Category: Issue Comments

Bell Aliant Inc. has announced:

that its subsidiary, Bell Aliant Preferred Equity Inc. (the “Company”), has closed the sale of 8,000,000 4.25 per cent Cumulative 5-Year Rate Reset Series E Preferred Shares (the “Series E Preferred Shares”) at a price of $25.00 per Series E Preferred Share for total gross proceeds of $200 million. This follows the Company’s previously announced bought deal public offering led by Scotiabank, TD Securities Inc, and CIBC. The Series E Preferred Shares begin trading on the TSX under the symbol “BAF.PR.E” today.

BAF.PR.E is a FixedReset, 4.25%+264, announced January 30. The announced issue size of $200-million implies that the greenshoe option for another $30-million was not exercised.

The issue traded 908,461 shares today in a range of 25.12-50 before closing at 25.28-30, 3×42. Vital statistics are:

BAF.PR.E will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

On July 23, 2012, Nexen entered into an agreed to be acquired by CNOOC:

In addition, under the terms of the transaction, if approved by the holders of preferred shares in a separate class vote, CNOOC Limited will acquire the outstanding preferred shares of Nexen for a purchase price of C$26.00 per share in cash, plus any dividends accrued but unpaid at the time of closing. However, closing of the arrangement is not conditioned upon approval by the holders of the Nexen preferred shares.

According to the information circular:

Full details of the Arrangement are set out in the accompanying Notice of Special Meeting of Shareholders and Information Circular and Proxy Statement (the ‘‘Information Circular’’). The following is a summary of the relevant terms of the Arrangement for the holders of outstanding Shares:

• • Common Shareholders (other than dissenting holders of Common Shares) will receive, for each Common Share held, U.S.$27.50 in cash, without interest (the ‘‘Common Share Consideration’’); and
• • subject to the requisite approval of the Arrangement by the Preferred Shareholders, the Preferred Shareholders (other than dissenting holders of Preferred Shares) will receive, for each Preferred Share held, Cdn.$26.00 in cash (together with an amount equal to all accrued and unpaid dividends up to, but excluding, the date of closing of the Arrangement), without interest (the ‘‘Preferred Share Consideration’’).

The plan was approved by shareholders on September 20, 2012:

The arrangement was approved by approximately 99% of the votes cast by Nexen common shareholders and approximately 87% of the votes cast by Nexen preferred shareholders at the special meeting held on September 20, 2012.

The closing of the arrangement remains subject to the granting of the final order by the Court of Queen’s Bench of Alberta, the receipt of required regulatory approvals and the satisfaction or waiver of the other customary closing conditions.

Nexen has now announced:

Nexen Inc. (“Nexen”, TSX, NYSE: NXY) announced today that Nexen has received approval from the Committee on Foreign Investment in the United States (CFIUS) with respect to the proposed acquisition of Nexen by CNOOC Limited, and now has all of the requisite approvals to proceed to close.

The transaction is expected to close the week of February 25, 2013 and remains subject to customary closing conditions.

S&P has announced:

S&P Canadian Index Services will make the following changes in the S&P/TSX Canadian Indices:

Nexen Inc. (TSX: NXY) has announced today the receipt of all regulatory, shareholder and court approvals for its transaction with CNOOC whereby the shares of Nexen will be acquired by CNOOC for $US27.50 cash per share. The shares of Nexen will be removed from the S&P/TSX Composite, Capped Composite and Composite Equal Weight, the S&P/TSX 60, 60 Capped, 60 130/30 and 60 Equal Weight, the S&P/TSX Capped Energy, the S&P/TSX Composite Dividend and the S&P/TSX Equal Weight Oil & Gas Indices after the close of trading on Wednesday, February 20, 2013. Catamaran Corporation (TSX: CCT) will be removed from the S&P/TSX Completion Index and added to the S&P/TSX 60, 60 Capped and 60 Equal Weight Indices. Catamaran will not be added to the S&P/TSX 60 130/30 Index at this time. The Class ‘A’ Series 2 Preferred Shares of Nexen (TSX: NXY.PR.A) will be removed from the S&P/TSX Preferred Share, the S&P/TSX Preferred Share Laddered and the S&P/TSX North American Preferred Stock Indices at the same time.

BAM Split Corp., issuer of BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E, has released its Annual Report to September 30, 2012.

Figures of interest are:

MER: (excluding dividends on preferred shares, issue costs and Class A Preferred Share redemption premium) 0.0%. You don’t see that number very often! A more precise calculation from the Income Statement shows that the expenses totalled $319,000 for the year, or about 3bp p.a. on net assets.

The expenses are wel itemized, however, and are a delight for voyeurs. I found the Listing Fees of $96,000 and Rating Fees of $6,000 to be most interesting.

Average Net Assets: This must be calculated if we’re to find the second decimal point on the MER. On 2011-9-30, total assets were 1.541-billion; on 2012-9-30, 1.802-billion. I used the lower figure.

Underlying Portfolio Yield: Given the fund’s portfolio composition and investment policy, deviations from the raw yield on BAM.A will not be material. This is currently 1.446%

Income Coverage: Dividends & Interest of $28.731-million less expenses (before amortization of issue costs) of $0.319-million is $28.412-million, to cover preferred (both junior and senior, which is not standard) dividends of $28.5-million is 100%.

The Brookfield guys never miss an accounting trick. They have on their books deferred issuance costs of $4.556-million, which reduces the value of the preferreds and hence increases the value of the Capital Units. Split Share Corporations normally expense their issuance costs immediately upon issue, but doing it this way means that the Capital Unit Value, and hence the Unit Value, is higher than it would be otherwise. This amounts to about $0.16 per unit. Naturally, keeping it on the books means you’ve got to charge it to annual expenses via amortization, but nobody’s going to look at that for analytical purposes. I didn’t! Strictly speaking, though, the $0.16 should be deducted from the NAVPU when calculating Asset Coverage.

DBRS has announced that it:

has today downgraded all the ratings of HSBC Bank Canada following the downgrade of the ratings of HSBC Holdings plc (the Parent; see DBRS’s HSBC Holdings plc press release dated February 8, 2013). The outlook on all ratings is Stable. The ratings have been removed from Under Review with Negative Implications, where they were placed on July 20, 2012.

DBRS ratings of HSBC Bank Canada, including the Long-Term Deposits and Senior Debt (no guarantee) rated AA (low) and Subordinated Debt (no guarantee) at A (high), are based largely on the relationship HSBC Bank Canada has with the Parent, which is one of the largest global banking groups. DBRS’s Issuer Rating – Long-Term of the Parent is AA with a Stable trend.

Under DBRS’s global bank rating methodology, DBRS has assigned HSBC Bank Canada a support assessment of SA1, reflecting a strong expectation of timely support from the Parent.

Given the strategic nature of the relationship between HSBC and the Parent, but lack of an explicit guarantee, the non-guaranteed long-term deposits and senior debt rating of HSBC has been assigned a rating that is one notch lower than HSBC Holdings plc.

The press release on HSBC Holdings states:

The downgrade takes into account HSBC’s recent fines and customer redress costs (including anti money laundering in the US and Payment Protection Insurance (PPI) in the UK), which demonstrate a weaker operational risk profile than is commensurate with the prior rating level. Moreover, DBRS expects the process for HSBC to raise compliance standards across the Group to be a lengthy and costly process. DBRS notes that HSBC already made major organisational changes to its structure in 2011, whereby control has been more centralised within the global businesses and functions rather than spread across multiple geographies, and that these changes should underpin the ongoing reforms. However, in DBRS’s view it is a significant challenge to successfully reform procedures and strengthen controls in large, complex banking organisations, such as HSBC.
…
…the Group has increased its spending on anti-money laundering, remedial measures, and an overhaul of controls and procedures, and intends to bring all controls globally to its highest global standard. DBRS considers that it is difficult to assess the full cost and revenue impact of meeting these higher standards, but expects it to be a drag on profitability.

Hurray! They’re going to spend more on anti-money laundering! It reminds me of John Allison’s remark:

And then there was the Patriot Act, which was supposed to catch terrorists. I’ve talked to many people in government and they all do this dancing act, but the fact is there has never been a single terrorist caught and convicted because of the Patriot Act. The Act cost the banking industry more than $5 billion annually, and I would argue that no one is going to be caught. If you are dumb enough to get caught under the Patriot Act, you are going to get caught anyway. The only significant conviction of the Patriot Act was Eliot Spitzer, the governor of New York, who was convicted of soliciting prostitutes under a law designed to catch terrorists.

The DBRS announcement in July that HSB was on Review-Negative was reported on PrefBlog.

HSBC Bank Canada is the issuer of HSB.PR.C, HSB.PR.D (both DeemedRetractibles) and HSB.PR.E (FixedReset). All are tracked by HIMIPref™ and assigned to the indicated subindices. All are now rated Pfd-2.

BCE Inc. has announced:

BCE Inc. will, on March 1, 2013, continue to have Cumulative Redeemable First Preferred Shares, Series AC (“Series AC Preferred Shares”) outstanding if, following the end of the conversion period on February 19, 2013, BCE Inc. determines that at least 2.5 million Series AC Preferred Shares would remain outstanding. In such a case, as of March 1, 2013, the Series AC Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 3.550%.

That’s a good step downwards from its last reset in 2008 to 4.60%!

As noted earlier:

As far as deadlines for conversion go:

In order to convert your shares, you must exercise your right of conversion during the conversion period, which runs from January 15, 2013 to February 19, 2013, inclusively.

Note that brokerages will have their own deadlines for notice, which may be a few days earlier than the date on which BCE must be notified – so if you’re contemplating conversion, check well in advance!

Less than two weeks to go! So if you’re planning to convert from BCE.PR.C to or from BCE.PR.D, better start getting your ducks in a row now!

BCE.PR.D is a RatchetRate preferred, by which I mean it pays between 50% and 100% of Canada Prime on its par value of $25. The percentage paid increases when the market price of the issue is significantly less than $25, and decreases when the price is significantly above. The issue has been well below par for some time and the current percentage is 100%.

Given that Canada Prime can be estimated to be about 200bp above three-month treasury bills, this makes BCE.PR.D the rough equivalent of a FloatingReset (of which none yet exist; they will appear by conversion from FixedResets) with an Issue Reset Spread of 200bp, for as long as it trades below par. Since +200bp is a pretty skimpy spread for an issuer of BCE’s credit quality, it is reasonable to assume that it will trade below par for the next five years … while always remembering that it might not!

Given the above, we can assume that BCE.PR.D will pay 100% of Canada Prime for the next five years; thus, it will pay more dividends than BCE.PR.C if the average Canada Prime Rate over the period is more than 3.55%.

I think there’s a pretty good chance of that, and even if that turns out not to be the case, it is hard to imagine that Canada Prime will actually go down over the period, so the downside of being wrong isn’t all that terrible.

Therefore, I recommend that holders of BCE.PR.C convert to BCE.PR.D and recommend that holders of BCE.PR.D retain their holdings (at least, so far as conversion is concerned; no recommendation is made here regarding potential trades out of BCE.PR.D into any other issue).

Laurentian Bank has announced:

Laurentian Bank of Canada announces that it will redeem, on March 15, 2013, all of its Non-Cumulative Class A Preferred Shares Series 9 then outstanding. Such preferred shares will be redeemed at a redemption price of $25.00 per share, together with any declared and unpaid dividends.

Beneficial holders who are not the registered holders of these shares should contact the financial institution, broker or other intermediary through which they hold such shares to confirm how they will receive the redemption proceeds. Formal notices and instructions for the redemption will be forwarded to all registered shareholders.

LB.PR.D is a DeemedRetractible with a 6.00% coupon. It was last mentioned on PrefBlog when the LB preferreds were downgraded to P-3(high) by S&P in December, 2012. LB.PR.D has been tracked by HIMIPref™, but has been relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today assigned a provisional rating of A (low) to a proposed $350 million Unsecured Medium Term Notes (the Notes) to be issued by Brookfield Asset Management Inc. (Brookfield or the Company). The trend is Stable. The provisional rating is based on draft term sheets provided by the Company on January 28, 2013. The assignment of a final rating is subject to receipt by DBRS of final documentation that is consistent with that which DBRS has already reviewed.

