Category: Issue Comments

Brookfield Asset Management has announced:

the completion of its previously announced Class A Preference Shares, Series 34 issue in the amount of CDN$250,000,000.

Brookfield issued 10,000,000 Series 34 Shares at a price of CDN$25.00 per share, for total gross proceeds of CDN$250,000,000. Holders of the Series 34 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.20% annually for the initial period ending March 31, 2019. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.63%. The Series 34 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.B.

BAM.PF.B is a FixedReset, 4.20%+263, announced August 23. The issue traded 332,922 shares today in a range of 24.91-00 before closing at 24.96-00, 30×219. Vital Statistics are:

DBRS has announced that it:

has today downgraded the Senior Unsecured Debt rating of Transcontinental Inc. (Transcontinental or the Company) to BBB from BBB (high) and its Preferred Shares rating to Pfd-3 from Pfd-3 (high). Both trends remain Negative, and the ratings are removed from Under Review. The downgrade reflects DBRS’s view that Transcontinental’s earnings profile has been structurally affected by a consumer shift to digital forms of media as the Company has struggled to sustain organic revenues and profitability. The Negative trend reflects DBRS’s view that weakening demand, combined with overcapacity, will continue to place pressure on the Company’s revenues, margins and cash flow generation going forward. DBRS’s concern is not based primarily on the Company’s debt level, as Transcontinental has remained prudent in terms of financial management, but rather the Company’s income and cash generating prospects.
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If the Company’s plans and performance lead to signs of stabilization in organic revenue, and operating income over the near to medium term, the ratings outlook could stabilize. However, a continued and meaningful decline in organic revenue and operating income and/or key credit metrics over this period could result in a downgrade.

DBRS’ prior announcement of Review-Negative was reported on PrefBlog.

TCL is the issuer of TCL.PR.D, a FixedReset 6.75%+416, announced 2009-9-21. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today downgraded Bell Aliant Regional Communications, Limited Partnership’s (Bell Aliant’s or the Company’s) Commercial Paper rating to R-2 (middle) from R-1 (low), Senior Unsecured Debt to BBB from BBB (high) and Preferred Shares to Pfd-3 from Pfd-3 (high), all with Stable trends. This action removes the ratings from Under Review with Negative Implications. This downgrade follows DBRS’s reassessment of the risks associated with the Company’s transformational strategy while the Stable trends reflect DBRS’s view that the Company’s fibre strategy presents a viable initiative with strong potential.
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On August 2, 2012, DBRS noted that it recognizes the merits of Bell Aliant’s fibre expansion; however, it acknowledges that the transition will also not be without risk. In its review, DBRS focused on (1) Bell Aliant’s growth prospects within its new business lines; (2) the size and pace of the Company’s capital program and overall financing requirements, in light of management’s commitment to its dividend; and (3) the competitive environment, including pricing strategies and the threat of product innovation.

Although Bell Aliant continues to grow its fibre footprint and increase its IP subscriber base, the long-term effects of the rollout on consolidated revenue and EBITDA growth remain difficult to gauge. The Company’s FibreOP services are just beginning to generate positive EBITDA, while declining traditional local and long distance revenue still account for the majority of Bell Aliant’s current operating profits.

The Review Negative announcement was reported on PrefBlog.

The text of press release doesn’t mention their preferred share issuing arm, Bell Aliant Preferred Equity Inc., specifically, but its preferred shares are specifically placed under Review-Negative in the appended table.

Bell Aliant Preferred Equity Inc. has two issues outstanding: BAF.PR.A and BAF.PR.C. Both are FixedResets, both are relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today taken a range of rating actions on 13 structured preferred shares issued by 12 split share companies and trusts (collectively, the Issuers).

