Category: Issue Comments

DBRS has announced that it:

has today confirmed the ratings of Brookfield Asset Management Inc. (BAM or the Company) at A (low), R-1 (low) and Pfd-2 (low). The ratings pertain to BAM at the corporate level. The ratings remain on a Stable trend, notwithstanding weaker corporate-level financial metrics in 2011 because of increased corporate-level debt to finance the growing invested capital. DBRS recognizes that the financial metrics are now weak for the ratings and believes that there is currently minimal room for further deterioration without pressuring the ratings. If one of the following scenarios were to materialize, DBRS will review and base our rating decision on an assessment of the contributing causes, the Company’s remedial plan and other relevant circumstances. These scenarios are: (1) Material increase in the proportion of BAM’s invested capital in less-stable opportunistic investments and private equity, leading to debt increases. (2) Material deterioration or rating downgrade in one or more of the core businesses. (3) Inability to improve cash flow coverage metrics (which could include funds from operations (FFO)-to-debt and FFO fixed charge coverage) to their 2010 levels by the end of 2012.
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BAM’s corporate-level debt and issuance of preferred shares have increased in the past two years to partly finance its investments. In the meantime, operating cash flows from its investments recorded only modest growth. As a result, BAM’s corporate-level cash flow coverage metrics have weakened during the period, with FFO coverage-to-debt of 23% in 2011 (from 30% in 2010), FFO-to-interest of 4.5 times (x) (from 5.1x) and FFO-to-fixed charges (interests and preferred share dividend) of 3.1x (from 3.7x). We consider these 2011 levels weak for the ratings and expect improvement during 2012.

BAM’s corporate-level liquidity is strong, supported by corporate-level cash and available credit facilities of $2.4 billion as at December 31, 2011, and annual FFO after corporate expenses of about US$1.0 billion. Currently, there is no material debt repayment scheduled until 2014, when US$518 million comes due. The Company’s financial flexibility is further supported by its ability to access its external investor base and capital markets and to monetize part of its investments in listed vehicles, estimated to have a market value of US$17.9 billion (covering 3.8x the corporate-level debt of US$4.7 billion). While BAM’s liquidity should comfortably cover its corporate-level needs, DBRS notes that the Company remains largely dependent on external investors’ capital and equity issuances to support its growth.

This follows a similar, but more emphatic judgement by S&P.

BAM is the proud issuer of a great many preferred share issues: BAM.PF.A, BAM.PR.B, BAM.PR.C, BAM.PR.E, BAM.PR.G, BAM.PR.I, BAM.PR.J, BAM.PR.K, BAM.PR.M, BAM.PR.N, BAM.PR.O, BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X and BAM.PR.Z.

DBRS has announced that it:

has today confirmed its long-term and preferred share ratings on Transcontinental Inc. (Transcontinental or the Company) at BBB (high) and Pfd-3 (high), respectively. The trends have been changed to Negative. While the Company’s business risk profile and financial profile continue to support a rating above the BB (high) business risk rating for the printing industry, DBRS expects the structural factors that Transcontinental is facing (such as declining demand for print and pricing pressure), along with increased competitive forces (both factors contributed to lower revenue and EBITDA for the two most recent quarters), to persist and potentially accelerate further for Transcontinental over the medium term. As such, these challenges could reduce the Company’s rating differential relative to the printing industry.

The Negative trend reflects DBRS’s expectation that structural forces in both Transcontinental’s Printing and Media segments will persist and could accelerate with excess capacity in the printing industry and a structural shift to digital forms of media affecting both segments. In fact, DBRS notes that, from an industry perspective, digital advertising in the United States surpassed newspaper print advertising for the first time in 2011 (likely just below this level in Canada at the end of 2011), with digital advertising in the United States expected to surpass combined newspaper and magazine print advertising spending in 2012.
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From a financial risk perspective, Transcontinental has demonstrated healthy free cash flow conversion, leverage and credit metrics that are above the industry average. This includes EBITDA interest coverage of over 9.0 times, cash flow-to-debt of 0.40 times and gross debt-to-EBITDA of 1.76 times. However, with organic revenue and EBITDA growth under pressure, DBRS believes free cash flow will be directed to small-to-medium acquisitions and increasingly toward shareholder-friendly initiatives. In fact, DBRS notes that inorganic growth must be undertaken by Transcontinental in order to support the dividend growth model that the Company strives to maintain.

