainty due to material near-term maturing tenancy agreements, increased leverage and lower cash flow coverage metrics. As such, DBRS believes that the quality of cash flows remitted to BAM from this material subsidiary, which is available after BOP satisfied its own debt servicing and operating needs, is also weakened.
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BAM’s corporate-level cash flow metrics for the full-year 2012 were close to the previously set targets for the ratings. Funds from operations (FFO)-to-total debt in 2012 was 28% compared to 30% in 2010 (23% and 26%, respectively, after adjusting in accordance with DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions), published on November 5, 2012) while FFO interest coverage was 4.9x in 2012 compared to 5.1x in 2010 (4.4x and 5.0x, respectively, after adjusting for the same).

As consistent with the Negative trend, BAM will be challenged to improve the overall quality of its investments over time through increasing the proportion of investments with strong BBB or better credit quality and more conservative use of leverage at the operating-company level. With weaker quality of cash flow from BOP and increasing leverage (and therefore debt servicing requirements) in its key subsidiaries in recent years, DBRS also believes that the cash flow metrics at BAM’s corporate level will need to be raised in order to maintain the necessary cushion for the ratings. Specifically, DBRS expects BAM to further improve its corporate-level FFO-to-debt toward 35% (or about 30% on an adjusted basis) and FFO interest coverage toward 5.5x (or about 5.0x on an adjusted basis), and to maintain at these levels on a sustained basis.

DBRS will monitor the progress during the course of 2013 and could consider a one-notch downgrade of BAM’s ratings if it becomes evident that the Company will be unable to meet any of the above expectations and to remedy the shortfall within an acceptable timeframe.

The downgrade of Brookfield Office Properties was also reported on PrefBlog.

A downgrade of BAM would also have an immediate effect on the SplitShares issued by BAM Split Corp.: BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E.

It also seems likely that a BAM downgrade would involve collateral or related damage to the ratings of Brookfield Properties Corp (BPO.PR.F, BPO.PR.H, BPO.PR.J, BPO.PR.K, BPO.PR.L, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T), Brookfield Office Properties (BPP.PR.G, BPP.PR.J, BPP.PR.M), Brookfield Renewable Power Preferred Equity Inc (BRF.PR.A, BRF.PR.C, BRF.PR.E) and Brookfield Investments Corporation (BRN.PR.A).

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, BAM.PR.O
Straight Perpetual BAM.PR.M, BAM.PR.N, BAM.PF.C

BNS.PR.A is the new FloatingReset that resulted from a partial exchange of BNS.PR.P on the latter issue’s first Exchange Date.

BNS.PR.A is the first FloatingReset to exist, paying 205bp over 3-Month Canada Treasury Bills. It will be tracked by HIMIPref™ and will be assigned to the FixedReset index until there are ten Floating Resets (of investment grade and non-derisory volume), at which point a new FloatingReset index will be created.

Vital statistics are:

On 2013-12-31, DBRS placed BRF on Review-Developing:

DBRS has today placed Brookfield Renewable Energy Partners LP’s (BREP 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 White Pine Hydro Investments, LLC (White Pine or the Portfolio) from a subsidiary of NextEra Energy Resources, LLC (the Acquisition). The total enterprise value of the Acquisition is approximately $760 million (including $700 million of non-recourse debt) and is expected to close in the first quarter of 2013, subject to various regulatory approvals. The rating action largely reflects some uncertainties associated with a timely and prudent financing strategy.
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The Company intends to initially finance the total acquisition price with cash on hand ($252 million as at September 30, 2012) and credit facilities ($854 million available as at September 30, 2012). DBRS expects the Company to refinance the holding company-level credit facility with a prudent mix of non-recourse project level debt, equity from BREP and contributions from institutional partners in the first half of 2013. The Company has a deconsolidated debt-to-capital ratio of 19% as of June 30, 2012. Should BREP’s expected financing strategy deviate from the aforementioned timeframe and deconsolidated leverage increase to above 20%, there could be negative credit implications.

Today, the review was resolved and the company confirmed with a stable trend:

DBRS has today removed Brookfield Renewable Energy Partners LP’s (BREP or the Company) ratings from Under Review with Developing Implications. DBRS has also confirmed the Issuer Rating and Senior Unsecured Debentures and Notes at BBB (high) and the Class A Preference Shares at Pfd-3 (high), all with Stable trends. With the establishment of non-recourse bridge financing for the acquisition of White Pine Hydro Investments, LLC (the Acquisition; White Pine), the planned issuance of preferred shares on a bought deal basis and expected equity injection from institutional partners, DBRS is comfortable with the Company’s funding strategy, which includes appropriate measures to maintain a reasonable financial profile while executing its growth strategy.
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Following the completion of the Acquisition, the Company has committed to tendering the $700 million of existing debt at White Pine with $350 million of non-recourse bridge financing and $350 million of drawings from BREP’s credit facility and available cash. Concurrently, the Company plans to issue an additional $125 million (up to $175 million) of preferred equity to repay drawings on BREP’s credit facility. The Company also expects to receive equity funding from its institutional partners such that there will be no material incremental drawings on BREP’s credit facility relating to the tendering of the existing debt at White Pine.

Based on BREP’s financing plan, DBRS conducted a pro forma analysis with a financing plan of $350 million non-recourse bridge financing, equity from institutional partners and $125 million of preferred equity issuance.

Based on DBRS’s pro forma calculations, the Company’s credit metrics would be in line with its current rating category with (1) deconsolidated debt-to-capital ratio at approximately 20%, (2) deconsolidated cash flow-to-deconsolidated debt ratio at approximately 18% and (3) deconsolidated cash flow-to-deconsolidated interest coverage at approximately 4.9 times.

BRF is the proud issuer of BRF.PR.A, BRF.PR.C and BRF.PR.E; another issue was announced earlier today. Due to the corporate structure, BAM, BPO, BPP, BNA, BRN and BRF should be considered as the same name for issuer concentration calculation purposes.

The Bank of Nova Scotia has announced:

that 6,302,337 of its 13,800,000 Non-cumulative 5-Year Rate Reset Preferred Shares Series 18 of Scotiabank (the “Preferred Shares Series 18”) have been elected for conversion on April 26, 2013, on a one-for-one basis, into Non-cumulative Floating Rate Preferred Shares Series 19 of Scotiabank (the “Preferred Shares Series 19”). Consequently, on April 26, 2013, Scotiabank will have 7,497,663 Preferred Shares Series 18 and 6,302,337 Preferred Shares Series 19 issued and outstanding. The Preferred Shares Series 18 and Preferred Shares Series 19 will be listed on the Toronto Stock Exchange under the symbols BNS.PR.P and BNS.PR.A, respectively.

So BNS.PR.P continues as a FixedReset, paying 3.35% until the next Exchange Date 2018-4-26, while BNS.PR.A will be the first FloatingReset, paying 205bp over 3-Month Canada Treasury Bills.

Brompton Funds has announced:

At a special meeting of preferred and class A shareholders (“Shareholders”) of Life & Banc Split Corp. (“LBS”) held today, Shareholders approved a special resolution to extend the term of LBS for up to 5 years beyond the scheduled termination date of November 29, 2013 and thereafter for successive terms of up to 5 years as determined by the LBS board of directors. Holders of Class A Shares voted approximately 98% in favour of the extension and holders of Preferred Shares voted approximately 99% in favour of the extension. The extension allows Shareholders to continue their investment in LBS’ portfolio of common shares of six Canadian banks (Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank) and four Canadian life insurance companies (Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.). Shareholders will continue to have monthly and annual retraction rights.

In addition to the daily liquidity provided by the TSX listings, shareholders who do not wish to continue their investment may redeem either their preferred shares or class A shares on November 29, 2013 and each extension of the term thereafter on the same terms that currently exist. LBS will announce the term of the initial extension by news release no later than October 1, 2013. Further details are available in the management information circular dated March 11, 2013.

The plan was reported on PrefBlog. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

On April 23, 2012, Quadravest announced:

Canadian Banc Corp (“The Company”) is pleased to announce that it will issue warrants (“Warrants”), to all Class A Shareholders. Each Class A Shareholder will be entitled to receive one Warrant for each Class A Share held as of the record date of May 4, 2012. Three Warrants will entitle the holder to purchase a Unit consisting of one Class A Share and one Preferred Share for $20.00. The Warrants are exercisable at anytime up to at 5:00 p.m. (Toronto time) on April 30, 2013, the expiry date. If all the Warrants are exercised, the Company will issue approximately 2,257,484 Units and will receive net proceeds of $44,370,316. The net proceeds from the subscription of Units will be used to acquire additional securities in accordance with the Company’s investment objectives, strategies and restrictions. By raising additional cash through this offering it allows the Company to capitalize on certain attractive investment opportunities that may arise over the next few months. In addition, if the full subscription was exercised the offering could increase the trading liquidity of the Company and reduce the management expense ratio.

