Category: Issue Comments

Issue Comments

TA.PR.H Closes at Discount on Sub-Par Volume

Transalta Corporation has announced:

it has completed its public offering of 9,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series E (the “Series E Shares”) at a price of $25.00 per Series E Share.

The offering, previously announced on August 2, 2012, resulted in gross proceeds to TransAlta of $225 million. The net proceeds of the offering will be used to partially fund capital projects, for other general corporate purposes, and to reduce short term indebtedness of the Corporation and its affiliates.

The Series E Shares were offered to the Canadian public through a syndicate of underwriters led by CIBC, RBC Capital Markets and Scotiabank by way of a prospectus supplement that was filed with securities regulatory authorities in Canada under TransAlta’s short form base shelf prospectus dated November 15, 2011.

Holders of Series E Shares are entitled to receive a cumulative quarterly fixed dividend yielding 5.00% annually for the initial period ending September 30, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.65%. Holders of Series E Shares will have the right, at their option, to convert their shares into Cumulative Redeemable Rate Reset First Preferred Shares, Series F (the “Series F Shares”), subject to certain conditions, on September 30, 2017 and on September 30 every five years thereafter. Holders of Series F Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.65%. The Series E Shares are listed on the Toronto Stock Exchange under the ticker symbol TA.PR.H.

They announced on August 3:

that further to its bought deal financing (the “Offering”) announced on August 2, 2012, the syndicate of underwriters led by CIBC, RBC Capital Markets and Scotiabank have exercised the underwriters’ option (the “Option”) granted to them. Pursuant to the exercise of the Option, TransAlta Corporation will issue an additional 3,000,000 Cumulative Redeemable Floating Rate Reset First Preferred Shares, Series E (the “Series E Shares”) for aggregate gross proceeds of $75 million, bringing the aggregate gross proceeds of the Offering to $225 million.

TA.PR.H is a FixedReset, 5.00%+365, announced August 2. The issue will be tracked by HIMIPref™ but assigned to the Scraps index on credit concerns.

TA was recently downgraded to P-3 by S&P and placed on Review-Developing by DBRS.

TA.PR.H traded 236,734 shares today in a range of 24.70-85 before closing at 24.70-73, 3×16. Vital statistics are:

TA.PR.H FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-08-10
Maturity Price : 23.05
Evaluated at bid price : 24.70
Bid-YTW : 4.99 %
Issue Comments

DBRS Sounds a Warning – But No Formal Change – on CPX.PR.A

DBRS has announced that it:

has today published an updated report on Capital Power Corporation (CPC or the Company). The Company’s Preferred Shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB by DBRS). The one-notch differential in the ratings of CPC and CPLP reflects structural subordination at CPC, which is largely dependent on its own resources and dividends from CPLP. Dividends from CPLP could be curtailed if the viability of CPLP needs to be safeguarded.
…
DBRS is increasingly concerned about the continued challenging merchant power market environment that could materially add to the Company’s existing challenges in the medium term. In addition, the Sundance Unit 1 and 2 restarts, which are expected in late 2013, could place more pressure on the merchant power market environment in Alberta. The continued downward pressure on natural gas prices, which make natural gas combined-cycle plants more cost effective in terms of both capital and fuel costs, are expected to pressure CPLP’s merchant power earnings.

CPC has no debt issued at the parent level and is not expected to issue any debt in the foreseeable future. The Company has $122 million of preferred shares outstanding as of June 30, 2012. Preferred shares, as a percentage of common equity, are within the 20% threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds). For the six months ended June 30, 2012, CPC distributed $3 million to its preferred shareholders and $37 million to its common shareholders ($6 million and $51 million to preferred and common shareholders, respectively for fiscal 2011).

DBRS confirmed CPX.PR.A at Pfd-3(low) on July 24.

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

Issue Comments

BCE.PR.A To Reset To 3.45%

BCE Inc. has announced:

BCE Inc. will, on September 1, 2012, continue to have Cumulative Redeemable First Preferred Shares, Series AA outstanding if, following the end of the conversion period on August 22, 2012, BCE Inc. determines that at least 2.5 million Series AA Preferred Shares would remain outstanding. In such a case, as of September 1, 2012, the Series AA 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 an annual fixed dividend rate equal to 3.45%.

BCE.PR.A is interconvertible with BCE.PR.B on September 1, and notice of conversion is required to be with BCE by August 22, 2012. Note that brokerages and other custodians will have deadlines slightly in advance of this – so if contemplating conversion, find out your deadline immediately! The Notice of Conversion was discussed on PrefBlog.

I recommend that holders of BCE.PR.A convert to BCE.PR.B. The total dividends paid over the next five years will greater for the latter issue if the average prime rate exceeds 3.45% (provided that this issue continues to pay 100% of prime, which it will do unless the current price of $21 increases to over $25). This condition will be met if prime increases steadily to 4% at the end of five years. This is a reasonably good bet, even with the Fed announcing continued financial repression through the end of 2014. 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%.

Issue Comments

New Issue: BIR FixedReset 8.00%+683

On July 17, Birchcliff Energy announced:

it has entered into an agreement with a syndicate of underwriters, which have agreed to purchase, on a bought deal basis, 1.6 million preferred units (“Preferred Units”) at a price of $25.00 per Preferred Unit, for total gross proceeds of $40 million (the “Offering”).

Each Preferred Unit will consist of one Cumulative 5-Year Rate-Reset Preferred Share, Series A (the “Series A Preferred Shares”) and 3 common share purchase warrants issued by Birchcliff (the “Warrants”), with each Warrant providing the right to purchase one (1) common share in the capital of Birchcliff (“Common Shares”) at an exercise price of $8.30 per Common Share for a period of two years. The syndicate of underwriters is co-led by GMP Securities L.P., Cormark Securities Inc. and National Bank Financial Inc., and includes HSBC Securities (Canada) Inc., Raymond James Ltd., Macquarie Group Ltd. and Peters & Co. Limited.

The Series A Preferred Shares will pay cumulative dividends of $2.00 per share per annum, payable quarterly if, as and when declared by Birchcliff’s board of directors (with the first quarterly dividend to be paid on September 30, 2012 (or the next business day)), for the initial five year period ending September 30, 2017. The dividend rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the five-year Government of Canada bond yield plus 6.83 per cent. The Series A Preferred Shares will be redeemable by the issuer on or after September 30, 2017, in accordance with their terms.

Holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”) subject to certain conditions, on September 30, 2017 and on September 30 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 6.83 per cent, if, as and when declared by Birchcliff’s board of directors.

The Preferred Units will be offered for sale to the public in each of the provinces of Canada other than Quebec pursuant to a short form prospectus to be filed with Canadian securities regulatory authorities in such provinces. The Offering is scheduled to close on or about August 8, 2012, subject to certain conditions, including obtaining all necessary regulatory approvals.

The deal was quickly upsized:

Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that Birchcliff has increased the size of its previously announced bought deal preferred unit offering to $50 million, from $40 million. Birchcliff will issue a total of two (2) million preferred units (“Preferred Units”) at a price of $25.00 per Preferred Unit, for total gross proceeds of $50 million (the “Offering”).

The deal closed today:

Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that it has closed its previously announced bought deal preferred unit financing of two million preferred units of Birchcliff (“Preferred Units”) at a price of $25.00 per Preferred Unit, for gross proceeds of $50 million (the “Offering”). Each Preferred Unit is comprised of one cumulative redeemable 5-year rate reset preferred share, series A (a “Series A Preferred Share”) of Birchcliff, to yield initially 8.00% per annum; and three common share purchase warrants (each a “Warrant”) of Birchcliff. Each Warrant provides the right to purchase one common share (a “Common Share”) of the Corporation for a period of two years from the closing date of August 8, 2012, at a price of $8.30 per Common Share. Birchcliff now has two million Series A Preferred Shares, six million Warrants and 141,475,311 Common Shares outstanding.

The prospectus is available on SEDAR, dated July 30, 2012. I am not permitted to link to this public document due to soon-to-be-bank-owned CDS’ abusive exploitation of its cosy little contract with the regulators.

The prospectus states:

The Series A Preferred Shares, the Series B Preferred Shares, the Warrants and the Common Shares are not rated by any credit rating agency.

This means the issue will not be tracked by HIMIPref™. The presence of a credit rating serves as a public flashpoint, downgrades in which will often persuade an otherwise complacent Board and management to take decisive action to fix it. If Hymas Investment Management downgrades an issue – so what? If S&P downgrades an issue and it gets into the papers – that’s a little more serious.

BIR.PR.A had good volume but lousy results on its first day of trading, with 102,370 shares changing hands in a range of 22.25-23.25. The closing quote was 23.00-50, 14×1. The warrants did quite well, trading 349,150 in a range of 1.00-25, closing at 1.12-20, 8×1, so purchasers of the $25 units of one preferred and three warrants have done quite well so far!

Issue Comments

YLO Court Battle Looming?

Tim Kiladze of the Globe and Mail reports:

But there have been rumblings of anger from some creditor groups about the way the spoils are being divided, and the company’s bankers and convertible debenture holders – who own bonds that can be converted into common shares – escalated frustrations last week by separately hiring lawyers and going public with their grievances.
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On Monday, the banking group, which is made up of the Big Six banks and Caisse Centrale Desjardins, and which is owed $369-million by Yellow Media, will appear in Quebec court to voice its arguments.
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Banks and convertible debenture holders both argue they were treated unfairly by Yellow Media because they were not consulted before the restructuring plans were made public. The banks accuse the company of using “a divide and conquer strategy” by negotiating only with a small group of bondholders, and they want the process to start over.
…
At the moment, it is unclear how receptive the court will be to both groups’ complaints because their legal rights are murky. The debt restructuring has already been deemed to be fair by financial advisers BMO Nesbitt Burns and Canaccord Genuity.

But that hasn’t stopped the groups from putting forth their arguments. In a motion filed in Quebec court, the banking group, represented by McMillan LLP, states that “creditors are the parties with the primary economic interest in an insolvent entity, and they are, and must be, involved in shaping the terms of a plan that will govern any compromise or arrangement of their debt.”

The convertible debenture holders are also upset at “having been excluded completely from the consultative process” said lawyer Avram Fishman at Fishman Flanz Meland Paquin LLP, and they can’t understand why “they were not asked whether they agreed with [the proposed arrangement] or what provisions could be changed to induce them to accept it.”

The proposed reorganization has been reported on PrefBlog. I suspect that I might recommend a negative vote by preferred shareholders – who may well be able to vote separately as a class – on the grounds that the plan assumes forced conversion by preferreds into old common, which is then converted on harsh terms into new common.

In other words, the plan appears (appears! Pending my review of final documentation!) to be a worst-case scenario alread for the preferred shareholders … and why should they vote “Yes” if they’re not being paid to vote “Yes”?

YLO has four series of preferred shares outstanding: YLO.PR.A & YLO.PR.B, which are subject to forcible conversion into old common, and YLO.PR.C & YLO.PR.D, which are not.

Issue Comments

REI.PR.A, REI.PR.C: Distributions 62% Return of Capital in 2011

This post is motivated by a query from Assiduous Reader adrian2, who writes in and says:

Is there any other Canadian security calling itself preferred and distributing ROC?

As it turns out, there is: REI.PR.A and REI.PR.C are reported by RioCan to have the following breakdown of their distribution in 2011:

  • Capital Gain: 1.72%
  • Foreign Non-Business Income 4.57%
  • Other Income 31.24%
  • Return of Capital 62.47%

Various implications of this kind of tax treatment were discussed by Tom Kiladze in the Globe:

In RioCan’s case, distributions will be taxed as income, not as dividends. That matters, because income is taxed at a higher rate. But the preferred units will be treated just like RioCan’s regular trust units, so a portion of the distributions will be treated as a return of capital. REITs often distribute more than their net incomes because depreciation skews their bottom lines (property values usually go up, not down), and the amount overpaid allows investors to get a better tax treatment.