DBRS believes Transcontinental’s business risk profile continues to weaken due to a structural shift from traditional forms of media to new forms of media. Competitive forces in the traditional printing industry should continue to intensify with ongoing excess capacity, while the new forms of media are also highly competitive with lower barriers to entry and a less-proven profit model.

TCL.PR.D was added to TXPR in the January, 2012, rebalancing after having been removed in July, 2011. It was upgraded to P-3(high) by S&P in December, 2010.

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

Canadian Life Companies Split Corp. has announced:

A special meeting of the shareholders of Canadian Life Companies Split Corp. (the “Company”) was held earlier today.

The primary purpose of the meeting was to consider and, if thought advisable, to approve a special resolution to reorganize the Company, including a capital reorganization of the Preferred Shares of the Company and an extension of the termination date of the Company, as described in the Management Information Circular dated March 14, 2012 and the March 21, 2012 press release. Class A Shareholders voted 95.0% in favour of the resolution and Preferred Shareholders voted 82.6% in favour of the resolution, and therefore the resolution was approved.

The Company will issue shortly a further press release including all key dates related to the capital reorganization and special retraction.

The proposal was unveiled in late March.

More to follow …

R Split III Corp. has announced:

that the final condition required to extend the term of the Company for an additional five years to May 31, 2017, has been met. Holders of Capital Shares previously approved the extension of the term of the Company subject to the condition that a minimum of 1,405,000 Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”).

Under the Special Retraction Right, 340,074 Capital Shares have been tendered to the Company for retraction on May 31, 2012. Holders of these shares will receive a retraction price equal to the amount, if any, by which the Unit Value exceeds $29.22. Holders of the remaining 2,469,924 Capital Shares will continue to enjoy the benefits of a leveraged participation in the capital appreciation of the Company’s portfolio of common shares (the ‘‘Royal Bank Shares’’) of Royal Bank of Canada (‘‘Royal Bank’’).

The Preferred Shares will be redeemed by the Company on May 31, 2012 in accordance with their terms at a price per share equal to the lesser of $29.22 and Unit Value. In order to maintain the leveraged “split share” structure of the Company, the Company will offer a new series of Class B Preferred Shares to be called the Class B Preferred Shares which are expected to be issued following this redemption.

R Split III Corp. is a mutual fund corporation created to hold a portfolio of common shares of the Royal Bank of Canada. Capital Shares and Preferred Shares of R Split III Corp. are listed for trading on The Toronto Stock Exchange under the symbols RBS and RBS.PR.A respectively.

RBS.PR.A was last mentioned on PrefBlog when Capital Unitholders voted in favour of the plan. RBS.PR.A is not tracked by HIMIPref™.

Canaccord Financial has announced:

the completion of its previously announced offering of 4,000,000 Cumulative 5-Year Rate Reset First Preferred Shares, Series C ( the “Series C Preferred Shares”) at a purchase price of CAD$25.00 per Series C Preferred Share, for aggregate gross proceeds of CAD$100 million. The Series C Preferred Shares are expected to commence trading on the Toronto Stock Exchange on April 10, 2012 under the trading symbol “CF.PR.C”.

The offering was underwritten on a bought deal basis by a syndicate of underwriters led by CIBC, Canaccord Genuity Corp. and RBC Capital Markets, and included BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., GMP Securities L.P., Macquarie Capital Markets Canada Ltd., Raymond James Ltd., Cormark Securities Inc., Desjardins Securities Inc., Dundee Securities Ltd., Mackie Research Capital Corporation and Manulife Securities Incorporated.

