Category: Issue Comments

Canadian Life Companies Split Corp has announced:

that a special meeting of the holders of the Company’s Preferred Shares and Class A Shares will be held at 10:00 a.m. (Eastern standard time) on April 16, 2012. The purpose of the meeting is to consider a special resolution to approve a reorganization of the Company which includes among other things, a capital reorganization of the Preferred Shares and extending the mandatory termination date for the Company from December 1, 2012 to December 1, 2018. Shareholders of record at the close of business on March 6, 2012 will be provided with the notice of meeting and management information circular in respect of the meeting and will be entitled to vote at the meeting. Details of the matters to be voted on at the special meeting will be provided in the management information circular for the meeting to be mailed to shareholders on or about March 16, 2012.

The Company invests in a portfolio of four publicly traded Canadian life insurance companies as follows: Great-West Life, Industrial Alliance, Manulife Financial and Sun Life Financial. Shares held within the portfolio are expected to range between 10-30% in weight but may vary at any time.

A capital reorganization of the Preferred Shares, eh? Not too surprising seeing as the company’s NAV is only 11.64 as of February 15. We will see on March 16 just what exactly capital reorganization of the Preferred Shares entails, but the fact that the directors were too embarrassed to write it down in the press release is not a good sign.

LFE.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-4(low) by DBRS. LFE.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

NB Split Corp has announced:

the redemption prices for all outstanding Capital Shares and Preferred Shares as follows:

– Redemption Price per two Capital Shares: $43.94

– Redemption Price per Preferred Share: $32.72

Holders of 34,600 Capital Shares requested delivery of and will receive their pro rata share of National Bank shares in payment for their Capital Shares instead of cash.

All redemption payments are expected to be made on or about February 21, 2012.

DBRS has discontinued the rating.

NBF.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3(high) by DBRS. NBF.PR.A was not tracked by HIMIPref™.

Moody’s Investors Service has announced:

a review of 17 banks and securities firms with global capital markets operations. Underpinning this review is Moody’s view that these firms face challenges that are not fully captured in their current ratings. Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions. These difficulties, together with inherent vulnerabilities such as confidence-sensitivity, interconnectedness, and opacity of risk, have diminished the longer term profitability and growth prospects of these firms.
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The rationale behind the review is discussed below and in a report titled “Challenges for Firms with Global Capital Markets Operations: Moody’s Rating Reviews and Rationale,” published today. Today’s announcement also follows the publication on 19 January 2012 of a report titled “Why Global Bank Ratings Are Likely to Decline in 2012.”
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LONG-TERM RATINGS AND STANDALONE CREDIT ASSESSMENTS– PLACED UNDER REVIEW
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Royal Bank of Canada
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During its review Moody’s will consider the structural vulnerabilities in the business models of global investment banks, which include the confidence-sensitivity of customers and funding counterparties, risk-management and governance challenges, as well as a high degree of interconnectedness and opacity. In addition, rapidly changing risk positions expose these firms to unexpected losses that can overwhelm the resources of even the largest, most diversified groups. Such challenges caused several issuers to fail, or to avoid failure only upon the receipt of external support, during the 2008 financial crisis.

Additional challenges have now emerged for banks with significant capital markets activities; these include more fragile funding conditions, higher credit spreads, increased regulatory burdens and very challenging macroeconomic and market environments. Some of these risks have been partly mitigated by changes to business models, and higher regulatory capital and liquidity requirements, but they have not been eliminated. Furthermore, these adverse trends have placed acute pressure on these firms’ profitability and increased the scope of restructuring required in their core businesses to generate the level of return on equities expected by shareholders.

The combination of changed operating conditions and increased regulatory requirements and restrictions has diminished these firms’ longer-term profitability and growth prospects. While we had initially expected their standalone credit profiles to recover once the acute phase of the crisis had passed, we now view these challenges as structural features of global investment banks. Our credit analysis is reflecting these challenges through greater emphasis on certain key rating factors in our methodologies, as discussed in more detail in the report “Challenges for Firms with Global Capital Markets Operations: Moody’s Rating Reviews and Rationale,” published today.

RY has a large number of preferred shares outstanding: RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G & RY.PR.H (DeemedRetractible) and RY.PR.I, RY.PR.L, RY.PR.N, RY.PR.P, RY.PR.R, RY.PR.T, RY.PR.X & RY.PR.Y (FixedReset) and RY.PR.W (PerpetualPremium). All are tracked by HIMIPref™ and assigned to their respective indices.

Update: RY is irritated:

The announcement — which could result in a downgrade of as much as two notches for the Canadian bank — comes a little over a year after the bank was last cut by Moody’s.