BMO analyst Karine MacIndoe ran the numbers and found that RioCan has a historical five-year tax-deferral average of about 50 per cent. Applying that figure over a five-year horizon in the future, the pref units’ 5.25 per cent yield equates to a 4.82 per cent dividend yield on an after-tax return basis.

What the numbers will look like in the future is left as an exercise for the student.

Issue Comments

BAF placed on Review-Negative by DBRS

DBRS has announced that it:

placed the ratings of Bell Aliant Regional Communications, Limited Partnership (Bell Aliant or the Company) Under Review with Negative Implications. DBRS is reassessing the risks associated with the Company’s transformational strategy (including the magnitude and pace of capital requirements) while returns from this investment remain difficult to forecast and pressure on operating income/cash flow from traditional business lines persists.

Bell Aliant is currently in the process of transforming its business by supplanting its traditional voice with broadband and IPTV services. Although DBRS recognizes the merits of such a strategy, it acknowledges that the transition will not be without risk. The Company expects to have invested approximately $500 million in Fibre-to-the-Home (FTTH) by the end of 2012. As of June 30, 2012, Bell Aliant has achieved 582,000 homes passed and penetration of approximately 75,000 FibreOP Internet customers and 65,000 FibreOP TV subscribers. In the meantime, revenues from local and long distance continue to decline at a steady pace (down 5.0% and 10.8% year-over-year, respectively, for H1/2012). As a result, Bell Aliant’s total EBITDA declined by 1.1% to $655 million for the first half of 2012 compared to the same period in 2011, a moderation of a negative trend that began in 2010. The decline was softened due to incremental revenues and operating income from the Company’s FibreOp services.

Bell Aliant maintains significant capital investment requirements in the near-to-medium term in order to achieve its stated objective of reaching one million homes passed. DBRS believes there are strategic merits to accelerating the Company’s capex program in order to advance their position in an increasingly competitive environment. That said, an acceleration of investment would increase external funding requirements as DBRS expects the Company to generate negative free cash flow after dividends over the period of accelerated capital investment.

In its review, DBRS will focus on Bell Aliant’s prospects for penetration growth in the new business lines, size/pace of capital program and overall financing requirements in light of Management’s commitment to its dividend. DBRS will also reassess the competitive environment, including pricing strategies and the threat of product innovation. DBRS will aim to complete its assessment and resolve the Under Review status within the next month.

In terms of short-term debt, Bell Aliant’s Commercial Paper rating of R-1(low) reflected the Company’s superior liquidity strength as entities with a long-term rating of BBB (high) are typically coupled with a short-term rating of R-2 (high). As part of our assessment of the future capital program and financing requirements, DBRS will also review the appropriateness of having a Commercial Paper rating on Bell Aliant that exceeds the standard mapping.

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.

Issue Comments

New Issue: AX.PR.A FixedReset 5.25%+406

Artis REIT announced on July 24:

a marketed public offering (the “Financing”) of approximately $50 million Cumulative 5-Year Rate Reset Preferred Trust Units, Series A (the “Series A Units”) at a price of $25 per Series A Unit. The Financing is being led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Artis has also granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase additional Series A Units, up to an amount equal to 15% of the number of Series A Units sold pursuant to the Financing. The Financing will be priced in the context of the market with the final terms of the Financing to be determined at the time of pricing.

The Series A Units will pay fixed cumulative preferential distributions, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, for the initial approximately five-year period ending September 30, 2017. The first quarterly distribution, if declared, shall be payable on September 30, 2012. The distribution rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and a spread which will be set upon pricing of this Financing. The Series A Units are redeemable by Artis, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.
Holders of Series A Units will have the right to reclassify all or any part of their Series A Units as Cumulative Floating Rate Preferred Trust Units, Series B (the “Series B Units”), subject to certain conditions, on September 30, 2017 and on September 30 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement). Holders of Series B Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread which will be set upon pricing of this Financing.

The Financing is being made pursuant to the REIT’s base shelf prospectus dated June 15, 2012. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators.

Artis intends to use the net proceeds from the Financing to repay indebtedness, fund future acquisitions, and for general trust purposes.

Artis continues to enjoy a strong deal flow pipeline, with a continued focus on the accretive acquisition of quality commercial properties, in select markets in Canada and the U.S.

The issue was priced the following day:

announced today that is has priced its previously announced marketed public offering (the “Financing”) of Cumulative 5-Year Rate Reset Preferred Trust Units, Series A (the “Series A Units”). Artis will issue 3 million Series A Units at a price of $25 per Series A Unit for gross proceeds to Artis of $75,000,000.

The Financing is being led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Artis has also granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase up to an additional 450,000 Series A Units.

The Series A Units will pay fixed cumulative preferential distributions of $1.3125 per unit per annum, yielding 5.25% per annum, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, for the initial approximately five-year period ending September 30, 2017. The first quarterly distribution, if declared, shall be payable on September 30, 2012 and shall be $0.2122 per unit, based on the anticipated closing of the offering of Series A Units of August 2, 2012. The distribution rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.06%. The Series A Units are redeemable by Artis, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.

Holders of Series A Units will have the right to reclassify all or any part of their Series A Units as Cumulative Floating Rate Preferred Trust Units, Series B (the “Series B Units”), subject to certain conditions, on September 30, 2017 and on September 30 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement). Holders of Series B Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread of 4.06%.

The Financing is being made pursuant to the REIT’s base shelf prospectus dated June 15, 2012. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Financing is expected to close on or about August 2, 2012 and is subject to regulatory approval.

Artis intends to use the net proceeds from the Financing to fund future acquisitions, repay indebtedness, and for general trust purposes.

Artis continues to enjoy a strong deal flow pipeline, with a continued focus on the accretive acquisition of quality commercial properties, in select markets in Canada and the U.S.

And they announced on August 2:

it has closed its previously announced marketed public offering (the “Financing”) of Cumulative 5-Year Rate Reset Preferred Trust Units, Series A, (“the Series A Units”), through a syndicate of underwriters led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Pursuant to the Financing, Artis issued 3.0 million Series A Units at a price of $25 per Series A Unit for gross proceeds to Artis of $75,000,000.

Artis has granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase up to an additional 450,000 Series A Units.

Artis intends to use the net proceeds from the Financing to repay indebtedness, fund future acquisitions, and for general trust purposes.

According to the prospectus supplement (available at SEDAR dated July 25, 2012; I am not permitted to link to it directly due to the cosy little contract the soon-to-be-bank-owned CDS has signed with regulators), “The Series A Units and the Series B Units are not rated by any rating agency.” Accordingly, the issue will not be tracked by HIMIPref™. As I have stated so often that people are getting sick of the repetition, this policy is not because I don’t think I can analyze the credit quality myself, and not because I worship the rating agencies … but because a public credit rating serves as a useful public flash-point during times of stress. It’s always useful to give the directors something to talk about over lunch!

Taxation is complicated: “Artis’ income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders.” In 2011, Unitholder distributions were 100% return of capital and this was also the case in 2010.

Issue Comments

TA Downgraded to P-3 by S&P

Standard and Poor’s has announced:

  • We are lowering our long-term corporate credit and senior unsecured debt ratings on TransAlta Corp. to ‘BBB-‘ from ‘BBB’.
  • We are also lowering our global scale preferred stock rating on the company to ‘BB’ from ‘BB+’, and our Canada scale rating to ‘P-3’ from ‘P-3(High)’.
  • The cash flow related to a recently announced contract at TransAlta’s Centralia facility largely falls outside of our rating horizon; as a result, the positive impacts of an improved business risk profile and associated cash flows have a small impact on our analysis.
  • As we said in our research update from July 23, 2012, the recent arbitration decision on Sundance Units 1 and 2 increased the probability of a downgrade because it increases the business risk related to an additional 2.5 gigawatts of capacity sold under similar power purchase agreements and it led to additional deterioration in the company’s financial risk profile.
  • The stable outlook reflects our view that adjusted funds from
    operations-to-debt will remain in the 15%-20% range, below the 20% threshold we associated with the previous ratings.

The ratings on TransAlta reflect Standard & Poor’s opinion of the company’s strong business risk profile and significant financial risk profile. In our view, the business risk profile reflects a predominance of long-term power purchase arrangements (PPAs) and a relatively diversified electricity generation portfolio. We believe that offsetting these credit strengths are high leverage; the potential for year-to-year volatility in cash flow due to revenue exposure to volume and price risk; asset concentration at Centralia, TransAlta’s largest merchant asset; and the company’s involvement in high-risk energy trading activities. An underlying level of profitability and cash flow stability comes from long-term power contracts (with a minimum of five years to maturity).
…
The stable outlook reflects our expectation of AFFO-to-debt remaining in the 15%-20% range and a relatively stable business risk profile. We could raise the ratings if TransAlta improves its business risk profile or if we expect the company to achieve and maintain AFFO-to-debt of more than 20%. Conversely, while we don’t expect it, a material debt-financed acquisition or capital building program, costly regulatory or environmental initiatives, or a sustained deterioration in plant operating performance leading to AFFO-to-debt falling below 15% could result in a downgrade.

TransAlta currently has two preferred share issues outstanding, TA.PR.D and TA.PR.F, both FixedResets.

DBRS recently put TA on Review-Developing:

DBRS has today placed the BBB Unsecured Debt/Medium-Term Notes and Pfd-3 Preferred Shares ratings of TransAlta Corporation (TAC or the Company) Under Review with Developing Implications. This rating action follows the announcement of the final outcome of the arbitration case regarding the force majeure and economic claim of Sundance 1 and 2 coal-fired generation units. The arbitrator concluded that, although the closure was a result of a force majeure, Sundance 1 and 2 can still be economically restored to service. As a result of this outcome, TAC will be responsible for approximately $190 million in estimated repair costs to restart Sundance 1 and 2, as well as for $150 million in accrued penalties to TransCanada PipeLines Limited (TCPL; rated “A” by DBRS), a wholly owned subsidiary of TransCanada Corporation. However, TAC will still be receiving capacity payments totaling approximately $100 million from the Balancing Pool (established by the Government of Alberta) from today to when the units are restored to service, which is expected to be in the fall of 2013. Therefore, the net cash cost for TAC is estimated to be approximately $240 million.
…
DBRS expects TAC to ultimately fund the majority of the aforementioned costs primarily with equity (including preferred shares and dividend re-investment proceeds) in a timely manner to maintain its current leverage level. Any further increase in leverage could cause TAC’s credit risk profile to deteriorate to a level that is no longer commensurate with the current BBB rating.

Issue Comments

LSC.PR.C Redeemed on Schedule

Scotia Managed Companies has announced:

The Board of Directors of Lifeco Split Corporation Inc. (“Lifeco”) has announced today that the redemption prices for all outstanding Capital Shares and Preferred Shares to be paid on July 31, 2012 are as follows:
Redemption Price per Preferred Share: $36.84
Redemption Price per Capital Share: $4.4466

Holders of 27,010 Capital Shares requested delivery of and will receive their pro rata share of portfolio shares in payment for their Capital Shares.

Capital Shares and Preferred Shares of Lifeco are listed for trading on The Toronto Stock Exchange under the symbols LSC and LSC.PR.C respectively. The Capital Shares and Preferred Shares will be de-listed from The Toronto Stock Exchange as at the close of trading on July 31, 2012.

The maturity was previously discussed on PrefBlog. LSC.PR.C was not tracked by HIMIPref™.