The proposed Notes, a $175 million tranche maturing April 2019 and a $175 million tranche maturing March 2023, will be an unsecured obligation and will rank equally and ratably with all of the Company’s other unsecured and unsubordinated obligations. Proceeds of the Notes will be used for the redemption of the $150 million unsecured debt maturing June 2014 (including related costs), refinancing of the US$75 million unsecured debt maturing October 2013 and reduction of short-term borrowing outstanding. DBRS understands that the transaction will not result in any material increase in the level of corporate borrowing at Brookfield.

In assigning the provisional instrument rating, DBRS reiterates that there remains minimal room for further deterioration, as indicated in our most recent commentary on the Company, published on October 19, 2012. DBRS expects that Brookfield’s corporate-level financial metrics for 2012 will reach our targets (funds from operations (FFO) to debt of 30% or higher and FFO interest coverage of 5.0 times) for the ratings and will maintain them at these levels going forward. The ratings could come under pressure if these metrics fall materially short of the targets or if there is a material deterioration or rating downgrade in one or more of the core businesses (including Brookfield Office Properties Inc.).

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

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).

DBRS’ increasing discomfort with the rating on BAM has been reported on PrefBlog in several posts: BAM To Slow Balance Sheet Deterioration and DBRS: BAM is Not-Quite-Trend-Negative. S&P assigned Outlook Negative to BAM last spring, Outlook Negative to BPO in the summer and, most recently, DBRS Increasingly Nervous About BAM.

Scotia Managed Companies has announced:

The Board of Directors of SL Split Corp.(the “Company”) has announced today that the redemption prices for all outstanding Capital Shares and Preferred Shares to be paid on
January 31, 2013 are as follows:

Redemption Price per Preferred Share: $25.78

Redemption Price per Capital Share: $1.55

Holders of 189,000 Capital Shares requested delivery of and will receive their pro rata share of portfolio shares in payment for their Capital Shares.

Capital Shares and Preferred Shares of SL Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols SLS and SLS.PR.A respectively. The Capital Shares and Preferred Shares will be de-listed from The Toronto Stock Exchange as at the close of trading on January 31, 2013.

The intention to redeem was reported on PrefBlog. SLS.PR.A was not tracked by HIMIPref™.

Brookfield Renewable Energy Partners has announced:

the completion of its previously announced 5% perpetual Class A Preferred Shares, Series 5 (“Preferred Shares”) issue in the amount of CDN$175,000,000. Brookfield Renewable issued, through a wholly-owned subsidiary, 7,000,000 Preferred Shares at a price of CDN$25.00 per share, for total gross proceeds of CDN$175,000,000.

The offering was underwritten by a syndicate led by RBC Capital Markets, CIBC, Scotiabank, and TD Securities Inc.

The Series 5 Preferred Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BRF.PR.E.

BRF.PR.E is a Straight Perpetual, 5.00%, announced January 21. It has been rated Pfd-3(high) by DBRS.

The issue traded 560,718 shares in a range of 24.94-03 before closing at 24.99-01, 25×14. Vital statistics are:

Scotia Managed Companies has announced:

allBanc Split Corp. (the “Company”) is pleased to announce that it filed a preliminary short form prospectus in respect of a proposed public offering of Class C preferred shares, series 1 and additional Class A capital shares (the “Capital Shares”) collectively, the “Shares”.

The Shares are being offered to the public on a best efforts basis by a syndicate of agents led by Scotiabank and including CIBC, RBC Capital Markets, TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp., Macquarie Private Wealth Inc., Raymond James Ltd., GMP Securities L.P. Mackie Research Capital Corporation, Burgeonvest Bick Securities Limited, Desjardins Securities Inc. and Manulife Securities Incorporated.

allBanc Split Corp. is a mutual fund corporation created to hold a portfolio of common shares of the Bank of Montreal, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia, Royal Bank of Canada and The Toronto Dominion Bank. Capital Shares and Class B preferred shares of allBanc Split Corp. are listed for trading on the Toronto Stock Exchange under the symbols ABK.A and ABK.PR.B respectively.

The intent to come out with a refunding issue was reported on PrefBlog. ABK.PR.B is a fairly small issue, with less than half a million shares outstanding with a par value of $26.75 each and is not tracked by HIMIPref™. It is likely that the new issue will also be too small to track.