Canaccord has granted the underwriters an over-allotment option, exercisable, in whole or in part, for a period of 30 days following today’s closing, to purchase up to an additional 600,000 Series C Preferred Shares which, if exercised in full, would increase the gross proceeds of the offering to CAD$115 million.
The net proceeds of the offering will be used to reduce outstanding borrowings under the CAD$150 million senior secured credit facility (the “Acquisition Credit Facility”) entered into by the Company, as borrower, and provided by Canadian Imperial Bank of Commerce, as lender.

The Acquisition Credit Facility was entered in order to fund a portion of the cash consideration for the Company’s previously announced acquisition of Collins Stewart Hawkpoint plc, which closed on March 21, 2012.

CF.PR.C is a FixedReset, 5.75%+403, announced March 22. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

CF.PR.C traded a derisory 33,890 shares in a range of 23.50-48, before closing at 23.40-55, 2×4. Vital statistics are:

Standard & Poor’s has announced:

• We are lowering our long-term corporate credit rating on Capstone Infrastructure Corp. to ‘BB+’ from ‘BBB-‘.
• We are also lowering our global scale preferred stock rating on Capstone to ‘B+’ from ‘BB’, and our Canada scale preferred stock rating to ‘P-4(High)’ from ‘P-3’.
• In addition, we are placing the ratings on the company on CreditWatch with developing implications.
• The downgrade reflects our view that Capstone’s liquidity is ‘less-than-adequate’; as per our criteria, a company with ‘less-than-adequate’ liquidity cannot have a corporate credit rating higher than ‘BB+’.
• We believe the CreditWatch resolution could result in a return to investment-grade status for Capstone.
• Although we consider it unlikely, if the company is unable to either pay down or extend its C$119 million bank revolver maturing in June, a multinotch downgrade could occur.

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Standard & Poor’s views the company’s revenues and cash flow from long-term power purchase agreements with provincial government agencies and investment-grade off-takers as stable. In addition, we believe there is a track record of sustained high availability and operating performance of Capstone’s generation assets. We believe that offsetting these strengths are modest asset and geographic diversity, recontracting risks for two of its material generating facilities, and our expectation that the company would increase debt in executing its growth strategy. Evidence of this includes the acquisition of Bristol Water Holdings UK Ltd. While we believe that this acquisition will help to stabilize revenue in the long term, its financing has challenged liquidity.
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The company has outlined several initiatives to address its liquidity position. These include refinancing some of the hydro projects under MPT Hydro L.P. and using the net proceeds to reduce debt outstanding under the CPC facility; recapitalizing Varmevarden AB (a company, which Capstone purchased in March 2011, that owns and operates a portfolio of 11 district heating businesses in Sweden) and using proceeds to reduce the amount outstanding on the senior credit facility; and other options, including a new corporate credit facility. To date, the company has completed the Varmevarden refinancing and realized proceeds of approximately C$50 million, which it used to pay down a portion of the senior credit facility.
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We believe the CreditWatch resolution, which we expect to come within the next 90 days, could result in a return to investment-grade status for Capstone. Although we consider it unlikely, if the company is unable to either pay down or extend its C$119 million bank revolver maturing in June, a multinotch downgrade could occur.

Capstone is not rated by DBRS. CSE.PR.A was last mentioned on PrefBlog when it dived following a common dividend warning. CSE.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2016-2-24: S&P later affirmed the company and revised the outlook to Stable from Positive:

•We are also affirming our ratings on the company, including our ‘BB+’ long-term corporate credit rating.
• •The outlook revision reflects our assessment of Capstone’s stable cash flow.
• •In addition, Capstone has taken on some additional parent-level debt in conjunction with its purchase of Renewable Energy Developers Inc., which has negatively affected parent-level credit metrics.

