Category: Issue Comments

Strathbridge Asset Management has announced (although not yet on their website):

Premium Income Corporation (the “Fund”)(TSX: PIC.A)(TSX:PIC.PR.A)(TSX:PIC.RT) is pleased to announce that beginning Monday December 3, 2012 through Tuesday December 11, 2012 the Fund will be calculating and publishing on its website, a daily Net Asset Value per share with respect to its Class A Shares and Preferred Shares. This is being done to assist shareholders in making a fully informed investment decision regarding the exercise of Rights recently issued and which expire on December 11, 2012.

Under the Rights offering two Rights entitle the holder to acquire one Class A Share and one Preferred Share upon payment of the subscription price of $20.88 prior to the expiry date of December 11, 2012. Any Rights not exercised by December 11, 2012 will expire and be of no value. To exercise Rights holders should contact their advisors or dealers. Please note that some dealers may have an earlier deadline in order to process the exercise request.

After the expiry of the Rights on December 11, 2012 the Fund will revert to calculate its Net Asset Value on a weekly basis.

For further information, please contact Investor Relations at 416.681.3966, toll free at 1.800.725.7172 or visit www.strathbridge.com.

The rights issue was reported on PrefBlog.

PIC.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Brookfield Asset Management has announced:

the completion of its previously announced 4.85% perpetual Class A Preference Shares, Series 36 (“Preferred Shares”) issue in the amount of CDN$200,000,000. Brookfield issued 8,000,000 Preferred Shares at a price of CDN$25.00 per share, for total gross proceeds of CDN$200,000,000. The Preferred Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.C.

BAM.PF.C is a Straight Perpetual, 4.85%, announced November 20. The issue size of $200-million indicates that the greenshoe option was exercised in full.

The issue traded 384,725 shares today in a range of 24.64-95 before closing at 24.70-73, 7×40.

BAM.PF.C will be tracked by HIMIPref™ and initially assigned to the PerpetualDiscount index. Vital statistics are:

Standard & Poor’s has announced:

• •We are withdrawing our ‘BB’ issue-level rating, and ‘4’ recovery rating, on Bombardier Inc.’s proposed US$1 billion of unsecured notes. The company has decided to not issue these notes.
• •We are also affirming our ‘BB’ long-term corporate rating on Bombardier.
• •While Bombardier’s decision to not issue debt at this time will mean a somewhat better leverage ratio, with an adjusted debt-to-EBITDA ratio of about 6.3x compared with 7.0x for 2012, the company will not benefit from
  US$1 billion in additional liquidity.

• •We continue to view Bombardier’s current liquidity position, with a US$2.1 billion cash balance, as adequate, but there is less cushion if capital expenditures were to increase due to delays in the CSeries programs.
• •The stable outlook reflects our expectations that the company will continue to generate strong cash flows and credit metrics will improve over the next two years.

…
Under the current business conditions, we believe an upgrade is unlikely in the near term. Nevertheless, when what we view as more normal and stable market conditions return and the company successfully launches the CSeries, we could consider revising the outlook to positive or raising the rating on Bombardier if in turn the company improves its financial measures, with adjusted debt to EBITDA falling below 4x or adjusted FFO to debt reaching 20% on a sustained basis.

Last week’s S&P downgrade was discussed on PrefBlog. Neither of these announcements had any direct effect on preferreds, but market effect was very negative, with BBD.PR.C down about 10% at the lows.

BBD has three series of preferred outstanding: BBD.PR.B, BBD.PR.C and BBD.PR.D.

Standard & Poor’s has announced:

• •We are lowering our long-term corporate credit and senior unsecured debt ratings on Capital Power Corp. (CPC) and subsidiary Capital Power L.P. to
  ‘BBB-‘ from ‘BBB’.

• •We are also lowering our global scale preferred stock rating on CPC to ‘BB’ from ‘BB+’, and our Canada scale rating to ‘P-3’ from ‘P-3(High)’.
• •We base the downgrade on weakness in the Alberta power market, which we forecast will not improve materially in the medium term.
• •The lower amount of hedging the partnership is undertaking with respect to its Alberta merchant power heightens its significant exposure to lower Alberta forecast prices.
• •The stable outlook reflects our view that adjusted funds from operations-to-debt will remain below the 20% threshold we associate with the ‘BBB’ rating.

