Category: Issue Comments

Scotia Managed Companies has announced:

allBanc Split Corp. (the “Company”) (TSX:ABK.A)(TSX:ABK.PR.C) is pleased to announce that is has completed its public offering of Class C preferred shares, series 1 (“Preferred Shares”) and Class A capital shares (“Capital Shares”), raising $60,713,709 through the issuance of 1,177,652 Preferred Shares and 560,000 Capital Shares at a price per share of $31.64 and $41.88, respectively. In addition, the Company has redeemed all of its outstanding Class B preferred shares. The Preferred Shares and Capital Shares were offered to the public on a best efforts basis by a syndicate of agents led by Scotiabank which included 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.

The Capital Shares and Preferred Shares of allBanc Split Corp. are listed for trading on the Toronto Stock Exchange under the symbols ABK.A and ABK.PR.C, respectively.

ABK.PR.C is a SplitShare paying 4.00% Eligible Dividends, maturing March 9, 2018. As reported earlier, proceeds are being used to refund ABK.PR.B, which matured today. This issue will be tracked by HIMIPref™ and assigned to the SplitShares subindex. Par value is, rather oddly, $31.64. The company’s website is at http://www.scotiamanagedcompanies.com/smc/profile.do?company=ABK.

DBRS rates the issue Pfd-2(low):

The Pfd-2 (low) rating of the Class C Preferred Shares is primarily based on the downside protection available to holders of the Class C Preferred Shares (55.0%), the Class C Preferred Share distribution coverage ratio (2.0 times) and the credit quality of the underlying companies in the Company’s portfolio.

The issue traded 39,900 shares today in a range of 31.51-32.50 (rather a wide range!) before closing at 31.89-99, 10×10. Vital statistics are:

Global Champions Split Corp. has announced:

that it has completed its initial public offering of Class A Preferred Shares, Series 1 (the “Series 1 Shares”). The offering raised gross proceeds of $50.0 million, and was offered by a syndicate of agents led by National Bank Financial Inc., CIBC World Markets, RBC Capital Markets, Scotiabank and TD Securities Inc. and includes BMO Capital Markets, Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Macquarie Private Wealth Inc. and Brookfield Financial Corp. (the “Agents”). A total of 2,000,000 Series 1 Shares were issued at a price of $25.00 per Series 1 Share. The Company also announced today that it has completed the issuance of 2,000,000 capital shares of the Company to BAM Investments Corp.

The Company has granted the Agents an over-allotment option to acquire up to an additional 300,000 Series 1 Shares at a price of $25.00 per Series 1 Share for a period of 30 days after closing of the offering which, if exercised in full, would increase the total gross proceeds of the offering to $57.5 million.

The Series 1 Shares have been rated Pfd-2 (low) by DBRS Limited. The Series 1 Shares will commence trading today on the Toronto Stock Exchange under the symbol “GCS.PR.A”.

The Company’s investment objectives with respect to the Series 1 Shares are (i) to provide holders of Series 1 Shares with fixed cumulative preferential quarterly cash distributions in the amount of $0.25 per Series 1 Share to yield 4.00% per annum on the original issue price of the Series 1 Shares and (ii) on or about July 31, 2019, to pay the holders of Series 1 Shares the original issue price of $25.00 of those shares, through the redemption of each Series 1 Share held on July 31, 2019. Such quarterly distributions are expected to be paid by the Company to holders of record on the last Business Day of March, June, September and December in each year with payments being made on or before the 15th day of the following month. The initial distribution will be prorated from today’s date until March 31, 2013 and is expected to be payable on or before April 15, 2013 to holders of record on March 28, 2013. The final prospectus is available on SEDAR at www.sedar.com.

Initially, the Portfolio will consist of 15 large capitalization companies and will be approximately equally weighted on a U.S. dollar equivalent basis.

GCS.PR.A is a SplitShare paying 4.00% (probably) eligible dividends, maturing July 31, 2019, initially reported on PrefBlog on February 15. This issue will be tracked by HIMIPref™ and assigned to the SplitShares subindex. The company’s website is http://globalchampions.com/.

The issue traded 28,150 shares today in a range of 24.76-95 before closing at 24.86-90, 12×40. Vital Statistics are:

In June 2012, it was announced that each share of LFE.PR.A had been exchanged for

• One share of LFE.PR.B
• One LFE.WT.A (exercise price $12.00 for a unit, expiry 2013-6-3)
• One LFE.WT.B (exercise price $12.60 for a unit, expiry 2014-6-2

Now, Quadravest Capital Management Inc. has announced:

Canadian Life Companies Split Corp. (the “Company”) today announced that it has exercised the call option on its 2013 Warrants (Symbol: LFE.WT.A) (the “Warrants”). The call option permits the Company to elect an earlier expiry date for the Warrants than June 3, 2013.

The expiry date of the Warrants will now be March 27, 2013 (the “New Expiry Date”). The exercise price for the 2013 Warrants is $12.00. Warrants that are not exercised prior to 5:00 p.m. (Eastern time) on the New Expiry Date will be void and of no value.

Warrantholders that wish to exercise Warrants must provide the CDS Participant holding their Warrants with instructions and the required payment sufficiently in advance of the New Expiry Date to permit the proper exercise of their Warrants. CDS Participants will have an earlier deadline for receipt of instructions and payment.

Additional information regarding the 2013 Warrants is contained in the Management Information Circular dated March 14, 2012 prepared in respect of the June 2012 Preferred Share Capital Reorganization, or in the Company’s annual information form dated February 20, 2013 each available on SEDAR at www.sedar.com or on the Company’s website www.lifesplit.com.

For further information, please contact Investor Relations at 416-304-4443, toll free at 1-877-4-Quadra
(1-877-478-2372), or visit www.lifesplit.com.

The “Call Option” on the warrants was described in the Management Information Circular:

The Company will have the right, but not the obligation, to call the Warrants at any time (the “Call Option”). The Company must issue a press release when it decides to exercise the Call Option and deliver a notice within five business days to all Warrantholders if it decides to exercise the Call Option.

The 2013 Warrant Expiry Date will be June 3, 2013, unless the 2013 Warrants are called by the Company, in which case the 2013 Warrant Expiry Date will be 20 business days from the date the Call Option is exercised by the Company. 2013 Warrants not exercised prior to 5:00 p.m. (Eastern time) on the 2013 Warrant Expiry Date will be void and of no value.

The 2014 Warrant Expiry Date will be June 2, 2014, unless the 2014 Warrants are called by the Company, in which case the 2014 Warrant Expiry Date will be 20 business days from the date the Call Option is exercised by the Company. 2014 Warrants not exercised prior to 5:00 p.m. (Eastern time) on the 2014 Warrant Expiry Date will be void and of no value.

The NAV as of February 28, 2013 has been reported as:

Canadian Life Companies Split $13.71 (Diluted: $13.03*)
(LFE & LFE.PR.B)

*Does not account for estimated warrant subscription fee of $0.13 per unit.

I don’t understand this calculation, frankly, which echoes my previous bafflement at the dilution calculation. The Management Information Circular – posted on SEDAR, dated March 21, 2012) states:

If at any time while any 2013 Warrants are outstanding the net asset value per Unit is in excess of the 2013 Warrant Subscription Price, or while any 2014 Warrants are outstanding the net asset value per Unit is in excess of the 2014 Warrant Subscription Price, a diluted net asset value per Unit will be calculated in addition to the basic net asset value per Unit, and any payment of retraction proceeds will be based on the diluted net asset value per Unit. The diluted net asset value per Unit of the Company at any such time shall be calculated by dividing (a) the net asset value at that time plus the product of the number of 2013 Warrants then outstanding and the 2013 Warrant Subscription Price plus (if the net asset value per Unit exceeds the 2014 Warrant Subscription Price) the product of the number of 2014 Warrant then outstanding and the 2014 Warrant Subscription Price, by (b) the number of Units then outstanding plus the number of Units to be issued on the exercise of all 2013 Warrants then outstanding plus (if the net asset value per Unit exceeds the 2014 Warrant Subscription Price), the number of Units to be issued on the exercise of all 2014 Warrants then outstanding. The diluted net asset value per Unit shall be deemed to be the resulting quotient. If the Company were to issue additional warrants in the future, it would similarly calculate a diluted net asset value at any time when such warrants were “in the money”.

A further complication is:

Subscription Fee
The Company will pay a subscription fee of $0.25 per Unit in respect of each subscription procured by a CDS Participant on behalf of their clients.

My previous bafflement was explained by the fact that the Subscription Fee was accounted for in the published calculation, although it was not mentioned in the Information Circular’s calculation methodology.

I suspect that my current bafflement is affected by the Normal Course Issuer Bid:

As of January 2, 2012, there are 7,930,113 Preferred Shares and 7,930,113 Class A Shares issued and outstanding.

… while TMX Money reports:

Shares Out.: 8,181,613

… which is a change in the wrong direction, unless there have been warrant exercises in the interim, which is permitted by the Information Circular:

each 2013 Warrant can be exercised to purchase one 2012 Preferred Share and one Class A Share (together a “Unit”) for an exercise price of the lesser of $13.25 and 103% of the net asset value of the Company on the Conversion Date (the “2013 Warrant Subscription Price”) on any business day during the period commencing at market open

I have sent an inquiry to the company and will update this post if and when I receive an answer.

At any rate, let us assume that they have done their calculations properly (I’m sure they have; I just don’t understand it) and the adjusted diluted NAV is $13.03 less warrant exercise fees of $0.13 = $12.90 as of February 28.

Now let’s see if the NAV has changed since last month-end:

Thus we may assume that the NAVPU of LFE is currently virtually equal to the month-end value, maybe a penny more. But nothing dramatic. About $12.90, fully diluted and adjusted for subscription fees.

Since the exercise price of LFE.PR.A is $12.00, this implies that the intrinsic value of the warrants is about $0.90. But LFE.WT.A closed today at $0.37. And they’ve been trading in good size for the past few weeks, too. The problem is that the Units are trading at a substantial discount to intrinsic value: LFE closed today at $2.31, while LFE.PR.B closed at $10.08, total is $12.39, approximately equal to the warrant price plus the subscription price.

What’s going on? Why is LFE trading so far below intrinsic value?

Update, 2013-3-8: The manager doesn’t know how the diluted NAV is calculated either:

Good morning,

The Company’s NAV is calculated by RBC Dexia. In the past 30 days there have been capital changes, making it difficult to calculate the NAV without having all of the relevant information. For example, there were significant warrant exercises along with corporate buybacks that impacted the NAV.

Kind regards.

Quadravest Investor Relations

DBRS has announced that it:

has today confirmed all ratings of Brookfield Asset Management Inc. (BAM or the Company) but changed the trends to Negative from Stable. The ratings are BAM’s Issuer Rating at A (low), Commercial Paper rating at R-1 (low), Senior Notes and Debentures Rating at A (low) and Preferred Shares and Preferred Securities ratings, both at Pfd-2 (low). The trend change to Negative follows the downgrade of the Issuer Rating of BAM’s subsidiary, Brookfield Office Properties Inc. (BOP), to BBB from BBB (high), reflecting 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.
…
DBRS recognizes that BAM’s corporate-level cash flow metrics have improved in 2012 and are close to our previously stated expectations. For the full-year 2012, the Company’s FFO-to-debt was 28% (compared with 23% in 2011 and DBRS’s expectation of 30%) and FFO interest coverage was 4.9x (compared with 4.5x in 2011 and DBRS’s expectation of 5.0x). The shortfalls from our previously stated expectations also reflect the impact of continued difficult hydrology to operating cash flow in its renewable power segment and some delays in its asset disposal plan.

However, DBRS notes that, as was the case with BOP, the quality of BAM’s portfolio of operating assets has been affected in recent years by its respective debt-financed expansions at operating company levels (particularly in the retail property, renewable power and infrastructure segments). Although such expansions are generally earnings accretive, the increased leverage, weakened coverage metrics and, in some cases, higher business and project risks, have constrained the quality of cash flow from these companies, most of which are assessed to be compatible to rating levels of BBB or weaker.

DBRS believes that, to sustain its ratings at the A (low) level, BAM will need to improve the overall credit 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 now believes the cash flow metrics at BAM’s corporate level will need to be raised in order to maintain the necessary cushion for its ratings. Specifically, DBRS expects BAM to further improve its corporate-level FFO-to-debt toward 35% and FFO interest coverage toward 5.5x, and to maintain at these levels on a sustained basis. DBRS will review the progress during the course of 2013.

DBRS 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.

Previously reported on PrefBlog have been the downgrade of BPO and DBRS’ nervousness about BAM.

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

DBRS has announced that it:

has today downgraded the Issuer Rating and Senior Unsecured Debt of Brookfield Office Properties Inc. (Brookfield or the Company) to BBB from BBB (high), and the Cumulative Redeemable Preferred Shares, Class AAA to Pfd-3 from Pfd-3 (high).The trends on all ratings have been revised to Stable from Negative.
…
…Brookfield has released its F2012 year-end results, which included an update on the pending three million square foot (sq. ft.) vacancy at towers two and four of BPNY. Brookfield’s management indicated that it is nearing letters of intent on 1.5 million sq. ft. at BPNY, which accounts for approximately 50% of the remaining exposure to the Bank of America Merrill Lynch lease. While this leasing update is encouraging, DBRS expects operating income to remain relatively flat in 2013, and expects further pressure on operating income during the BPNY re-leasing transition period in 2014 and 2015.

Since DBRS does not expect Brookfield to take measures that would meaningfully reduce debt to offset softness in operating income, DBRS expects the EBITDA coverage ratio to remain below 2.00x during this time frame. As a result, DBRS believes Brookfield’s credit risk profile is no longer consistent with a BBB (high) rating.
…
DBRS notes that a prolonged weakness in operating performance (particularly due to further leasing delays at BPNY) and/or an increase in financial leverage that results in further deterioration of key credit metrics (i.e., EBITDA interest coverage below 1.70x) could result in a trend change to Negative. Although highly unlikely at this time, a change to Positive trend would require Brookfield to demonstrate meaningful improvement in operating income and significant deleveraging of its balance sheet.

DBRS’ prior “Trend Negative” outlook on BPO was reported on PrefBlog. It will be noted that BPO ratings have a knock-on effect on their parent, BAM.

Brookfield Office Properties is the proud issuer of:

OperatingRetractibles BPO.PR.H, BPO.PR.J, BPO.PR.K
FixedResets BPO.PR.L, BPO.PR.N, BPO.PR.P, BPO.PR.R and BPO.PR.T

TransCanada Corporation has announced:

that it has completed its public offering of cumulative redeemable first preferred shares, series 7 (the “Series 7 Preferred Shares”). TransCanada issued 24 million Series 7 Preferred Shares for aggregate gross proceeds of $600 million through a syndicate of underwriters co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

The Series 7 Preferred Shares will begin trading today on the TSX under the symbol TRP.PR.D.

TRP.PR.D is a FixedReset, 4.00%+238, announced February 25 at $300-million and quickly monster-sized to $600-million. Only BCE.PR.K is a bigger issue in Canada and that was done in two tranches. TRP.PR.D will be tracked by HIMIPref™ and has been assigned to the FixedReset index.

The issue traded 1,497,865 shares today in a range of 25.25-48 before closing at 25.40-42, 130×20. Vital statistics are:

DBRS has announced that it:

has today restored the Stable trend to the debt and preferred share ratings of Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company), following the recently announced issue of $237 million in common equity, the proceeds of which are to be used to retire outstanding debt issues, including the Industrial Alliance Trust Securities (IATS) issue on December 31, 2013. The return to a Stable rating trend reflects DBRS’s comfort with the Company’s return to a reasonable level of leverage that no longer impairs financial flexibility, as well as its longer term earnings stability, despite a higher level of risk exposure to low interest rates than its industry peers.
…
On February 27, 2013, IAG closed a previously announced issue of common shares with total net proceeds of $237.4 million. The proceeds of the common equity issue are expected to be used to redeem certain debt issues, including the $150 million 8.25% subordinated debenture due March 27, 2019, which will be called as of April 1, 2013, and the $100 million IATS, which will be callable at par on December 31, 2013. The net impact of these transactions will be to restore financial leverage to a level which is more consistent with A-rated companies, as outlined in the DBRS methodology Rating Companies in the Canadian Life Insurance Industry. This common stock issue also addresses funding concerns about the Company’s $500 million in debt and preferred share refinancing, scheduled to occur before the end of June 2014. At December 31, 2012, financial leverage calculated as debt plus preferred shares as a proportion of total capitalization was 35.6%, making the Company one of the most aggressively capitalized insurance companies in the Canadian peer group. Pro forma the common equity issue and the proposed debt redemption, this ratio will drop sharply to 29.6%. Correspondingly, fixed charge coverage ratios are expected to strengthen. Following the recent common equity issue, DBRS feels that the financial flexibility of the Company has been satisfactorily restored.
…
While DBRS is aware that the Company has mitigated much of its interest rate risk exposures through active reduction of its asset liability mismatch, interest rate exposure is greater than that of its peers. However, the Company remains among the most conservative of its peer group in its underlying interest rate assumptions, having sourced $120 million in offsetting earnings through management actions to afford a reduction in its assumed ultimate reinvestment rate (URR) to 3.2% from 3.4% during 2012. In order to better position the Company for profitable growth, including a large reduction in its reported new business strain, the Company successfully raised prices on its popular Universal Life products on two occasions in 2012 and continued to refine its product offerings to reduce market risk exposures. New business strain has correspondingly been reduced.

This follows a similar move by S&P.

IAG has several preferred share issues outstanding: IAG.PR.A, IAG.PR.E & IAG.PR.F, DeemedRetractibles, and IAG.PR.C & IAG.PR.G, FixedResets. All are tracked by HIMIPref™ all are assigned to their respective indices.

Standard and Poor’s has announced:

• •We are lowering our long-term corporate credit rating on Montreal-based Transcontinental Inc. to ‘BBB-‘ from ‘BBB’.
• •We base the downgrade on our view of challenging industry fundamentals, whereby the company could continue to experience declines in organic revenue and profitability, absent gains from the Quad/Graphics Canada transaction, prompting our revision of the company’s business risk profile to “fair” from “satisfactory.”
• •The stable outlook reflects Standard & Poor’s expectation that Transcontinental’s financial policy will be moderate, operating performance will be good despite secular pressures, free cash flow will remain healthy, and credit measures will be managed in line with our expectations in the medium term, including adjusted debt to EBITDA in the 2x area.

…
We could lower the ratings if Transcontinental’s operating performance deteriorates, if it does not achieve our revenue targets, if margins decline, or if debt leverage exceeds 2.5x. Given challenging industry conditions, Standard & Poor’s is not contemplating raising the ratings in the next year. However, we could raise the ratings on Transcontinental in the medium term if the company improves its market position in growing sectors, while strengthening its operating performance and credit protection measures on a sustainable basis.

The previous Negative Outlook on TCL was reported on PrefBlog.

TCL has a single issue outstanding, TCL.PR.D, which is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Power Financial Corporation has announced:

the successful completion and closing of an offering of 12,000,000 4.80% Non-Cumulative First Preferred Shares, Series S (the “Series S Shares”) priced at $25.00 per share to raise gross proceeds of $300 million.

The issue was bought by an underwriting syndicate co-led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

The Series S Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “PWF.PR.S”. Proceeds from the issue will be used to acquire subscription receipts of Great-West Lifeco Inc. (“Lifeco”) exchangeable into common shares of Lifeco as part of the $1.25 billion offering of subscription receipts announced by Lifeco on February 19, 2013 in connection with its proposed acquisition of Irish Life Group Limited and to supplement Power Financial’s financial resources.

PWF.PR.S is a Straight Perpetual, 4.80%, announced February 19. It will be tracked by HIMIPref™ and has been assigned to the PerpetualDiscount index.

The issue traded 673,150 shares today in a range of 24.93-99 before closing at 24.96-98, 16×44. Vital statistics are: