Category: Issue Comments

Dominion Bond Rating Service has announced that it:

has today placed Transcontinental Inc.’s (Transcontinental or the Company) Senior Unsecured Debt rating of BBB (high) and Preferred Share rating of Pfd-3 (high) Under Review with Negative Implications. Those ratings were previously on Negative trend. The Under Review action follows DBRS’ update of the methodology Rating the Printing Industry, which involved lowering the Industry Business Risk Rating (BRR). The BRR was reduced to the BB (high)/BB range from BB (high). (See separate PR released earlier today.)

The rationale for the methodology change was based on DBRS’ view that the highly competitive industry is being increasingly affected by the structural transition toward digital-based mediums and is applying pressure to traditional printing revenue.

In its review of Transcontinental, DBRS will focus on the Company’s potential to adapt to the changing environment and will assess the Company’s prospects going forward.

Transcontinental’s current rating reflects the Company’s sound financial profile and established position as the largest printer in Canada. The rating also considers the highly competitive and cyclical nature of the printing industry. The earnings profile of Transcontinental is being challenged as customers shift to digital forms of media and the Company struggles to sustain revenues and profitability. In terms of financial profile, Transcontinental remains reasonably sound despite pressure on operating cash flow and higher dividends due to the Company’s modest level of debt.

Transcontinental is the issuer of TCL.PR.D, currently rated Pfd-3(high) by DBRS and P-3(high) by S&P.

Enbridge has announced:

it has closed its previously announced public offering of Cumulative Redeemable Preference shares, Series N (the “Series N Preferred Shares”) by a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotiabank, and TD Securities Inc. Enbridge issued 18 million Series N Preferred Shares for gross proceeds of $450 million. The Series N Preferred Shares will begin trading on the TSX today under the symbol ENB.PR.N. The net proceeds will be used to partially fund capital projects, to reduce short term indebtedness and for other general corporate purposes.

The upsizing from the initially announced $250-million issue size was announced July 9:

as a result of strong investor demand for its previously announced offering of cumulative redeemable preference shares, series N (the “Series N Preferred Shares”), the size of the offering has been increased to 18 million shares. The aggregate gross proceeds will be $450 million.

ENB.PR.N is a FixedReset, 4.00%+265, announced July 9.

The issue traded 1,205,755 shares today in a range of 25.00-10 before closing at 25.06-08, 25×70. ENB.PR.N has been added to HIMIPref™ database and assigned to the FixedReset subindex. Vital statistics are:

BCE Inc. has released the conversion notice for BCE.PR.A and a matching notice for BCE.PR.B.

These issues constitute a Strong Pair.

The effective date of the interconversion is 2012-9-1. The deadline for instructing the company to convert shares is 2012-8-22 – but note that brokers serving the public will probably have internal deadlines a day or two in advance of this. The new dividend rate on BCE.PR.A will be published 2012-8-9.

At the first conversion opportunity in 2007, about half the outstanding BCE.PR.A were conversted into BCE.PR.B. The remaining shares of BCE.PR.A have paid 4.80% since then. Prime was at 6.25% when the last conversion was effective … how times have changed!

These shares are trading at very nearly the same price … alas, there isn’t much of an arbitrage possibility here!

Bombardier Inc. has announced:

As of August 1, 2012, the Series 3 Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of Bombardier Inc., cash dividends for the following five years that will be based on a fixed rate equal to the product of (a) the average of the yield to maturity, designated on July 11, 2012 by National Bank Financial and CIBC World Markets Inc., that would be carried by a Government of Canada bond with a five-year maturity, multiplied by (b) 255%.

The average yield of this Government of Canada bond is 1.229%. Accordingly, the annual dividend rate applicable to the Series 3 Preferred Shares for the period of five years beginning on August 1, 2012 will be 3.134%.

The old rate was 5.267%, or 1.31675 p.a.

The new rate of 3.134% is 0.7835 p.a.

BBD.PR.D is interconvertible with BBD.PR.B every five years; the deadline for the current conversion is July 18, 2012. Note that brokers may have internal deadlines a day or two in advance of the company’s deadline at Computershare, so if you intend to convert there is absolutely no time to be lost!

BBD.PR.B currently pays 100% of prime on its par value of $25; therefore 3%. The percentage of prime paid will not be reduced unless and until the market price exceeds the par value. This seems rather unlikely, so it is reasonable to assume that the rate paid on BBD.PR.B will be equal to prime, recalculated monthly, for the next five years.

Given that the rate on BBD.PR.D is only 3.134%, it won’t take a lot of monetary tightening for BBD.PR.B to pay more dividends than BBD.PR.D until the next interconversion possibility five years hence – one 25bp increase just before the half-way point of the period will do it and anything more is gravy.

Therefore, I recommend that holders of BBD.PR.D convert to BBD.PR.B.

I missed this when it came out – Quadravest has announced:

Prime Dividend Corp. (the “Company”) is pleased to announce that it will issue warrants (“Warrants”), to all Class A Shareholders. Each Class A Shareholder will be entitled to receive one Warrant for each Class A Share held as of the record date of May 4, 2012. One Warrant will entitle the holder to purchase a Unit consisting of one Class A Share and one Preferred Share for $17.25. The Warrants are exercisable at anytime up to 5:00 p.m. (Toronto time) on February 28, 2013, the expiry date. If all the Warrants are exercised, the Company will issue approximately 1,539,460 Units and will receive net proceeds of $25,955,820. The net proceeds from the subscription of Units will be used to acquire additional securities in accordance with the Company’s investment objectives, strategies and restrictions. By raising additional cash through this offering it allows the Company to capitalize on certain attractive investment opportunities that may arise over the next few months. In addition, if the full subscription was exercised the offering could increase the trading liquidity of the Company and reduce the management expense ratio.

Both the Preferred Shares and Class A Shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “PDV.PR.A.” and “PDV” respectively. The Warrants will be listed on the TSX under the ticker symbol “PDV.WT”. It is expected that Warrants will commence trading on May 7, 2012 and continue trading until 12:00 (EST) on February 28, 2013.

The warrants are currently well out the money, as the Unit Value on June 29 was 15.89.

PDV.PR.A was last mentioned on PrefBlog in connection with its term extension to 2018-12-1.

PDV.PR.A is not tracked by HIMIPref™.

Great-West Lifeco has announced:

the completion of its offering of 8,000,000 Non-Cumulative First Preferred Shares, Series Q through a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets, and Scotiabank for gross proceeds of $200 million. The Series Q Shares will be posted for trading on the Toronto Stock Exchange under the symbol “GWO.PR.Q”.

GWO.PR.Q is a Straight Perpetual, 5.15%, announced June 28.

GWO.PR.Q traded 571,926 shares today in a range of 24.95-02 before closing at 25.00-02, 7×114. The issue will be tracked by HIMIPref™ and assigned to the DeemedRetractible index.

Vital statistics are:

Canadian Utilities has announced:

it has closed its previously announced public offering of Cumulative Redeemable Second Preferred Shares Series BB, by a syndicate of underwriters co-led by RBC Capital Markets and BMO Capital Markets, and including TD Securities Inc. and Scotiabank. Canadian Utilities Limited issued 6,000,000 Series BB Preferred Shares for gross proceeds of $150 million. The Series BB Preferred Shares will begin trading on the TSX today under the symbol CU.PR.E. The proceeds will be used to fund the previously announced redemption of all of the outstanding Cumulative Redeemable Second Preferred Shares Series W of Canadian Utilities Limited.

CU.PR.E is a Straight Perpetual paying 4.90%, announced June 18. It will be tracked by HIMIPref™ and assigned to the PerpetualPremium sub-index.

The issue traded 831,122 shares on its opening day, July 5, and closed at a healthy 25.23-35.

Vital statistics are:

Update: Rated Pfd-2(high) by DBRS.

There’s something new going on with LFE.PR.B … this is the fact that the reported NAV per Unit as of 2012-6-29 of 11.83 carries the note:

Diluted NAV (assuming full exercise of 2013 warrants)

Huh? How come they’re reporting a Diluted NAV when the 2013 warrants have an exercise price of 12.00? I eMailed the company:

I see that you are reporting (http://www.lifesplit.com/valuations.html) a “Diluted NAV (assuming full exercise of 2013 warrants)” of 11.83 for 2012-6-29, although the exercise price of these warrants is 12.00 (http://www.lifesplit.com/pdf/LFE%20Jun%2025.12-Warrant%20Pricing.pdf).

i) what is the undiluted NAV?

ii) why did you decide to report an NAV assuming full exercise of the 2013 warrants when these warrants are currently out of the money?