DBRS has announced that it:

has today placed its ratings of the debt and preferred share instruments of Sun Life Financial Inc. (Sun Life or the Company) and its affiliates Under Review with Negative Implications. The Claims Paying Ability rating of IC-1 assigned to The Sun Life Assurance Company of Canada has been confirmed. The rating action reflects the Company’s recent weak profitability and earnings volatility associated with exogenous market factors over the past several years. While these exposures are not unique to Sun Life, DBRS regards the current ratings, following a review of the industry, as being out of alignment with the Company’s recent earnings track record and those of its peers. The action also reflects uncertainty associated with the Company’s strategic transition as it attempts to restore profitability and earnings stability by pursuing more profitable products with fewer embedded risks and lower capital requirements. Sun Life faces a number of challenges in this regard, including associated execution challenges and the continuing weak economic and interest rate environment aggravated by evolving regulatory and accounting regimes.

The strength of the Company’s Canadian franchise, a growing appetite for its products and services, a reasonable level of diversification in attractive market niches in the United States and Asia, and conservative risk management are nevertheless not sufficient for Sun Life to maintain its current ratings in the absence of a recovery in core earnings and reduced earnings volatility to levels that are at least consistent with its 2015 earnings target of $2 billion (with a return on equity of between 12% and 14%). The resolution of the Under Review with Negative Implications status therefore hinges largely on an imminent return to reasonable profitability which would cover the Company’s fixed charges by at least 5.0 times. However, DBRS regards as ambitious the revenue growth assumptions underlying the achievement of such earnings.
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The Company’s financial performance in recent years suggests that its enterprise risk management platform, while regarded as superior, has mitigated but not eliminated earnings volatility tied to recent market conditions. In addition, hedging costs have put downward pressure on earnings. The requirement for additional regulatory capital at its operating subsidiaries in the wake of the financial crisis and the transition to International Financial Reporting Standards (IFRS) increased the Company’s consolidated financial leverage to 31% at June 30, 2012, from just over 21% five years ago. Without earnings to support the associated debt service costs, the five-year average fixed-charge coverage ratio has dropped to below 2.0 times from 8.0 times for the period prior to the financial crisis. The core fixed-charge coverage ratio, excluding volatile market-related factors, has similarly fallen to below 5.0 times from over 8.0 times, which is below the level expected for a company with the current ratings.
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DBRS intends to resolve the Under Review status within the next few months, following its annual review with the Company’s management team.

DBRS maintains its rating of Pfd-1(low) for the preferreds. S&P has them at P-2(high) [Outlook Negative]; the Outlook Negative was assessed in February, 2012. Moody’s downgraded the preferreds to Baa3(hyb) in January, 2012 and they remain at that level.

SLF has the following issues outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E (DeemedRetractible) and SLF.PR.F, SLF.PR.G, SLF.PR.H & SLF.PR.I (FixedReset).

DBRS has announced that it:

has today confirmed the ratings on Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company) and its affiliate, Industrial Alliance Capital Trust, but has assigned a Negative trend. … The debt and preferred shares ratings have been removed from Under Review with Negative Implications, where they were placed on June 15, 2012. The Negative trend reflects the Company’s reduced financial flexibility as it has continued to shore up its regulatory capital ratios through the issuance of additional preferred shares, taking its total debt-to-capitalization ratio to 37.8% which is above the ratio expected by DBRS for an “A”-rated company in the Canadian life insurance industry. While this ratio is somewhat overstated, given the Company’s generally conservative actuarial reserve assumptions and the absence of any meaningful goodwill and intangibles, the Company’s fixed-charge coverage ratio has nevertheless also fallen below the 5.0 times lower limit, which delineates a lower rating category in the DBRS rating methodology.

The resolution of the Company’s Negative rating trend hinges to some degree on a return to a more sustainable interest rate environment which would take away some of the overhanging downward pressure on earnings. … Should earnings start to be negatively affected over the next 12 months by low interest rates or by deterioration in top-line growth following recent strategic decisions, DBRS would likely convert its Negative trend into a downgrade. The trend will revert to Stable if a planned reduction in new business strain, among other initiatives, is reflected in a sustained improvement in profitability, which would be signaled by a return to a fixed-charge coverage ratio in excess of 5.0 times and a reduction in the total debt ratio.
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Given the longer-than-expected period of low interest rates, however, the Company’s management team is now being forced to take more dramatic offsetting actions through repricing, redesign and withdrawal of products and business lines that would otherwise aggravate the Company’s earnings exposure to low interest rates through continued high new business strain and increased required regulatory capital. To limit market risk, the Company is also enhancing asset liability management through term extensions, rebalanced asset portfolios and intersegment notes.

