Category: Issue Comments

Following its warning last fall, Moody’s Investor Service has announced:

today downgraded the long-term ratings of six Canadian banks concluding the review initiated on 26 October 2012. The long-term senior debt ratings of the banks were all downgraded by 1 notch. We also removed systemic support from the ratings of all rated Canadian banks’ subordinated debt instruments, including those issued by Royal Bank of Canada (RBC). RBC’s other ratings were affirmed. The short term Prime-1 ratings of the Canadian banks were affirmed. All ratings for these banks now have a stable outlook. Moody’s special comment “Key drivers of Canadian bank rating actions” ([LINK]) provides additional commentary on the rationale behind today’s actions. “Today’s downgrade of the Canadian banks reflects our ongoing concerns that Canadian banks’ exposure to the increasingly indebted Canadian consumer and elevated housing prices leaves them more vulnerable to unpredictable downside risks facing the Canadian economy than in the past.” said David Beattie, a Moody’s Vice President. “Following today’s actions, the Canadian banks still rank amongst the highest rated banks in our global rating universe.”

OVERVIEW OF TODAY’S ACTIONS

Bank of Montreal (BMO; downgraded to Aa3 stable from Aa2 for long-term deposits)

Bank of Nova Scotia (BNS; downgraded to Aa2 stable from Aa1 for long-term deposits)

Caisse centrale Desjardins (CcD; downgraded to Aa2 stable from Aa1 for long-term deposits)

Canadian Imperial Bank of Commerce (CIBC; downgraded to Aa3 stable from Aa2 for long-term deposits)

National Bank of Canada (NBC; downgraded to Aa3 stable from Aa2 for long-term deposits)

Toronto-Dominion Bank (TD; downgraded to Aa1 stable from Aaa for long-term deposits)

Please click on the following link to access the full list of affected credit ratings. This list is an integral part of this press release and identifies each affected issuer: [LINK]

SUMMARY RATINGS RATIONALE

High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces:

• …
• NBC, BMO and BNS have sizeable exposure to volatile capital markets businesses:
• Moody’s believes that trading and investment banking activities expose financial firms to the risk of outsized losses and risk management and controls challenges, and leave them highly dependent on the confidence of investors, customers and counterparties.
• Canadian banks’ have noteworthy reliance on wholesale funding:
• The Canadian bank’s noteworthy reliance on confidence-sensitive wholesale funding, which is obscured by limited public disclosure, increases their vulnerability to financial markets turmoil.
• Moody’s has removed systemic support from the ratings of all Canadian banks’ subordinated debt instruments that had benefited from support “uplift”:
• The rating agency believes the global trend towards imposing losses on junior creditors in the context of future bank resolutions reduces the predictability of such support being provided to the sub-debt holders of the large Canadian banks given the Canadian regulators’ broad legislated resolution powers. The removal of support for subordinated debt is consistent with recent actions we’ve taken elsewhere, including in many European countries, reflecting the increased likelihood that sub-debt holders would be subject to burden sharing in the event support was required.

The bit about capital markets exposure shows that OSFI’s touting of the benefits is dubious:

Policymakers in Europe and the U.S. are getting set to prohibit banks from getting into risky capital markets activities, but such a step would not make sense in Canada, according a senior executive at the country’s top banking regulator.

Speaking to an industry conference in Toronto, Mark Zelmer, assistant superintendent of the Office of the Superintendent of Financial Institutions, said that for Canada to adopt such a strategy would “be akin to conducting surgery on the [banking system] in the hope of” finding a miraculous solution to the problem of excess risk.
…
Canada has no need to follow the U.S. approach because for decades banks in this country have benefitted from owning capital markets businesses. Ever since lenders were able to own investment dealers back in the 1980s the increased diversification of revenue “helped them weather several financial storms,” he said. “For example, profits from investment banking activities helped cushion bank profits a few years ago when commercial banking activities were experiencing rising loan loss provisions. By the same token, commercial bank profits over the years have helped some banks weather the occasional stumble in capital markets.”

Mr. Zelmer cautioned that the issue is not for OSFI alone to decide, but his comments make clear which way the regulator is leaning.

Anyway, Moody’s ratings on the preferreds are now:

• BMO, Baa2(hyb)
• BNS, Baa1(hyb)
• CM, Baa2(hyb)
• NA, Baa3(hyb)
• TD, A3(hyb)

Like all those hybs? Regulators insist on them, so that investors won’t have to read the prospectus to determine whether a particular instrument is a hybrid or not before buying it.

Issues affect by the preferred share downgrades are (deep breath):
BMO.PR.H, BMO.PR.J, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.N, BMO.PR.O, BMO.PR.P, BMO.PR.Q
BNS.PR.J, BNS.PR.K, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.T, BNS.PR.X, BNS.PR.Y, BNS.PR.Z
CM.PR.D, CM.PR.E, CM.PR.G, CM.PR.K, CM.PR.L, CM.PR.M, CM.PR.P
NA.PR.K, NA.PR.L, NA.PR.M, NA.PR.N, NA.PR.O, NA.PR.P
TD.PR.A, TD.PR.C, TD.PR.E, TD.PR.G, TD.PR.I, TD.PR.K, TD.PR.O, TD.PR.P, TD.PR.Q, TD.PR.R, TD.PR.S, TD.PR.Y

Scotia Managed Companies has announced:

The Board of Directors of SL Split Corp. (the “Company”) has today declared an ordinary dividend of $0.3223 per Preferred Share payable on January 31, 2013 to holders of record at the close of business on January 29, 2013.

The Capital Shares and Preferred Shares will be redeemed by the Company on January 31, 2013 (the “Redemption Date”) in accordance with the redemption provisions of the shares as described in the prospectus dated October 31, 2007. The Preferred Shares will be redeemed at the lesser of (i) $25.78; and (ii) the Unit Value. Holders of the Capital Shares will receive an amount per share, if any, by which the Unit Value exceeds $25.78. As at January 14, 2013 the Unit Value was $27.28.

A further press release will be issued by the Company in connection with the redemption prices on January 30, 2013. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on January 31, 2013.

SL Split Corp. is a mutual fund corporation created to hold a portfolio of common shares of Sun Life Financial Inc. The Company will generate a fixed quarterly dividend for the Preferred shareholders and provide the Capital shareholders with a leveraged investment, the value of which is linked to changes in the market price of the Sun Life 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.

SLS.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-5 by DBRS (who still show it at that level). SLS.PR.A is not tracked by HIMIPref™

BCE Inc. has sent out its conversion notices for BCE.PR.C and BCE.PR.D:

As of March 1, 2013, the Series AC Preferred Shares, should they remain outstanding, 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 determined by BCE Inc. on February 4, 2013 but which shall not be less than 80% of the five-year Government of Canada Yield (as defined in BCE Inc.’s articles) compounded semi-annually and computed on February 4, 2013 by two investment dealers appointed by BCE Inc. The annual dividend rate applicable to the Series AC Preferred Shares will be published on February 6, 2013 in the national edition of The Globe and Mail, the Montreal Gazette and La Presse and will be posted on BCE Inc.’s website at www.bce.ca.

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!

There are no huge interconversion profits available to arbitrageurs this time around – the difference in expected dividends appears to be covered by the bid-ask spreads.

I will make a recommendation of which issue is preferable once the new dividend rate for the FixedFloater, BCE.PR.C, has been announced.

Dividend 15 Split Corp. II has released its Annual Report to November 30, 2011.

Using the S&P TSX 60 index rather than “Dividend Aristocrats” seems a little odd to me – but we’ll let them choose their benchmark!

Figures of interest are:

MER: 1.27% of the whole unit value

Average Net Assets: We need this to calculate portfolio yield. No change in Number of Units Outstanding, so the average of the beginning and end of year figures can be used: $81.0-million

Underlying Portfolio Yield: Dividends received of 3,201,530 divided by average net assets of 81.0-million is 3.90%

Income Coverage: Net Investment Income of 2,131,609 divided by Preferred Share Distributions of 2,655,975 is 80%.

According to the 12H1 Semi-Annual Statement:

MER: 1.53% of the whole unit value. The reason for the increase is not discussed, but appears to be due to an increase in legal fees and shareholder reporting costs.

Average Net Assets: We need this to calculate portfolio yield. No change in Number of Units Outstanding, so the average of the beginning and end of period figures can be used: $78.5-million

Underlying Portfolio Yield: Dividends received of 1,558,606 divided by average net assets of 78.5-million is 1.98% for the half, or call it 3.95% annualized.

Income Coverage: Net Investment Income of 960,503 divided by Preferred Share Distributions of 1,327,988 is 72%.

Missed this when it came out, but better late than never!

GlobalBanc Advantaged 8 Split Corp. has announced:

that the Company will terminate on December 17, 2012 (the “Final Redemption Date”) in accordance with its articles.

Until the Final Redemption Date, the Company will continue to pursue its investment strategy by providing exposure, through the use of a forward agreement, to a portfolio of eight international banks. The forward agreement will be settled on the Final Redemption Date in connection with the termination of the Fund.

The Class A Shares and the Preferred Shares will be redeemed by the Company on the Final Redemption Date in accordance with the redemption provisions of the shares. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $10.00, plus any accrued and unpaid distributions on a Preferred Share and the net asset value (the “NAV”) per Preferred Share as at the Final Redemption Date. The Class A Shares will be redeemed at a price for every Class A Share equal to the amount, if any, by which the NAV per Unit, being one Class A Share and one Preferred Share, exceeds $10.00 and any accrued and unpaid distributions on a Preferred Share as at the Redemption Date. If the NAV per Unit is less than or equal to $10.00 and any accrued and unpaid distributions on a Preferred Share, the Class A Shares will have no value on redemption. As at November 16, 2012, the Company’s NAV per Unit was $4.39.

All redemption payments (if any) are expected to be made on or about December 28, 2012. It is expected that the Class A Shares and the Preferred Shares will be delisted from the Toronto Stock Exchange at the close of trading on December 17, 2012.

According to the company’s still operational website, the NAV on December 17 was $4.61, so there was a significant loss from the $10.00 par value.

GBA.PR.A was last mentioned on PrefBlog when the DBRS rating was discontinued in 2009. GBA.PR.A was not tracked by HIMIPref™.

Scotia Managed Companies has announced:

Allbanc Split Corp. (the “Company”) announced today that the final condition required to extend the term of the Company for an additional five years to March 9, 2018 has been met as holders of 85.6% of Class A Capital Shares have elected to extend. Holders of Class A Capital Shares on December 13, 2012 approved the extension of the term of the Company subject to the condition that a minimum of 361,000 Class A Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”).

Under the Special Retraction Right, 104,212 Class A Capital Shares were tendered to the Company for retraction on March 8, 2013. The holders of the remaining 617,252 Class A Capital Shares will continue to enjoy the benefits of a leveraged participation in the capital appreciation of the Company’s portfolio of publicly listed common shares of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank while potentially deferring any capital gains tax liability which would otherwise be realized on the redemption of their Class A Capital Shares.

The Company’s Class B preferred shares will be redeemed by the Company on March 8, 2013 in accordance with the redemption provisions as detailed in the Company’s March 3, 2008 prospectus. Pursuant to these provisions, the Class B preferred shares will be redeemed at a price per share equal to the lesser of $26.75 and the Unit Value. In order to maintain the leveraged “split share” structure of the Company, the Company intends to create and issue a new series of Class C preferred shares, which are expected to be issued following this redemption. In addition, the Company may also undertake a concurrent public offering of additional Class A Capital Shares at the same time the Class C preferred shares are offered.

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.

ABK.PR.B is a fairly small issue, with less than half a million shares outstanding with a par value of $26.75 each.

ABK.PR.B was last mentioned on PrefBlog when they proposed this transaction. ABK.PR.B is not tracked by HIMIPref™.

Updated, 2013-1-28: New issue provisionally rated Pfd-2(low) by DBRS.

Brookfield Office Properties has announced:

that it intends to redeem all 8,000,000 of its outstanding Class AAA Preference Shares, Series F (TSX: BPO.PR.F), all of which are beneficially held by CDS & Co., as nominee of CDS Clearing and Depositary Services Inc., for cash on January 31, 2013. The redemption price for each such share is C$25.00 plus accrued and unpaid dividends thereon of C$0.1233 (excluding declared dividends with a record date prior to January 31, 2013), representing a total redemption price of C$25.1233 per share.

Notice of Redemption has been sent to CDS & Co. Payment of the redemption price will be made to all beneficial holders of the Series F Shares on or after January 31, 2013 through the facilities of CDS & Co.

This consumates their announcement of intent in September, which was reported on PrefBlog.

Update, 2013-1-23: To be removed from TXPR.

Yellow Media Limited has announced:

that its previously announced recapitalization (the “Recapitalization”) has been implemented and is now effective.

Pursuant to the Recapitalization, Yellow Media Inc.’s former securities and all entitlements relating thereto have been exchanged and cancelled for, as applicable, cash, new common shares (TSX: Y) and warrants (TSX: Y.WT) of Yellow Media Limited, the new public parent company resulting from the Recapitalization, and new senior secured notes and new senior subordinated exchangeable debentures (TSX: YPG. DB) of YPG Financing Inc., the entity previously named Yellow Media Inc. and now a wholly-owned subsidiary of Yellow Media Limited.

Accordingly, trading in the company’s securities was halted:

The following issues have been halted by IIROC:

Company: Yellow Media Inc.

TSX Symbol: YLO (all issues)

Reason: Pending Delisting

Halt Time (ET): 8:58 AM ET

S&P then declared YLO in default:

• •Montreal-based media and marketing solutions provider Yellow Media Inc. (YMI) has implemented its amended debt recapitalization plan following necessary stakeholder and court approvals.
• •The recapitalization comprises the sub-par exchange of the company’s existing debt with cash, new debt, and shares of a recapitalized YMI (new YMI), and constitutes an event of default as per Standard & Poor’s criteria.
• •Accordingly, we are lowering our long-term corporate credit rating on YMI
  and its related entities to ‘D’ (default) from ‘CC’.

• •At the same time, we are lowering our issue-level rating on the company’s medium-term notes to ‘D’ from ‘CC’, and lowering our ratings on the company’s convertible subordinated debentures outstanding to ‘D’ from ‘C’. The recovery ratings on these debt obligations are unchanged.

… and DBRS discontinued the ratings, which they had already declared defaulting:

DBRS has today discontinued Yellow Media Inc.’s (Yellow Media) Issuer Rating, Medium-Term Notes, Exchangeable Subordinated Debentures and Cumulative Preferred Shares ratings, all of which were at D. This action follows the successful implementation of Yellow Media’s recapitalization on December 20, 2012.

The following issues were, but are no longer, tracked by HIMIPref™: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D.

The reorganization was last discussed on PrefBlog when the effective date of December 20 was announced.

Capital Power Corporation has announced:

that it has closed its previously announced offering of 6,000,000 Cumulative Rate Reset Preference Shares, Series 3 (the “Series 3 Shares”) at a price of $25 per Series 3 Share for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc. and BMO Capital Markets.

CPX.PR.C is a FixedReset, 4.60%+323, announced December 6. It will be tracked by HIMIPref™ but assigned to the Scraps index on credit concerns. The issue size of $150-million means that the $50-million greenshoe was not exercised.

DBRS has announced that it:

has today assigned a rating of Pfd-3 (low) with a Stable trend to Capital Power Corporation’s (CPC or the Company) $150 million Cumulative Rate Reset Preference Shares, Series 3 (the Series 3 Preferred Shares).

The issue traded 252,702 in a range of 24.84-00 before closing at 24.88-90, 40×59. Vital statistics are: