Category: Issue Comments

Standard & Poor’s has announced:

• •We are revising our outlook on Montreal-based Transcontinental Inc. to negative from stable.
• •We base the outlook revision on our view of the ongoing headwinds the company faces in the medium term, with possible declines in both organic revenue and profitability given challenging industry fundamentals.
• •We are also affirming our ratings on the company, including the ‘BBB’ long-term corporate credit rating.
• •The negative outlook reflects Standard & Poor’s view that Transcontinental could continue to experience declining organic revenue and margin pressure in the medium term.

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Transcontinental’s operating performance was below our expectations in the nine months ended July 31, 2012, with reported revenue and adjusted operating profit declining 2.5% and 15.5%, respectively, on an organic basis, compared with the same period in 2011. We believe that soft economic conditions in the past few years have accelerated the digital substitution of content and advertising from print, which will continue pressuring the company’s print and publishing-related businesses in the medium term.
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The negative outlook reflects Standard & Poor’s view that Transcontinental might experience continued declining organic revenue and margin pressure given difficult industry fundamentals. We could lower the ratings if Transcontinental’s operating performance remains soft or if we believe secular risks have increased to an extent that changes our view of the company’s business risk profile or if debt leverage approaches 2.5x. Alternatively, we could revise the outlook to stable if Transcontinental demonstrates sustainable improvement in its operating performance, while maintaining adjusted debt to EBITDA between 1.5x-2.0x.

Transcontinental has a single preferred share issue outstanding: TCL.PR.D, which S&P upgraded to P-3(high) in December 2010. The issue commenced trading October 2, 2009 and is a FixedReset, 6.75%+416. The issue was recently downgraded to Pfd-3 by DBRS.

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

Financial 15 Split Inc. has released its Semi-Annual Report to May 31, 2012.

Figures of interest are:

MER: 1.03% of the whole unit value, “excluding the one time initial offering expenses and performance fees.”

Average Net Assets: We need this to calculate portfolio yield. The number of units did not change over the half, so the average of the beginning and end of year’s net assets will be close enough: ($120.8-million + $124.2-million) / 2 = $122.5-million.

Underlying Portfolio Yield: Dividends received (net of withholding) of 2.191-million divided by average net assets of 122.5-million is 1.79%, annualized is 3.58%

Income Coverage: Net Investment Income of 1.525-million divided by Preferred Share Distributions of 2.429-million is 63%.

FTN.PR.A was last mentioned on PrefBlog when the 2011 Annual Report was discussed. FTN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Brompton Split Banc Corp. has released its Semi-Annual Report to June 30, 2012, which in conjuntion with the Annual Report to December 31, 2011 allows preparation of the following table:

I suggest the reported outperformance probably has more to do with the poor performance of insurers over the past five years than with any manifestation of investment skill; on the other hand, the fund has handsomely outperformed BK / BK.PR.A for the past five years, even allowing for the one month difference in period end.

Figures of interest are:

MER: 1.14% of the whole unit value, “excluding the cost of leverage and the issuance costs.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $119.9-million and 118.2-million on June 30, so call it an average of $119-million.

Underlying Portfolio Yield: Investment income of $2.622-million received divided by average net assets of $119-million is 2.20%, annualized is 4.40%

Income Coverage: Net investment income of $2.622-million less expenses of $0.696-million is $1.927-million, to cover preferred dividends of 1.574-million is about 122%.

SBC.PR.A was last mentioned on PrefBlog when it was confirmed at Pfd-3(high) by DBRS. SBC.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Brompton Life & Banc Split Corp. has released its Semi-Annual Report to June 30, 2012, with updated performance numbers which allow construction of the following table in conjunction with the Annual Report to December 31, 2011.

Note that according to the implementation by iShares, the capped financial index is about 76% banks and 19% insurance, so the fund is by design overweight insurers relative to this benchmark – and insurers have underperformed over the past few years.

Figures of interest are:

MER: 0.98% of the whole unit value, “excluding the cost of leverage and issuance costs.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $204.4-million, and 203.8-million at June 30. Easy enough (no interim warrant offerings this time!) so call the average net assets 204.2-million.

Underlying Portfolio Yield: Investment income of $4.79-million received divided by average net assets of $204.2-million is 2.35% for the six months, or 4.70% annualized.

Income Coverage: Net investment income after expenses of $3.758-million, to cover preferred dividends of 3.582-million is about 105%.

LBS.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-3(low) by DBRS. LBS.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Enbridge Inc. has announced:

it has closed its previously announced public offering of Cumulative Redeemable Preference shares, Series P (the “Series P Preferred Shares”) by a syndicate of underwriters led by TD Securities Inc., CIBC World Markets, RBC Capital Markets and Scotiabank. Enbridge issued 16 million Series P Preferred Shares for gross proceeds of $400 million. The Series P Preferred Shares will begin trading on the TSX today under the symbol ENB.PR.P. The net proceeds will be used to partially fund capital projects, to reduce short term indebtedness and for other general corporate purposes.

ENB.PR.P is a FixedReset, 4.00%+250, announced September 4. It will be tracked by HIMIPref™ and assigned to the FixedReset index.

The issue traded 567,120 shares today in a range of 24.84-90 before closing at 24.88-91, 246×50. Vital statistics are:

Brookfield Office Properties has announced:

the completion of its previously announced Preferred Shares, Series T issue in the amount of C$250 million. The offering was underwritten by a syndicate led by CIBC, RBC Dominion Securities Inc., Scotia Capital Inc. and TD Securities Inc.

Brookfield Office Properties issued 10.0 million Preferred Shares, Series T at a price of C$25.00 per share yielding 4.60% per annum for the initial 6.25-year period ending December 31, 2018. Net proceeds from the issue will be added to the general funds of Brookfield Office Properties and be used to redeem its 8.0 million Preferred Shares, Series F and for general corporate purposes. Until such time as Brookfield Office Properties redeems the Preferred Shares, Series F, a portion of the net proceeds may temporarily be used to reduce short term borrowings.

The Preferred Shares, Series T will commence trading on the Toronto Stock Exchange on September 13, 2012 under the ticker symbol BPO.PR.T.

BPO.PR.T is a FixedReset, 4.60%+316, announced September 5. It will be tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

The issue traded 713,956 shares today in a range of 25.00-18 before closing at 25.10-12, 1×22. Vital statistics are:

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.