S&P has called “Outlook Negative” since June and this remains effective.

IAG has the following preferred shares outstanding: IAG.PR.A, IAG.PR.E and IAG.PR.F (DeemedRetractible) and IAG.PR.C & IAG.PR.G (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indicated indices.

Brookfield Asset Management has announced:

an offering of C$425 million of medium term notes (unsecured) (“notes”) with a March 2023 maturity and a yield of 4.546%.

The notes have been assigned a credit rating of Baa2 (stable outlook) by Moody’s; A – (negative outlook) by Standard & Poor’s; BBB (stable outlook) by Fitch; and A low (stable outlook) by DBRS. The notes are being offered through a syndicate of agents led by CIBC World Markets Inc., Scotia Capital Inc. and TD Securities Inc.

The company intends to use the net proceeds of the issue to redeem or repurchase $350 million of 8.95% notes that mature on June 2, 2014 and for general corporate purposes.

However, the item that most caught my eye was the rating announcement from DBRS (bolding added):

DBRS has today assigned a rating of A (low) to the $425 million Unsecured Medium-Term Notes (MTN) maturing March 31, 2023, issued today by Brookfield Asset Management Inc. (Brookfield). The trend is Stable.

The MTN will rank pari passu with all of Brookfield’s other senior unsecured debt obligations. The Company intends to use the net proceeds to redeem or repurchase $350 million of its 8.95% MTNs that will mature June 2, 2014 and for general corporate purposes.

The new issue will result in a modest increase in Brookfield’s long-term debt. As expressed in our Rating Report published April 24, 2012, DBRS considers that the current corporate-level financial measures at Brookfield are weak for its ratings and believes that there is currently minimal room for further deterioration without pressuring the ratings. We re-iterate our expectation (as expressed in our Rating Report published on April 24, 2012) that Brookfield will improve its cash flow coverage metrics to their 2010 level by the end of 2012. These levels are: funds from operation (FFO) coverage of debt of 30% and FFO coverage of interests of 5.0x. We understand that Brookfield intends to achieve a lower debt level mainly through reducing its outstanding commercial paper issuance and drawdown in credit facilities.

If one of the following scenarios were to materialize, DBRS will review and base our rating decision on an assessment of the contributing causes, the Company’s remedial plan and other relevant circumstances. These scenarios are: (1) material increase in the proportion of BAM’s invested capital in less-stable opportunistic investments and private equity, leading to debt increases; (2) material deterioration or rating downgrade in one or more of the core businesses in renewable power, property investments and infrastructure; (3) inability to improve cash flow coverage metrics (which could include FFO-to-debt and FFO fixed charge coverage) to their 2010 levels by the end of 2012.

This is new information, as far as I can tell. The only mention of commercial paper in the 12Q2 Financials is:

We completed the refinancing of the majority of our corporate level, $2.2 billion committed revolving term credit facilities subsequent to the end of the quarter. At June 30, 2012, approximately $1.6 billion of the facilities was utilized in respect of short-term bank or commercial paper borrowings and $0.2 billion utilized for letters of credit issued to support various business initiatives. Approximately $1.9 billion of the new facilities have a five-year term, and the remaining $300 million have a three-year term.

This is good news, because BAM is skating pretty near the water in terms of maintaining an investment-grade rating on its preferreds. The negative outlook from S&P is still in place.

BAM has a plethora of preferred share issues outstanding: BAM.PR.B & BAM.PR.C (Floater), BAM.PR.E (RatchetRate), BAM.PR.G (FixedFloater), BAM.PR.I (called for redemption) & BAM.PR.J (OperatingRetractible), BAM.PR.K (Floater), BAM.PR.M & BAM.PR.N (PerpetualDiscount), BAM.PR.O (OperatingRetractible), BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X, BAM.PR.Z and BAM.PF.A (FixedReset) … and one in the oven (FixedReset).

The YLO recapitalization announced in July and amended September 4, has been approved:

Yellow Media (TSX: YLO) announced today that its proposed recapitalization has been approved by the requisite majority of its debtholders and shareholders at their respective meetings, both of which were held earlier today in Montréal.

“We are pleased with the results of the vote” said Marc P. Tellier, Yellow Media’s President and Chief Executive Officer. “The approval by the debtholders and shareholders represents a significant milestone towards the completion of the recapitalization.”

The Company proposed the recapitalization to align its capital structure with its operating strategy. The recapitalization will substantially improve the financial flexibility of the Company and allow the Company to pursue its ongoing transformation in order to enhance long-term value for stakeholders.

The implementation of the recapitalization is expected to occur by the end of September 2012 subject to a number of conditions, including the receipt of the final approval by the Québec Superior Court, and to other risks and uncertainties.

The preferred shares, YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D, immediately jumped from about $0.50 to the $0.70-0.80 range.

As preferred shareholders will get 6.25 new common per 100 preferreds (as well as some warrants) this indicates that new common is being priced at about $12/share.

As about 28-million new common shares will be issued (and some warrants) this indicates market capitalization of about $335-million on the restructured company, on top of about $850-million in debt. As noted on April 9 the Cerberus / AT&T transaction indicated an enterprise value of about $1-billion for YLO, which some people (according to Boyd Erman) thought could stretch to the 1.4-billion to 2.2-billion range.

The common shares are now trading at 0.085-0.09; the recapitalization’s conversion ratios indicate that one preferred share should be worth about 12.5 old common shares.

Update, 2012-9-10: YLO provides reorganization timing:

Yellow Media Inc. (TSX: YLO) announced today that, following the approval of the recapitalization by the requisite majority of the Company’s debtholders and shareholders at their respective meetings held on September 6, 2012, the hearing for the final approval of the recapitalization by the Québec Superior Court has been set by the Court to begin on October 15, 2012.

The implementation of the recapitalization is currently expected to occur on or about October 31, 2012, subject to a number of conditions, including the receipt of the Court’s final approval as set forth above, and to other risks and uncertainties.

BCE has announced:

that 2,957,474 of its 10,081,586 fixed-rate Cumulative Redeemable First Preferred Shares, Series AA (series AA preferred shares) have been tendered for conversion on September 1, 2012, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AB (series AB preferred shares). In addition, 3,020,190 of its 9,918,414 series AB preferred shares have been tendered for conversion on September 1, 2012, on a one-for-one basis, into series AA preferred shares. Consequently, on September 1, 2012, BCE will have 10,144,302 series AA preferred shares and 9,855,698 series AB preferred shares issued and outstanding. The series AA preferred shares and the series AB preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.A and BCE.PR.B, respectively.

The series AA preferred shares will pay on a quarterly basis, for the five-year period beginning on September 1, 2012, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.45%.

The series AB preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on September 1, 2012, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series AB preferred shares in the preceding month) and the Designated Percentage for the preceding month.

I’m surprised to see that so many BCE.PR.A remain, particularly since I recommended conversion to BCE.PR.B. But that’s what makes a market!

Both BCE.PR.A and BCE.PR.B are tracked by HIMIPref™; both are relegated to the Scraps index on credit concerns.

As part of their new issue announcement, Brookfield Office Properties has announced:

The net proceeds of the issue will be used to redeem Brookfield Office Properties’ Cumulative Class AAA Preference Shares, Series F and, to the extent the underwriters’ option is exercised, for general corporate purposes. The offering is expected to close on or about September 13, 2012.

BPO.PR.F is an OperatingRetractible paying 6% of par, redeemable at par commencing 2012-9-30. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.