… and they replied …

We are required to post a diluted NAV when the net asset value is above the 2013 warrant net-commission exercise price of $11.75 ($12 less 25 cents commission).

The undiluted NAV is $11.91.

Yes indeed, I find when I look at the information circular:

The Company will pay a subscription fee of $0.25 per Unit in respect of each subscription procured by a CDS Participant on behalf of their clients.

So yes, the warrants are out-of-the-money relative to NAV as far as the clients are concerned; but dilutive to the company as far as its net proceeds are concerned.

It is interesting to note that today:

• LFE closed at 2.46-54
• LFE.PR.B closed at 9.60-70
• LFE.WT.A closed at 0.24-25

So that the warrants are slightly in-the-money from the clients’ perspective vis-a-vis market price, with an intrinsic value of (2.46 + 9.60 – 12.00) = 0.06 and time value of 0.18 … which seems quite low, considering the time value on LFE of (2.46 bid – 1.83 intrinsic value [diluted]) = 0.63 and the huge cash drag on the underlying portfolio.

Scotia Managed Companies has announced:

The Board of Directors of Lifeco Split Corporation Inc. (“Lifeco”) has declared today dividends of $0.3684 per Preferred Share and $0.2 per Capital Share payable on July 31, 2012 to holders of record at the close of business on July 27, 2012.

The Capital Shares and Preferred Shares will be redeemed by the Company on July 31, 2012 (the “Redemption Date”) in accordance with the redemption provisions as detailed in the Information circular dated June 15, 2010. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per shares equal to the lesser of $36.84 and the Net Asset Value per Unit. The Capital Shares will be redeemed at a price equal to the amount by which the Net Asset Value per unit exceeds $36.84.

A further press release will be issued by the Company in connection with the redemption prices on July 30, 2012. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on July 31, 2012.
Lifeco is a mutual fund corporation created to hold a portfolio of common shares of selected publicly listed Canadian life insurance companies. Lifeco will generate a fixed quarterly dividend for the Preferred shareholders and provide the Capital shareholders with a leveraged investment, the value of which is linked to changes in the market price of the portfolio 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.

LSC.PR.C was last mentioned on PrefBlog when there was a partial redemption in 2011. The information circular to which they refer was discussed on PrefBlog.

LSC.PR.C is not tracked by HIMIPref™.

Standard & Poor’s has announced:

• Brookfield’s fixed-charge coverage remains low, and we do not expect it to improve until a large pending vacancy at World Financial Center is
  back-filled with new tenants and cash flow related to this property stabilizes.

• We are revising our outlook on Brookfield Properties Corp. and Brookfield Office Properties Canada to negative from stable.
• Our negative outlook reflects our belief that previously expected improvements to fixed-charge coverage will take longer to occur.

Standard & Poor’s Ratings Services today revised its outlook on Brookfield Office Properties Inc. (Brookfield) and its Toronto-based affiliate, Brookfield Office Properties Canada (BOX), to negative from stable. We continue to analytically view these two related companies as one rated entity. Brookfield retains an indirect ownership interest in BOX of 83.3%.
…
The outlook is negative. Brookfield’s fixed-charge coverage remains low, and, we believe, is now unlikely to improve for two years. We would likely lower the corporate credit rating one notch if fixed-charge coverage measures deteriorate from their current (1.4x) levels. Our credit perspective could also change if BAM’s strategic evolution materially alters the operating platform or legal structure of Brookfield. We don’t see much potential for upgrade despite Brookfield’s “strong” business risk profile, unless the company meaningfully deleverages its balance sheet to strengthen its currently “significant” financial risk profile.

BPO has the following preferred share issues outstanding: BPO.PR.F, BPO.PR.H, BPO.PR.J, BPO.PR.K, BPO.PR.L, BPO.PR.N, BPO.PR.P and BPO.PR.R.

Additionally, BPO Properties is a subsidiary of the company and has the following preferreds outstanding: BPP.PR.G, BPP.PR.J and BPP.PR.M, but these are not rated by S&P. DBRS rates BPP preferreds a notch lower than BPO preferreds.

The most relevant recent mention of BPO on PrefBlog was just over a year ago, when S&P changed the trend from Negative to Stable.