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The outlook revision reflects our view of Capstone’s stable, albeit reduced cash flow resulting from the new contract for its power plant at Cardinal, and the company’s continued cash flow that is commensurate with the ‘BB+’ rating.

“In addition, Capstone has taken on some additional parent-level debt in conjunction with its purchase of Renewable Energy Developers Inc., which has negatively affected parent-level credit metrics,” said Standard & Poor’s credit analyst Stephen Goltz.

There are rumours of restructuring jostling at YLO:

Yellow Media’s creditors want to take over the troubled phone directory company in a bid to salvage their investments.

The company’s senior-ranking bondholders organized a call last week to discuss a plan to encourage the company to restructure through the Canadian Business Corporations Act, according to a bondholder who participated in the call. The result would be a debt-for-equity swap that would give the bondholders ownership control.

There’s more colour in a later story:

“If, for some reason, we get paid in equity, it’s never optimal, but it’s probably acceptable because it’s got a value,” said Paul Gardner, a portfolio manager at Avenue Investment Management who participated in the bondholder discussions.

They also believe that it is better to put together a plan before the Montreal company hits a financial wall. “It’s much better to have everything in place in an orderly restructuring than putting a gun to the debt holders’ heads,” Mr. Gardner said, adding that it can get “nasty in court.”

Other investors, however, are skeptical. Glen Bradford, chief executive officer of ARM Holdings, which holds about 250,000 of the company’s preferred shares, said bondholders “purposefully” leaked news of their meetings to increase the value of their holdings.

“As an equity holder, I am still failing to see how the creditors have any say in the matter as long as the company continues to meet its debt obligations as they come due,” Mr. Bradford said.

After analyzing the company’s finances under several scenarios, RBC Dominion Securities analyst Andrew Calder determined that it would be able to pay its debts through 2013. By 2014, however, he said the company would likely need to refinance to meet its obligations.

There doesn’t seem to be much on the web about Glen Bradford or ARM Holdings by way of performance numbers, but I dug up his resume. Avenue Investment Management commented in their latest performance report:

Another reason for the relative underperformance of the Avenue Bond portfolio was our exposure to Yellow Media Bonds. However, we still believe that we will earn an enhanced rate of return between now and maturity in 2015. We believe that over the long term the $500-$600 million of earnings before interest and taxes (EBIT) they make per year will allow them to pay down debt more quickly which should result in a higher valuation for the bond.

Avenue Investment makes GIPS compliant composites available on request, which is a good sign, but are a bit shy regarding putting numbers on the web.

It’s way too early to draw any conclusions regarding the status of preferred shares in a restructuring, but the mention of using the Canadian Business Corporations Act implies a few things:

• They’re not thinking of a debt-for-equity swap alone (e.g., a tender) as that wouldn’t require judicial involvement
• the plans involve the rights of the preferred shareholders
• Preferred shareholders will get a vote

Norton Rose points out:

In Mega Brands, the company sought to restructure the company’s debt while injecting $225 million in new capital by public and private financing. In exchange for their consent, guaranteed creditors, debentureholders and shareholders were to receive a
combination of cash payments, shares in a new Mega Brands company and warrants.
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In Mega Brands, the Court’s reasoning was twofold. First, it had no issue with the applicant utilizing a section 192 CBCA arrangement to transfer the quasi-totality of property from one company to another, as this is commonly done under CBCA plans of arrangement. Second, relying on a Policy Statement of Industry Canada” and on judicial precedents (including Abitibi), the Court concluded that section 192 of the CBCA was an appropriate way to restructure debt.