“We are surprised to be included in this review; our inclusion is unwarranted,” RBC said in an emailed statement on Thursday. “This action does nothing to help investors differentiate between strong banks and weak ones. RBC’s credit rating and capital base are among the strongest of all banks globally.”

Standard and Poor’s has announced:

• Standard & Poor’s is concerned about Montreal-based Yellow Media Inc.’s weakening operating performance, as well as various actions the company has taken recently to deal with refinancing risk.
• As a result, we are lowering our long-term corporate credit rating on Yellow Media by three notches to ‘B-‘ from ‘BB-‘.
• At the same time, we are lowering our issue-level rating on the company’s senior secured debt to ‘B-‘ from ‘BB-‘ and lowering our rating on the subordinated debt to ‘CCC’ from ‘B’. The recovery ratings on the debt are
  unchanged.

• We are also lowering our rating on the company’s preferred shares to ‘C’ from ‘P-4 (Low)’ following the company’s decision to suspend dividends on these securities.
• Finally, we are keeping all the ratings on the company on CreditWatch with negative implications where they were placed Dec. 5, 2011.The CreditWatch listing reflects our concerns about Yellow Media’s deteriorating cash flows and arguably poor access to the capital markets, which we believe limits its available options for refinancing upcoming debt maturities.

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Separately, we lowered our Canada scale rating on the company’s preferred shares to ‘C’ from ‘P-4 (Low)’ following Yellow Media’s Feb. 9, 2012, announcement to suspend future dividends on all preferred shares outstanding of the company. We expect to lower the ratings on these securities to ‘D’ upon nonpayment of the dividends on their respective payment dates.
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“The downgrade follows Yellow Media’s weak operating performance for the three months ended Dec. 31, 2011, which, combined with several corporate actions the company announced on Feb. 9, materially increase refinancing risk, in our opinion,” said Standard & Poor’s credit analyst Madhav Hari.

We also note that Yellow Media’s limited financial flexibility to invest in growth initiatives will affect its ability to increase its online revenue more materially in the near term. While we believe that the company should be able to generate meaningful discretionary cash flow, at least in the next couple of years, we note that internal cash flow might not be sufficient to fully repay the sizable amount of debt maturing in the next couple of years. Given arguably poor access to capital markets (as evidenced by the price of the company’s securities relative to book value), we feel that Yellow Media will be challenged to refinance its debt obligations.

YLO was last mentioned on PrefBlog in the post DBRS Downgrades YLO to Pfd-5(low) Trend Negative.

YLO has four series of public preferred shares outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible), YLO.PR.C and YLO.PR.D (FixedReset). The company’s operating performance and prospects were reviewed in the February, 2012, edition of PrefLetter.

Allbanc Split Corp. II (sponsored by Scotia Managed Companies) has announced:

that it has called 556,939 Preferred Shares for cash redemption on February 28, 2012 (in accordance with the Company’s Articles) representing approximately 26.2009537% of the outstanding Preferred Shares as a result of the special annual retraction of 1,113,878 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on February 24, 2012 will have approximately 26.2009537% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $21.80 per share.

In addition, holders of a further 100,000 Capital Shares and 50,000 Preferred Shares have deposited such shares concurrently for retraction on February 28, 2012. As a result, a total of 1,213,878 Capital Shares and 606,939 Preferred Shares, or approximately 27.8970% of both classes of shares currently outstanding, will be redeemed.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including February 28, 2012.

Payment of the amount due to holders of Preferred Shares will be made by the Company on February 28, 2012. From and after February 28, 2012 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.B respectively.

ALB.PR.B was last mentioned on PrefBlog when warrants were issued in May, 2011. ALB.PR.B is tracked by HIMIPref™ but is relegated to the Scraps index on volume concerns.

Fitch Ratings has announced:

Fitch Ratings has affirmed Manulife Financial Corporation (MFC) and its primary insurance related operating subsidiaries’ ratings, including The Manufacturer’s Life Insurance Company (MLI) and John Hancock Life Insurance Company (U.S.A.) (JHUSA). At the same time Fitch assigned a ‘A-‘ rating to MLI CAD550m 4.21% fixed/floating subordinated debentures due 2021 (Manulife Finance Corp. guarantor), and a ‘BBB’ rating to MFC’s CAD200m offering of Non-cumulative Rate Reset Class 1, Series 5 preferred shares, both completed in Q411. A complete list of ratings actions is at the end of this release. The Outlook has been revised to Negative for all ratings.
Fitch’s rationale for the ratings includes MFC’s strong capital position, below-average exposure to credit-related risk, good liquidity and strong business profile with significant geographic and product diversity. Additional positive considerations include MFC’s progress in the effective hedging of volatility of earnings and capital related to interest rate and equity market risks.

The Negative Outlook is driven by Fitch’s concerns about negative trends in adjusted earnings and the company’s financial leverage, which is at the high end of rating expectations. MFC’s run rate profitability has been negatively affected by the unfavourable reserve adjustments for product-related experience and policyholder behaviour. Over the near term, Fitch expects reported profitability to be negatively impacted by an extended period of lower interest rates.

Fitch estimates financial leverage increased to 25.8% at year-end 2011 versus 21.0% at 31 December 2010 due in part to a change in Fitch’s hybrid rating criteria in 2011.

Fitch considers MFC’s debt service capacity as below average for the rating and expects earnings based, fixed charge coverage to range between 5 times (x) and 7x in a generally flat equity market scenario in 2012.
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Key rating triggers for MFC that could lead to a downgrade include:
–Shortfall in adjusted earnings to below CAD2.5bn for 2012
–Fixed Charge coverage below 5.5x on a 12-month basis
–Financial leverage notably increases from current levels on Fitch’s equity-adjusted leverage basis
–Operating company MCCSR ratio below 190%

Key ratings triggers for MFC that could lead to a revision of the Outlook to Stable include:
–Improved profitability and related fixed charge coverage to 8X
–Significant reduction in earnings volatility on a sustained basis
–Significant reduction in capital and earnings sensitivity to equity markets on a sustained basis
–A decrease in financial leverage to 25%
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Manulife Financial Corporation
–CAD250m 4.40% non-cumulative rate reset, preferred class 1, series 5 stock – ‘BBB’

Meanwhile DBRS commented on MFC’s 11Q4:

DBRS has reviewed Manulife Financial Corporation’s (MFC or the Company) Q4 2011 results, released on February 8, 2012, and believes there were no surprises. There are therefore no rating implications at this time.
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For the year, the Company’s earnings before goodwill impairments yielded a return on equity (ROE) of 3.2% in 2011. This remains below the Company’s targeted 12% ROE but also includes a number of notable non-cash items related to market movements which, if excluded, would have produced an ROE of 11.5%.
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The Company’s weak reported earnings have prevented an accumulation of retained earnings in recent years as dividend payout ratios remain elevated. Correspondingly, even though the Company’s debt levels have remained flat, the erosion of shareholder equity from $27.5 billion at the end of 2009 to $22.6 billion at the end of 2011 has caused the Company’s total debt ratio to increase to 32.9% from 25.2%. Broader financial leverage, as measured by average assets to common equity, has increased to 10.0 times from below 7.5 times. Although reported earnings coverage is adequate to meet fixed-charge obligations, the earnings, excluding notable items coverage (largely non-cash adjustments), is in excess of 6.0 times.

MFC has many preferred share issues outstanding: MFC.PR.A (OperatingRetractible), MFC.PR.B & MFC.PR.C (DeemedRetractible), MFC.PR.D, MFC.PR.E, MFC.PR.F, MFC.PR.G and the new issue announced today, (FixedReset).

Veresen Inc. has announced:

it has closed its previously announced bought deal offering of 8,000,000 Cumulative Redeemable Preferred Shares, Series A (“Series A Preferred Shares”) at a price of $25.00 per share (the “Offering”) for aggregate gross proceeds of $200 million. The previously announced underwriters’ option was exercised in full. The Series A Preferred Shares were offered to the public through a syndicate of underwriters with Scotiabank and TD Securities Inc. having been appointed as the bookrunners and including CIBC, RBC Capital Markets, BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp. and HSBC Securities (Canada) Inc.

The holders of Series A Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 4.40%, payable quarterly for an initial period up to but excluding September 30, 2017, as and when declared by the Board of Directors of Veresen. The first quarterly dividend of $0.4117 is scheduled for June 30, 2012. The dividend rate will 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 plus 2.92%. The Series A Preferred Shares are redeemable by Veresen, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.

Holders of Series A Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series B (“Series B Preferred Shares”), subject to certain conditions, on September 30, 2017, and on September 30 of every fifth year thereafter. The holders of Series B Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.92%.

The Series A Preferred Shares have been rated Pfd-3 (High) by DBRS Limited and P-3 (High) by Standard & Poor’s, a division of The McGraw Hill Companies, Inc. Net proceeds from the Offering will be used to reduce indebtedness, partially fund capital expenditures and for other general corporate purposes.

The Series A Preferred Shares are listed on the Toronto Stock Exchange under the symbol “VSN.PR.A”.

As noted, DBRS rates this Pfd-3(high).

VSN.PR.A is a FixedReset, 4.40%+292 announced February 3.

The issue traded 532,720 shares in a tight range of 25.05-14 today before closing at 25.05-07, 44×39. Vital statistics are:

VSN.PR.A will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today downgraded Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating to B (high) from BB; its Medium-Term Notes to B (high) from BB, with an RR4 recovery rating; its Exchangeable Subordinated Debentures to B (low) from B (high), with an RR6 recovery rating; and its Cumulative Preferred Shares to Pfd-5 (low) from Pfd-4 (low). The trend on all ratings remains Negative.
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Today’s downgrade reflects recent actions taken by Yellow Media that may indicate that its business transformation may take longer than previously anticipated, while its debt maturities over the medium term remain significant. DBRS believes that this may greatly restrict the Company’s ability to handle its maturing debt by means of internally generated free cash flow and, potentially, by drawing on external sources.
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DBRS also notes that drawing on its revolving credit facility precludes Yellow Media from repurchasing up to $125 million of its 2013 debt maturities in the open market, as would have been allowable under its September 2011 amended credit agreement.

The Negative trend reflects the possibility that Yellow Media’s ratings could be further downgraded should the Company undertake refinancing actions that would entail some form of compromise for its existing creditors. Additionally, DBRS remains concerned that the digital transition may continue to take longer than currently anticipated and could include (1) accelerated pressure on Yellow Media’s traditional print business while digital revenue continues to grow but fails to compensate for print revenue pressure; and (2) further pressure on liquidity and free cash flow, rendering it insufficient to handle the Company’s sizable upcoming debt maturities.

YLO was last mentioned on PrefBlog in the post YLO Suspends Dividends. YLO has four issues of preferreds outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible) and YLO.PR.C and YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Canadian Banc Corp. released its Semi-Annual Report to May 31, 2011 some time ago when it was still named Canadian Banc Recovery Corp.

Figures of interest are:

MER: The MER per unit of the Fund, excluding the cost of leverage, was 1.39% as at May 31, 2011.

Average Net Assets: Net assets were 192.0-million on 2011-5-31 and 181.6-million on 2010-11-30; average is 186.8-million.

Underlying Portfolio Yield: Total income of 3,259,530, times two (semi-annual) divided by average net assets of 186.8-million is 3.49%

Income Coverage: Net Investment Income of 1,948,474 divided by Preferred Share Distributions of 2,042,484 is 95%.

On January 26, Moody’s announced:

Moody’s Investors Service has downgraded the insurance financial strength (IFS) rating of Sun life Assurance Company of Canada (U.S.) (Sun Life US) — a wholly owned subsidiary of Sun Life Financial, Inc. (SLF: TLS; SLF) – to A3 from Aa3. Other affiliated U.S. ratings were also downgraded (see complete ratings list, below). Moody’s also downgraded the preferred stock rating of SLF to Baa3 (hyb) from Baa2 (hyb), but affirmed the Aa3 IFS rating of SLF’s Canadian insurance subsidiary, Sun Life Assurance Company of Canada (SLA), as well as the ratings of other Canadian affiliates. The outlook on all ratings of SLF and its Canadian and U.S. affiliates is negative. The action concludes a review for possible downgrade of Sun Life US and its affiliates, initiated on October 18, 2011.
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Commenting on the downgrade of the SLF preferred rating to Baa3 (hyb) from Baa2 (hyb), Moody’s said that it reflects a widening of the typical 3-notch differential that previously existed between SLF’s implied senior debt rating and the Aa3 IFS rating of SLA, because of: 1) the weakening of the stand-alone credit profile of Sun Life US; and 2) the credit profiles of SLF’s other key operating subsidiaries (i.e., MFS; UK insurance, and Asia insurance — not rated by Moody’s), which are relatively weaker than the Aa3 IFS rating on SLA. In addition, SLF’s financial flexibility has diminished due to the significant accounting charges taken during 2011 — mostly associated with the problematic Sun Life US business — which have reduced SLF’s capital, increased its financial leverage, and decreased its debt service coverage ratios.
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Commenting on the negative outlook for the entire SLF group, the rating agency noted its concerns related to the execution risks of the runoff strategy for the U.S. businesses and that any further charges arising from Sun Life US’ and the U.S. branch’s closed blocks would remain a drag on SLF’s consolidated earnings, and possibly SLA’s earnings. The negative outlook on SLA also reflects the potential of additional capital support being needed at Sun Life US. Furthermore, there is uncertainty about the timing for SLF to lower its currently elevated financial leverage, as well as future capital releases from Sun Life US to SLF and the profitability of the remaining employee benefits and voluntary product businesses at the U.S. branch, now that its life insurance business and the U.S. subsidiary’s operations are in run-off.

Moody’s stated that SLF expects run rate expenses for the U.S. subsidiary to be reduced by $160 -$180 million annually, and capital to be released over time. “This strategy is not without execution risk, however, and waiting to see at least a few quarters of experience before addressing the outlook for the organization as a whole is appropriate at this time”, Beattie added.

SLF has a lot of preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) as well as SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indices noted.