…
The ratings on CPC and CPLP reflect Standard & Poor’s opinion of the partnership’s strong business risk profile and significant financial risk profile. Providing key support to the ratings is a more measured perspective on growth and a moderately diversified generation portfolio, which consists of a relatively young fleet. Moreover, the partnership recently completed the Quality Wind project under budget, reducing construction risk and demonstrating strong project development capability. We also believe CPLP benefits from a portion of its cash flow from long-term power purchase contracts with predominantly creditworthy counterparties, which add predictability. In our view, offsetting these strengths is a high degree of leverage, notwithstanding the partnership’s efforts to reduce leverage through such things as equity issuance, which exposes it to weakening in power prices, particularly in light of a relatively large open position. We believe this heightens the volatility of cash flow.

DBRS has announced that it:

has today confirmed the Pfd-3 (low) rating on the Preferred Share obligations of GMP Capital Inc. (GMP or the Company), but has changed the trend on the rating to Negative. The rating reflects the strength of the Company’s business franchise as a premier provider of investment banking and capital markets products and services to its targeted market of mid-sized Canadian companies, most of whom operate in the resource and energy sectors. The change in trend, however, reflects the current adverse market environment for the Company’s resource-oriented clients and DBRS’s belief that these conditions are not likely to turn favourable in the short term. While the Company has invested in geographical and business line diversification, largely through the 2011 acquisition of U.S.-based Miller Tabak Roberts Securities, LLC (MTR), which has provided new market opportunities and revenues, the weak market environment has caused earnings to remain weak since Q2 2011.
…
The slump in underwriting and trading activities, which DBRS does not expect to recover in the short-to-medium-term, given the weak global economic outlook and continued absence of investor confidence, suggests that a Negative trend is appropriate until the Company returns to a healthy and sustainable level of net income, steady capital accumulation and improving capitalization ratios. In the current environment, the Company’s 32.7% interest in Richardson GMP, a high net worth wealth management operation with over $14 billion in assets under administration (AUA), is operating at break-even and is therefore not a source of profitable diversification for the Company. Similarly, the failure of the Company’s investment in EdgeStone Capital Partners, L.P., removes some of its previous potential for earnings diversification

CU Inc. has announced:

that it will issue $200,000,000 of 3.857% Debentures maturing on November 14, 2052, at a price of $100.00 to yield 3.857%. This issue was sold by RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc. and Scotia Capital Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.

The bonds are rated “A” by S&P.

This is interesting because CIU.PR.A closed at 25.16-20 today to yield 4.57-56% to its limit maturity (although this issue is a PerpetualPremium, it doesn’t quite trigger a YTW scenario of a call in the HIMIPref™ analysis. The bid-YTW of 4.57% is equivalent to 5.94% interest at the standard conversion factor of 1.3x, so the pre-tax interest equivalent spread (in this context, the “Seniority Spread”) of the Straight Perpetual over the debenture is about 210bp – very close to the 220bp for long corporates vs. PerpetualDiscounts reported November 14.

So it would appear that despite all the problems with the lack of PerpetualDiscount issues and their poor quality (relative to what the index was before all the banks and insurers transformed into DeemedRetractibles), the Seniority Spread as calculted is still meaningful – at least as far as a single test is concerned!

Standard & Poor’s has announced:

• •We are lowering our long-term corporate rating on Bombardier Inc. to ‘BB’ from ‘BB+’.
• •The downgrade reflects what we view as the company’s significantly lower-than-expected cash generation in 2012 due to fewer customer advances and weaker operating profit given the global economy. This, combined with ongoing heavy capex on the C-Series programs (which are facing a six-month delay), will mean that Bombardier’s leverage ratio will remain high, over 6x, until 2014.
• •We are also assigning our ‘BB’ issue rating, and ‘4’ recovery rating, to Bombardier’s proposed US$1 billion of unsecured notes.
• •The stable outlook reflects our expectations of stable performance from the company’s rail segment and overall slight improvement in operating margins.

…
A further downgrade is possible, if lower customer advances and additional delays in the CSeries programs lead to greater-than-expected negative free cash generation. This could ultimately lead to delays in any improvement to the adjusted leverage ratio from our current expectations in the next year-and-a-half.

Under the current business conditions, we believe an upgrade is unlikely in the near term. Nevertheless, when what we view as more normal and stable market conditions return and the company successfully launches the CSeries, we could consider revising the outlook to positive or raising the rating on Bombardier if in turn the company improves its financial measures, with adjusted debt to EBITDA falling below 4x or adjusted funds from operations to debt reaching 20%.

BBD has three series of preferred outstanding: BBD.PR.B, BBD.PR.C and BBD.PR.D.

BCE Inc. has announced:

BCE Inc. will, on December 1, 2012, continue to have Cumulative Redeemable First Preferred Shares, Series Z (“Series Z Preferred Shares”) outstanding if, following the end of the conversion period on November 19, 2012, BCE Inc. determines that at least one million Series Z Preferred Shares would remain outstanding. In such a case, as of December 1, 2012, the Series Z 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 a fixed rate equal to the product of: (a) the average of the yields to maturity compounded semi-annually, determined on November 13, 2012 by two investment dealers selected by BCE Inc., that would be carried by non-callable Government of Canada bonds with a 5-year maturity (the “Government of Canada Yield”), multiplied by (b) a percentage rate determined by BCE Inc. (the “Selected Percentage Rate”) for such period.

The “Selected Percentage Rate” determined by BCE Inc. for such period is 243%. The “Government of Canada Yield” is 1.297%. Accordingly, the annual dividend rate applicable to the Series Z Preferred Shares for the period of five years beginning on December 1, 2012 will be 3.152%.

The company has previously published

• BCE.PR.Z Conversion Notice
• BCE.PR.Y Conversion Notice

Similarly to to my recommendation in the BCE.PR.A / BCE.PR.B interconversion, I recommend that holders of BCE.PR.Z convert to BCE.PR.Y. The total dividends paid over the next five years will greater for the latter issue if the average prime rate exceeds 3.152% (provided that this issue continues to pay 100% of prime, which it will do unless the current price of a little under $22 increases to over $25). This condition will be met if prime increases steadily to 3.5% at the end of five years, and doesn’t miss by much if there’s only a single hike to 3.25%. This is a reasonably good bet, even with the Fed announcing continued financial repression through mid-2015. Additionally, I judge the chance of an overshoot of this figure to be much greater than the chance of an extreme undershoot; in other words, I judge the chances of average prime being 5% to be much greater than the chance of average prime being 2%.

Fortis Inc. has announced:

that it has closed its public offering (the “Offering”) of Cumulative Redeemable First Preference Shares, Series J (“Series J First Preference Shares”) underwritten by a syndicate of underwriters led by BMO Capital Markets and RBC Capital Markets. Fortis issued 8,000,000 Series J First Preference Shares at a price of $25.00 per share for aggregate gross proceeds to the Corporation of $200,000,000.

The net proceeds from the Offering will be used towards repaying borrowings under the Corporation’s $1 billion committed corporate credit facility, which borrowings were primarily incurred to support the construction of the non-regulated Waneta Expansion hydroelectric generating facility and for other general corporate purposes.

The Series J First Preference Shares were offered by way of prospectus supplement under the short form base shelf prospectus of Fortis dated May 10, 2012 and will commence trading today on the Toronto Stock Exchange under the symbol FTS.PR.J.

FTS.PR.J is a Straight Perpetual, 4.75%, announced November 1. The $200-million final size of the issue indicates that the $50-million greenshoe option was exercised in full. The issue will be tracked by HIMIPref™ and initially assigned to the PerpetualPremium index.

FTS.PR.J traded 1,173,968 shares today in a range of 25.04-19 before closing at 25.16-20, 72×110. Vital statistics are:

Dividend Growth Split Corp. has released its Semi-Annual Report to June 30, 2012.

Figures of interest are:

MER: The MER per unit of the Fund, excluding the cost of leverage, was 1.09% as at June 30, 2012.

Average Net Assets: We need this figure to calculate portfolio yield. [(41.0+63.7-million (NAV, beginning of period) + 37.3+63.7-million (NAV, end of period)] / 2 = about 103-million. Note that when the fund reports its NAV on page 4 of the report, they are referring only to the capital units, so 63.7-million for the preferreds needs to be added.

Underlying Portfolio Yield: Total income of 2,395,765, times two (semi-annual) divided by average net assets of 103-million is 4.65%

Income Coverage: Net Investment Income of 1,819,683 divided by Preferred Share Distributions of 1,650,413 is 110%.