Second, the company seeking an arrangement must not be insolvent.
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In Mega Brands, the Court found that the arrangement was fair and reasonable. Specifically, the Court pointed out the following factors as evidence that the arrangement was fair and reasonable:” a fair negotiation process took place; an independent committee of the I3oard of Directors was appointed; a fairness opinion was rendered by a reputable financial institution stating that the arrangement was fair, from a financial point of view,
to Mega and the shareholders, and that the holders of secured debt and convertible debentures and the shareholders would be in a better financial position under the recapitalization than if Mega were liquidated; the Board of Directors unanimously approved and recommended the arrangement; the full disclosure of the arrangement was set out in the circular; approval was given by the shareholders and lenders as required by the interim order; and finally, no one filed a Notice of Appearance or contestation with respect to the final order hearing.

I pointed out to a journalist today that YLO.PR.A and YLO.PR.B can be converted to common at the option of company without getting any permissions at all, judicial or otherwise – and if I was a debt-holder, I would make such a conversion a pre-condition of any arrangement. YLO.PR.C and YLO.PR.D holders are in a better position to negotiate.

And, of course, there is no guarantee that the company will even talk to the bondholder group, or that any proposal will be made to security holders if they do talk.

DBRS has announced that it:

has today confirmed Emera Inc.’s (Emera or Holdco) Medium-Term Notes rating and Cumulative Preferred Shares rating at BBB (high) and Pfd-3 (high), respectively, and changed the trends on both to Negative from Stable. Emera’s ratings continue to be supported by strong and stable operating cash flows generated by its relatively low-risk regulated subsidiaries. Dividends and interest income flowing up from its operating subsidiaries continue to cover Emera’s interest and operating costs.

However, the Negative trend reflects DBRS’s concern regarding the ongoing high degree of non-consolidated leverage at the Holdco level for the current rating. On a non-consolidated basis, the debt-to-capital ratio has continued to deteriorate since 2008 and remains at approximately 40% as at December 31, 2011. DBRS acknowledges that a significant portion of the debt at the Holdco level was used to fund acquisitions of contracted/regulated assets that add diversification to Emera’s business profile. Going forward, the balance sheet could be further pressured by funding requirements for other regulated capital expenditures, the proposed Maritime Link Transmission Project, a subsea transmission link from Newfoundland to Nova Scotia that is 100% owned by Emera, and Emera’s 29% interest in the transmission link between the island of Newfoundland and Labrador.

Resolution of the Negative trend in the coming months will follow a full assessment of Emera’s plans to reduce its non-consolidated debt to levels commensurate with its current rating and its overall financing strategy on proposed projects in the next five years.

This follows a similar announcement from S&P.

E-L Financial Corporation Limited has announced:

the completion of its previously-announced sale to a syndicate of underwriters, co-led by Scotia Capital Inc. and TD Securities Inc., of 4,000,000 Non-Cumulative Redeemable First Preference Shares, Series 3 for sale to the public at a price of $25.00 per share and paying fixed non-cumulative quarterly dividends that will yield 5.50% per annum. The gross proceeds of $100,000,000, less the expenses of the offering, will be added to the Corporation’s capital base to supplement the Corporation’s financial resources and used for general corporate purposes. The First Preference Shares, Series 3 will be posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol ELF.PR.H.

The First Preference Shares, Series 3 will rank in priority to the common shares and the Series A Preference Shares of the Corporation, with respect to the payment of dividends and with respect to the distribution of assets on the dissolution, liquidation or winding up of the Corporation. On and after April 17, 2017, the Corporation may, subject to TSX approval, convert all or any part of the outstanding First Preference Shares, Series 3 into freely tradeable common shares of the Corporation. The First Preference Shares, Series 3 are also redeemable at the option of the Corporation on and after April 17, 2017.

ELF.PR.H is a Straight Perpetual, 5.50%, announced March 9. It will be assigned to the PerpetualDiscounts index – although issued by an Insurance Holding Company, it is exchangeable for common at the option of the company, a feature which CIBC has used to achieve NVCC status for three of its issues.

ELF.PR.H traded 426,481 shares today in a range of 24.94-09 before closing at 24.98-00, 10×30. Vital statistics are: