Category: Issue Comments

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.

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.