Both the Preferred Shares and Class A Shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “BK.PR.A” and “BK” respectively. The Warrants will be listed on the TSX under the ticker symbol “BK.WT”. It is expected that Warrants will commence trading on May 7, 2012 and continue trading until 12:00 (EST) on April 30, 2013.

These warrants are just barely in the money, with the NAV as of March 28 being $20.20 ($20.08 Diluted). Given that TTFS, the S&P/TSX Capped Financial Index, is down 1.70% in the month to April 12, they may be out of the money at the moment, but I haven’t checked.

Update, 2014-2-21: According to the 13H1 Financials:

Pursuant to a short form prospectus, each Class A shareholder on record on May 4, 2012 received one warrant, for no consideration, for each Class A share held. Three warrants could be exercised to purchase a unit (one Class A share and one Preferred share) for an exercise price of $20.00 on any business day until April 30, 2013. A total of 6,772,453 warrants were issued on May 4, 2012. The warrants expired on April 30, 2013, and a total of 2,196 warrants were exercised.

DBRS has announced that it:

has today upgraded the rating of the Class C Preferred Shares, Series 1 (the Preferred Shares) issued by 5Banc Split Inc. (the Company) to Pfd-2 from Pfd-2 (low). Approximately 2.58 million Preferred Shares were issued at $10 each on December 15, 2011, following the redemption of the Class B Preferred Shares in accordance with their original terms as part of a share capital reorganization. The final redemption date for the Preferred Shares is December 15, 2016.
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Based on the current dividend yields on the underlying banks, the Preferred Share dividend coverage ratio is approximately 2.1 times. Holders of the Capital Shares are expected to receive all excess dividend income after the Preferred Share distributions and other expenses of the Company have been paid.

Since the rating confirmation in December 2012, the Company has continued to perform strongly, with net asset value rising above $27 for a brief period before retreating slightly in March. The upgrade of the rating of the Preferred Shares is based primarily on the increasing level of downside protection available to holders of the Preferred Shares, which was 62.6% as of April 4, 2013.

FBS.PR.C was last mentioned on PrefBlog when it was issued.

FBS.PR.C is tracked by HIMIPref™ but is relegated to the Scraps index on volume concerns.

Standard & Poor’s has announced:

• •We are lowering our long-term corporate credit rating on RONA Inc. to ‘BB+’ from ‘BBB-‘.
• •We are also lowering our issue-level rating on the company’s senior unsecured debt to ‘BB+’ from ‘BBB-‘ and assigning a ‘4’ recovery rating reflecting average (30%-50%) recovery in the event of a default.
• •The downgrade follows our view of RONA’s continuing weak profitability, which pressures the company’s financial risk profile.
• •We believe that persistently intense competition and the company’s strategic repositioning will constrain profitability in 2013 and 2014.
• •The stable outlook reflects our expectation that a modest increase in home improvement spending combined with cost reductions should enable the company to reverse its earnings declines, but this is exposed to the risks inherent with resizing stores, refocusing other businesses, and making significant staff reductions.

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At the same time, Standard & Poor’s lowered its rating on the company’s global-scale preferred shares to ‘B+’ from ‘BB’ and on its Canada-scale preferred shares to ‘P-4(High)’ from ‘P-3’, reflecting the three-notch separation from the speculative-grade long-term corporate rating.
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The stable outlook on RONA reflects our expectation that a modest increase in home improvement spending combined with cost reductions should enable the company to reverse its earnings declines, potentially reducing leverage to below 3.5x as lease-adjusted debt declines slowly along with the company’s shrinking footprint. We are assuming that the company’s strategic repositioning and cost reductions contribute to a modest improvement in earnings in 2013, notwithstanding the risks inherent with resizing stores, refocusing other businesses, and making significant staff reductions.

We could lower the rating if RONA’s earnings continue to decline, which would be a further indicator of its weakened position in this highly competitive sector. We expect that such a scenario would be characterized by stagnant to
declining revenue and same-store sales, adjusted EBITDA margins remaining below 5.5%, and leverage remaining persistently above 3.5x.

The prospects for an upgrade are limited in the near term, considering the intensity of competition in the soft Canadian home improvement market, as well as RONA’s shifting strategic priorities.

RON.PR.A was last mentioned in PrefBlog when it got hammered in the wake of the DBRS downgrade to Pfd-4(high), Trend Negative

RON.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Quadravest has announced:

Canadian Life Companies Split Corp. (the “Company”) announces a total of 7,129,099 LFE.WT.A 2013 Warrants were exercised at $12.00 each for total gross proceeds of $85,549,188 bringing the Company’s net assets to approximately $190 million.

For every Warrant exercised, holders received one Preferred Share and one Class A Share of the Company. The Warrants expired on March 27, 2013. The net asset value per unit after giving effect to the warrant exercise was $13.03 as at March 28, 2013.

The proceeds from the Warrant exercise are being used by the Company to invest in common shares of four Canadian Life Insurance Companies as follows: Great-West Life, Industrial Alliance, Manulife Financial and Sun Life Financial.

According to their Annual Report to November 30, 2012:

A total of 7,776,613 2013 warrants and 7,776,613 2014 warrants were issued. During 2012, 104,000 2013 warrants were exercised. As at November 30, 2012, there were 7,672,613 2013 warrants and 7,776,613 2014 warrants outstanding.

Additionally, as noted in the post LFE.WT.A Exercise Date Changed, some warrants were exercised prior to the expiry date, but this number has not been released. So the exercise ratio was somewhere between 92% and 100%.

One way or another, the liquidity of LFE.PR.B just got a whole lot better!

Brompton Group has announced:

Life & Banc Split Corp. (“LBS” or the “Fund”) is pleased to announce that its board of directors (the “Board”) has approved granting shareholders an additional option to allow them to continue their investment in the Fund beyond its currently scheduled termination date of November 29, 2013. The proposed extension will not result in any changes to shareholder redemption rights.

Over the last three years, the Class A shares and Preferred shares have traded at an average combined premium to net asset value per share of approximately 4.2%. By approving the extension of the Fund, shareholders will have the opportunity to benefit from potential future trading premiums. In the event that the proposed extension is not approved by shareholders, the Fund will terminate and Class A and Preferred shareholders will receive the net asset value per Class A and Preferred share which are currently less than their trading prices.

LBS invests in a portfolio, on an approximately equal weight basis, of common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank and 4 Canadian life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc. In 2012, the Class A shares and Preferred shares of the Fund had total returns of 46.8% and 5.4%, respectively, as the 6 Canadian banks and 4 Canadian life insurance companies had strong performance over the year.

Under the proposal:

• • The term of LBS may be extended for an additional term of up to 5 years, as determined by the Board. In addition, the termination date may be extended further for successive terms of up to 5 years thereafter, as determined by the Board;
• • Current retraction rights of the Class A shareholders and Preferred shareholders will remain unchanged and shareholders 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 November 29, 2013; and
• • The distribution rates on the Preferred shares and Class A shares for the new term will be announced prior to the extension of the term.

LBS will hold a special meeting of holders of Preferred shares and Class A shares on April 11, 2013 to consider and vote upon the proposal. Shareholders of record at the close of business on March 1, 2013 will be provided with the notice of meeting and management information circular in respect of the meeting and will be entitled to vote at the meeting. The proposal is also subject to any required regulatory approvals.

Further details regarding the proposal will be contained in the management information circular. The circular will also be available on www.sedar.com and posted at www.bromptongroup.com.

LBS.PR.A currently has Asset Coverage of 1.7-:1 and Income Coverage of 107% in 2012, so it is of very good credit quality compared to many of its peers. It was downgraded to Pfd-3(low) by DBRS in September 2012.

The Information Circular contains the vital provision:

provide Shareholders who do not wish to continue their investment in LBS with a special retraction right (the “Special Retraction Right”) to enable such holders to retract their shares at the end of the initial term and each extension of the term thereafter (each, a “Special Retraction Date”) on the same terms that would have applied had LBS redeemed all Class A Shares and Preferred Shares as originally contemplated and provide that Shareholders who wish to exercise such Special Retraction Right must give notice that they wish to exercise such right on or prior to October 31, 2013 and for subsequent Special Retraction Rights no later than the last business day of the month prior to the Special Retraction Date of the year of any extension;

… which makes voting in favour of this an extremely low risk proposition, although it should be noted that management has a blank cheque as far as resetting the dividend on LBS.PR.A is concerned:

The Board may change the distribution rate on the Preferred Shares and the distribution target on the Class A Shares at the time of any extension to the redemption date as described above. Any such change will be announced by way of news release issued at least 60 days prior to such extension of the term.

I recommend that LBS.PR.A holders vote in favour of the proposal although it might be prudent to sell prior to the dividend reset.

Thanks to Assiduous Reader AC for bringing this to my attention.