Category: Issue Comments

Sun Life Financial has announced:

the execution of a definitive agreement whereby Delaware Life Holdings, a company owned by shareholders of Guggenheim Partners, will purchase Sun Life’s domestic U.S. annuity business and certain life insurance businesses for a base purchase price of US$1.35 billion, as adjusted to reflect the performance of the business through closing.
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The transaction is expected to close by the end of Q2 2013 subject to regulatory approvals and customary closing conditions.

Dean A. Connor, President and Chief Executive Officer, Sun Life Financial, stated, “This transaction represents a transformational change for Sun Life. It significantly advances our strategy of reducing Sun Life’s risk profile and earnings volatility, focuses our U.S. operations on our areas of greatest strength and opportunity, and crystallizes future earnings and capital releases that will further support our growth and shareholder value creation. It also transfers this business to a financially strong buyer that understands and is committed to the annuity and life insurance sectors, which will benefit customers and the outstanding employees who will continue to support them.”

Sean B. Pasternak of Bloomberg points out:

Asset managers such as Guggenheim, Apollo Global Management LLC (APO) and Harbinger Capital Partners LLC have invested in annuities operations to get access to funds for investment- management businesses. Insurers including Hartford Financial Services Group Inc. (HIG) and Genworth Financial Inc. (GNW) have scaled back from annuities because obligations to clients can increase when stock markets fall. Also, low interest rates make it harder for providers to generate profit on funds held to back the policies.

Annuities are contracts that offer guaranteed income for retirees. Asset managers including Apollo and Guggenheim are betting they can invest the assets at a return higher than what’s needed to service obligations.

Guggenheim Partners, run by Chief Executive Officer Mark Walter, has expanded from a family office with a handful of employees into a $160 billion global asset manager through deals including the acquisitions of Claymore Group and Rydex ETF owner Security Benefit Corp. Talks to buy parts of Deutsche Bank AG’s asset management fell apart earlier this year.

That’s what Hymas Investment Management needs to do to get assets in the door! Buy them!

DBRS has announced that it:

has reviewed the announcement made by Sun Life Financial Inc. (SLF or the Company, senior rating of AA (low)) of its decision to sell the Sun Life Assurance Company of Canada U.S. subsidiary (SLA (US)) to Delaware Life Holdings, a company owned by shareholders of Guggenheim Partners, for a base purchase price of US$1.35 billion, as adjusted to reflect the performance of the business through closing. There are no implications for the current ratings at this time, most of which remain Under Review with Negative Implications, where they were placed on September 7, 2012.

SLA (US) houses the Company’s U.S. fixed and variable annuity business, as well as certain institutional life insurance lines including variable life insurance. In total, the business represents between 10% and 15% of the Company’s normalized earnings and a similar percentage of balance sheet assets (between $30 billion and $40 billion). However, the business also accounted for much of the earnings volatility experienced by the Company over the past five years, brought on by deteriorating credit market conditions and equity market volatility.

Since the Company announced its decision in late 2011 to cease writing most of the products housed in SLA (US), DBRS has expected that a review of options such as that announced today was possible, if only to de-risk the Company in the event of further capital market deterioration. Correspondingly, exposure to equity markets following the closing of this sale transaction is estimated by the Company to fall by 50%, and exposure to lower interest rates by 35%. DBRS notes that despite imperfect hedges, the Company had already been given credit for satisfactorily managing these risks.
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In September 2012, following, but not in response to, the Company’s decision to de-risk its U.S. business, DBRS put the ratings of the Company and its affiliates Under Review with Negative Implications. The purpose of this review was to stand back from the specific financial performance of the Company and to put it into context vis-à-vis the ratings of SLF’s peer group and broader developments in the Canadian life insurance industry. DBRS remains concerned about the strategic position of the industry in a difficult economic environment. Over the past year, SLF has become more concentrated on its successful Canadian franchise. Strategic initiatives in Canada could well continue to support the Company’s core profitability. However, DBRS has yet to be convinced that the Company’s earnings projections for other businesses will be achieved in line with SLF’s proposed schedule.

The September review by DBRS was reported on PrefBlog.

Sun Life Financial was put on Outlook Negative by S&P last February, where it remains.

Moody’s has announced:

has downgraded to Baa2 from A3 the insurance financial strength (IFS) rating of Sun life Assurance Company of Canada (U.S.) (Sun Life US), the wholly-owned U.S. life insurance subsidiary of Sun Life Financial Inc. (TSX; SLF: preferred stock at Baa3 (hyb) review for possible upgrade ). The rating was also placed on review for further possible downgrade. In the same rating action, the Baa1 senior secured debt rating of Sun Life Financial Global Funding III, L.P. (SLFGF III) was placed under review with direction uncertain. Moody’s also affirmed the Aa3 IFS rating of SLF’s Canadian insurance subsidiary, Sun Life Assurance Company of Canada (SLA), and the ratings of other Canadian affiliates, with the outlook for the Canadian ratings (excluding SLF) remaining negative. Finally, the rating agency placed SLF’s preferred stock Baa3 (hyb) rating on review for possible upgrade.
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The sale of Sun Life US will — once completed — alleviate the rating agency’s concerns related to the execution risks of the runoff strategy for the U.S. businesses and that any further charges arising from Sun Life US’ closed blocks would remain a drag on SLF’s and possibly SLA’s earnings and capital generation. “Moody’s views the transaction as credit positive for SLA as it eliminates the potential for additional capital support being needed at Sun Life US, which is the primary driver of the negative outlook” said Vice President and Senior Credit Officer, David Beattie. Moody’s expects to resolve the negative outlook on the Aa3 IFS ratings of SLA and other Canadian-affiliated companies upon closing of the transaction and the elimination of the runoff business risk.

Moody’s has had the Negative Outlook in place since January.

SLF has a lot of preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) as well as SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indices noted.

DBRS has announced that it:

has today confirmed Emera Inc.’s (Emera) Issuer Rating, Medium-Term Notes and Preferred Shares – Cumulative at BBB (high), BBB (high) and Pfd-3 (high), respectively, and changed the trends on all to Stable from Negative. This trend change reflects DBRS’s expectations that Emera will continue to reduce its non-consolidated debt-to-capital ratio, in the medium term, to below 30% to be in line with its rating category. The resolution of the Negative trend followed a full assessment of Emera’s overall financing strategy on proposed projects and plans to reduce its non-consolidated debt to levels commensurate with its current rating. Emera is currently on track to deleverage its non-consolidated balance sheet, as reflected by (1) a $250 million preferred shares offering in June 2012 and (2) a bought deal offering of approximately $200 million, which settled on December 14, 2012. Pro forma the bought deal offering, Emera’s unconsolidated debt-to-capital is approximately 38% (versus approximately 41.5% as of June 30, 2012).

The credit quality of Emera is based on its low business risk and is supported by its strong portfolio of diversified regulated businesses operating in a reasonable regulatory environment. Emera’s business risk profile is viewed as strong. Emera’s earnings and cash flow are largely generated by its relatively low-risk regulated subsidiaries. Furthermore, dividends and interest income flowing up from its operating subsidiaries continue to adequately cover Emera’s interest and operating costs.

On April 3, 2012, DBRS changed the trend on Emera’s rating to Negative from Stable. This rating action reflected DBRS’s concern regarding the ongoing high degree of non-consolidated leverage at the holding company level for the current rating.

The company’s preferred shares outstanding are EMA.PR.A and EMA.PR.C, both tracked by HIMIPref™ and both assigned to the Scraps index on credit concerns. The assignment of a negative trend in April 2012 was reported on PrefBlog.

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe that industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are affirming our ‘AA-/A-1+’ long- and short-term issuer credit ratings on Toronto-Dominion Bank (TD Bank), and revising the outlook to stable from negative.
• •The stable outlook reflects our expectation that TD Bank will maintain its current credit profile in the next 24 months.

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The ratings are also based on our assessment of TD Bank’s funding as “average” (revised from “above average”) and of its liquidity position as “adequate”. The revision of our assessment of TD Bank’s funding profile recognizes its favorable deposit position, particularly in the U.S., counterbalanced by notable reliance on wholesale funding, as is the case with other large Canadian banks. The resulting SACP of ‘a+’ is adjusted upward one notch in arriving at the ‘AA-‘ issuer credit rating, reflecting our expectation for potential extraordinary government support in a stress scenario.
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The stable outlook reflects Standard & Poor’s view that TD Bank’s core retail-oriented franchise spanning both Canadian and U.S. markets incorporates sufficient resilience to weather a range of economic environments, even recognizing the potential for more drawn-out recoveries in both markets.

S&P’s prior negative outlook was reported on PrefBlog.

TD has the following preferred share issues outstanding: TD.PR.A (Series AA); TD.PR.C (Series AC); TD.PR.E (Series AE); TD.PR.G (Series AG); TD.PR.I (Series AI); TD.PR.K (Series AK); TD.PR.O (Series O); TD.PR.P (Series P); TD.PR.Q (Series Q); TD.PR.R (Series R); TD.PR.S (Series S) and TD.PR.Y (Series Y).

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe that industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are affirming our ‘AA-‘ long-term and ‘A-1+’ short-term issuer credit ratings on Royal Bank of Canada as well as the ‘AA-‘ issue ratings on the bank’s senior unsecured debt. We are revising the outlook to stable from negative. We have affirmed the stand-alone credit profile on Royal Bank of Canada as the bank’s stronger Standard & Poor’s projected risk-adjusted capital ratio led to a reassessment of the capital and earnings score to “adequate” from “moderate”.
• •The stable outlook reflects our expectation that Royal Bank of Canada’s credit fundamentals will remain consistent with its current ratings over the next 24 months.

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RBC’s funding and liquidity positions are viewed as “average” and “adequate”, respectively, and reflect the bank’s stable domestic retail deposit franchise and its strengthening funding and liquidity positions to meet final Basel III liquidity and funding requirements while recognizing a material wholesale funding component.
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It is our view that RBC is a systemically important bank and that it would likely benefit from extraordinary government support in times of stress.
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The stable outlook reflects our expectations that RBC will continue to manage its balance sheet prudently, maintain peer-leading asset quality, and generate consistent though slower earnings growth through its premier business franchises in Canada and diversified revenue sources to support its RAC ratio, and for the funding and liquidity profile to strengthen further due to more stringent regulatory liquidity measures.

S&P’s prior negative outlook was reported on PrefBlog.

RY has the following preferred share issues outstanding: RY.PR.A (series AA); RY.PR.B (Series AB); RY.PR.C (Series AC); RY.PR.D (Series AD); RY.PR.E (Series AE); RY.PR.F (Series AF); RY.PR.G (Series AG); RY.PR.H (Series AH); RY.PR.I (Series AJ); RY.PR.L (Series AL); RY.PR.N (Series AN); RY.PR.P (Series AP); RY.PR.R (Series AR); RY.PR.T (Series AT); RY.PR.W (Series W); RY.PR.X (Series AV) and RY.PR.Y (Series AX).

Note that S&P does not discriminate between RY.PR.W and the other issues, even though RY.PR.W has a potential NVCC clause.

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe that industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are affirming our ‘A+/A-1’ long- and short-term issuer credit ratings on BMO and BMO Financial Corp., as well as the ‘A+’ issue rating on BMO’s senior unsecured debt. We are lowering our issue rating on BMO’s and BMO Financial’s subsidiaries’ nondeferrable subordinated debt to ‘BBB+’ from ‘A-‘, and our rating on its preferred shares and hybrid securities to ‘BBB’ from ‘BBB+’.
• •The stable outlook reflects our expectation that the bank’s credit fundamentals will remain consistent with its current ratings over the next 24 months.

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The resulting SACP of ‘a-‘ is adjusted upward two notches in arriving at the ‘A+’ issuer credit rating, reflecting our expectation for potential extraordinary government support in a stress scenario.
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We could revise the outlook to negative or lower the ratings if the Marshall & Ilsley acquisition pressures BMO’s operating performance through weakening asset quality and additional credit marks, making net charge-offs consistently and materially exceed those of its domestic peers. We could also revise the outlook to negative or lower the rating if the projected Standard & Poor’s RAC ratio falls below 7% for several consecutive quarters. We could revise the outlook to positive or raise the rating if BMO garners a stronger retail and commercial market position in Canada, becoming more closely aligned with the top performers (TD Bank and Royal Bank of Canada, in our view), or if its RAC ratio is consistently above 10%. We see this as unlikely at this time.

BMO has the following series of preferreds outstanding: BMO.PR.H (Series 5); BMO.PR.J (Series 13); BMO.PR.K (Series 14); BMO.PR.L (Series 15); BMO.PR.M (Series 16); BMO.PR.N (Series 18); BMO.PR.O (Series 21); BMO.PR.P (Series 23) and BMO.PR.Q (Series 25). All have been downgraded to P-2 from P-2(high).

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are lowering our long- and short-term issuer credit ratings on Bank of Nova Scotia to ‘A+/A-1’ from ‘AA-/A-1+’, following our revision of the stand-alone credit profile on the bank to ‘a’ from ‘a+’, and assigning a stable outlook.
• •The stable outlook reflects our expectation that Bank of Nova Scotia’s credit fundamentals will remain consistent with current ratings over the next 24 months.

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Consequently, we lowered our anchor SACP, which is the starting point for our ratings on financial institutions operating primarily in Canada, to ‘a-‘ from ‘a’ But the anchor for BNS was lowered to ‘bbb+’ from ‘a-‘, reflecting its operating footprint in countries that are weaker than Canada, in our view. This is reflected in our revision of Banking Industry Country Risk Assessment (BICRA) for Canada to group ‘2’ from ‘1’ and revised our industry risk score, a component of the BICRA, to ‘2’ from ‘1’ (see “Various Rating Actions Taken On Canadian Financial Institutions Due To Rising Industry and Economic Risks,” published Dec. 13, 2012, on RatingsDirect on the Global Credit Portal).
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The resulting SACP of ‘a’ is adjusted upward one notch in arriving at the ‘A+’ issuer credit rating to reflect our expectation for extraordinary government support in a crisis.

Hands up whoever feels good about sovereign support of BNS expansion into countries with weaker economies!

The prior negative outlook on BNS was reported on PrefBlog.

BNS has the following preferred shares outstanding: BNS.PR.J (Series 12); BNS.PR.K (Series 13); BNS.PR.L (Series 14); BNS.PR.M (Series 15); BNS.PR.N (Series 16); BNS.PR.O (Series 17); BNS.PR.P (Series 18); BNS.PR.Q (Series 20); BNS.PR.R (Series 22); BNS.PR.T (Series 26); BNS.PR.X (Series 28); BNS.PR.Y (Series 30) and BNS.PR.Z (Series 32). All have been downgraded from P-1(low) to P-2(high).

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are lowering our long- and short-term issuer credit ratings on Laurentian Bank to ‘BBB/A-2’ from ‘BBB+/A-2’, and assigning a stable outlook, following our revision of Laurentian Bank’s stand-alone credit profile to ‘bbb’ from ‘bbb+’. In conjunction with these actions, we are also lowering our issue ratings on Laurentian Bank’s senior unsecured debt to ‘BBB’ from ‘BBB+’ and its nondeferrable subordinated debt to ‘BBB-‘ from ‘BBB’, and its preferred shares and hybrids to ‘BB+’ from ‘BBB-‘.
• •The stable outlook reflects our expectation that Laurentian will maintain its current credit profile across a range of future scenarios.

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Our “weak” business position assessment of Laurentian recognizes the bank’s limited diversity of business lines and somewhat concentrated regional focus. Recent acquisitions to expand Laurentian’s B2B franchise may over time contribute to the resilience of Laurentian’s business position, although integration costs and risks offset the potential benefits in the near term.
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We view Laurentian Bank’s funding as “above average” and liquidity as “adequate”, given the bank’s relatively low reliance on more expensive and less reliable wholesale funds; competition for retail deposits will likely continue to impose margin pressure on Laurentian, however.

In distinction to their views on CM but similarly to NA, there is no allusion to LB being systemically important and no expectation of government support in times of stress.

S&P’s prior outlook of Negative on LB was reported on PrefBlog.

LB has three issues of preferreds outstanding: LB.PR.D (Series 9); LB.PR.E (Series 10); and LB.PR.F (Series 11). All have been downgraded from P-2(low) to P-3(high).

Standard & Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening economic risk in the banking system.
• •We also believe industry risk for the Canadian banking sector is increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.
• •We are lowering our long- and short-term issuer credit ratings on National Bank of Canada to ‘A-/A-2’ from ‘A/A-1’, following our revision of the stand-alone credit profile on the bank to ‘a-‘ from ‘a’. The outlook is stable.
• •The stable outlook reflects our expectation that National Bank of Canada’s credit fundamentals will remain consistent with current ratings over the next 24 months.

In distinction to S&P’s views regarding CM, there is no allusion to NA being systemically important and no expectation of government support in times of stress.

S&P’s prior Negative Outlook on NA was reported on PrefBlog.

NA has the following preferred share issues outstanding: NA.PR.K (Series 15, called for redemption); NA.PR.L (Series 16); NA.PR.M (Series 20); NA.PR.N (Series 21); NA.PR.O (Series 24); NA.PR.P (Series 26); NA.PR.Q (Series 28). All have been downgraded to P-2 from P-2(high).

Standard and Poor’s has announced:

• •We believe that the Canadian banking sector is encountering incremental pressure from headwinds facing the Canadian economy, which is heightening
  economic risk in the banking system.

• •We also believe that industry risk for the Canadian banking sector is
  increasing. We expect that intensifying competition for loans and deposits will lead to pressure on profitability growth, especially in banks’ retail businesses.

• •We are affirming our ‘A+/A-1’ long- and short-term issuer credit ratings
  on CIBC, as well as the ‘A+’ issue rating on CIBC’s senior unsecured debt. We are lowering our issue rating on CIBC’s nondeferrable subordinated debt to ‘BBB+’ from ‘A-‘, and our rating on its preferred shares and hybrids to ‘BBB’ from ‘BBB+’.

• •The stable outlook reflects our expectation that the bank’s credit fundamentals will remain consistent with its current ratings over the next 24 months.

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It is our view that CIBC is a “systemically important” bank and that it would likely benefit from extraordinary government support in times of stress.

This results in the CM PerpetualPremiums, CM.PR.D (Series 26) and CM.PR.E (Series 27) being downgraded from P-2 to P-2(low). CM.PR.G (Series 29) can be taken as equivalent although it is not rated by S&P, oddly enough. These are the issues which have been recognized by OSFI has having a good enough NVCC clause.

CM’s other three issues outstanding are CM.PR.K (Series 33), CM.PR.L (Series 35) and CM.PR.M (Series 37), have been downgraged to P-2 from P-2(high)

Innergex Renewable Energy Inc. has announced that it:

has completed today the previously announced bought deal offering of Cumulative Redeemable Fixed-Rate Preferred Shares Series C (the “Series C Shares”).

The Corporation issued a total of 2,000,000 Series C Shares at a price of $25.00 per share, for aggregate gross proceeds of $50,000,000. The offering was made on a bought deal basis through a syndicate of underwriters co-led by TD Securities Inc., National Bank Financial Inc. and BMO Capital Markets.

The Series C Shares commence trading on the Toronto Stock Exchange today under the symbol INE.PR.C.

The Corporation intends to use the proceeds of the offering to repay a portion of its revolving term credit facility and for general corporate purposes.

The Series C Shares were distributed under a short form prospectus dated December 4, 2012 and details of the distribution are set out in the short form prospectus which is available on SEDAR at www.sedar.com.

INE.PR.C is a Straight Perpetual, 5.75%, announced November 21. It is rated Pfd-3(low) [Trend Negative] by DBRS.

INE.PR.C will be tracked by HIMIPref™ and assigned to the Scraps index on credit concerns.

INE.PR.C traded 136,220 shares today in a range of 24.45-76 before closing at 24.46-50, 50×35 – the volume was pretty good considering it’s only a $50-million issue! Vital statistics are: