Category: Issue Comments

S&P has announced:

• We are revising our outlook on Brookfield Asset Management Inc. to negative from stable.
• At the same time, we are affirming our ratings on the company, including our ‘A-‘ long-term corporate credit and ‘A-2’ short-term ratings.
• We base the outlook revision on our view that Brookfield’s corporate adjusted debt and remitted operating cash flows (OCF) in 2012 will result in credit measures that would be either below or very tight to our target levels for the rating.
• Our base case projection for Brookfield’s 2012 OCF is high single-digit growth, driven by steady performance in its core sectors and modest growth in the opportunities sectors.
• We believe that the debt levels will increase in 2012 by about 3% from September 2011 levels.

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The negative outlook reflects our view that the key credit measures, operating cash flows (OCF) to debt and OCF coverage of debt service, will be under pressure for the rating and that there is little capacity at the current rating for further cash flow deterioration or higher adjusted debt, which would include preference shares at 50%. We could lower the rating if remitted OCF interest coverage and debt coverage remain below 5x and 30%, respectively, in the next 12 months or if we believe Brookfield is becoming more aggressive with its use of project-level or subsidiary leverage, such as increases in its use of recourse debt, guarantees to its subsidiaries, or other measures that would materially commit the parent resources. It is unlikely that we would raise the rating in the near term.

BAM has a plethora of preferred share issues outstanding: BAM.PR.B (Floater), BAM.PR.E (RatchetRate), BAM.PR.G (FixedFloater), BAM.PR.H, BAM.PR.I & BAM.PR.J (OperatingRetractible), BAM.PR.K (Floater), BAM.PR.M & BAM.PR.N (PerpetualDiscount), BAM.PR.O (OperatingRetractible), BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X & BAM.PR.Z (FixedReset).

Yellow Media has announced:

Net earnings per share from continuing operations before the impairment charge for 2011 were $0.29 compared to net earnings per share from continuing operations of $0.42 in 2010. Adjusted earnings per common share from continuing operations for the year were $0.53 versus $0.84 last year due to lower EBITDA and increased cash taxes.

Revenues decreased 5.2% from $1.40 billion to $1.33 billion, due to lower print revenues as well as lower revenues associated with the Company’s U.S. operations. This was partly offset by higher organic online revenues and revenues generated from Canpages and Mediative. Online revenues in 2011 were $346.1 million representing growth of 30% versus last year’s results.

Income from operations before the impairment charge was $484.9 million in 2011 compared to $514.9 million in 2010. EBITDA for the year declined from $757.1 million to $679.7 million and the EBITDA margin for 2011 was 51.1% compared to 54.0% last year. The decrease is mainly attributable to print revenue pressure, lower margins associated with Canpages, investments in the national digital division Mediative and in support of the Company’s transformation.
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EBITDA for the fourth quarter declined from $161.3 million to $147.2 million while EBITDA margin was approximately 47.0% for the fourth quarter of 2011 and 2010.
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The Company has begun evaluating alternatives to refinance maturities in 2012 and beyond. A broad range of alternatives will be considered and may involve the issuance of secured or unsecured debt, equity or other securities or other transactions. At this time, the Board of directors has decided to suspend the dividends on the outstanding series of preferred shares.

In connection with this review, the Board of directors of Yellow Media has established a committee of independent directors to serve as the Financing Committee of the Board (the “Financing Committee”) that will oversee this process with the objective of completing any transaction or transactions during the current fiscal year.

The Financing Committee is comprised of directors Anthony G. Miller, Michael T. Boychuk, John R. Gaulding and Bruce K. Robertson. Mr. Robertson will serve as Chair of the Financing Committee.

The Company also announced this morning three new appointments to its Board of Directors. David G. Leith, Bruce K. Robertson and Craig Forman will bring extensive knowledge of corporate finance, and corporate development and strategy within the technology, media and communications industries.

The new directors have dealmaking experience:

David G. Leith is Chair of MTS Allstream and Manitoba Telecom Services. Mr. Leith is also a trustee of TransGlobe Apartment REIT and a member of the Economic Advisory Panel of the Government of Ontario. Mr. Leith spent over 25 years at CIBC World Markets and its predecessors where he retired as Deputy Chairman of CIBC World Markets and Managing Director and Head of CIBC World Markets’ Investment, Corporate and Merchant Banking in 2009. Mr. Leith has a Bachelor of Arts from the University of Toronto and a Masters of Arts from Cambridge University.

Bruce K. Robertson serves as Principal at Grandview Capital, a Canadian merchant bank. Prior to Grandview Capital, Mr. Robertson was a senior officer at AbitibiBowater Inc. Mr. Robertson also served as Senior Managing Partner of Brookfield Asset Management Inc., a specialty asset management company. Mr. Robertson received his Bachelor of Commerce (Honours) from Queen’s University and is a Chartered Accountant.

I will provide more commentary in this month’s edition of PrefLetter, which will be prepared as of the close tomorrow for delivery to clients prior to the opening on Monday, February 13. But I will say that it is highly unusual for a profitable, cash-flow positive, company to suspend its preferred dividend.

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.

Atlantic Power has announced:

Capital Power Income L.P. (the Partnership) and CPI Preferred Equity Ltd. (TSX: CZP.PR.A and CZP.PR.B) (the Corporation), subsidiaries of Atlantic Power Corporation (Atlantic Power), announced that the Partnership has changed its name to “Atlantic Power Limited Partnership” and the Corporation has changed its name to “Atlantic Power Preferred Equity Ltd.”.

In connection with the Corporation’s name change, the Cumulative Redeemable Preferred Shares, Series 1 of the Corporation and the Cumulative Rate Reset Preferred Shares, Series 2 of the Corporation (which prior to the name change traded on the Toronto Stock Exchange under the symbols “CZP.PR.A” and “CZP.PR.B”, respectively), will begin trading on the Toronto Stock Exchange under the symbols “AZP.PR.A” and “AZP.PR.B”, respectively. It is expected that the preferred shares of the Corporation will begin trading on the Toronto Stock Exchange under the new symbols at the opening of business on or about February 7, 2012.

The name changes were made in connection with the acquisition of the Partnership by Atlantic Power completed on November 5, 2011.

These issues were last mentioned on PrefBlog when they were downgraded to P-4(low) by S&P. I also noted the DBRS update on January 31.

Both these issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

Split Yield Corporation (run by Quadravest):

Split Yield Corporation (the “Company”) provides final redemption prices pursuant to the termination of the Company effective February 1, 2012.

As more fully described in the December 6, 2011 press release, the Company’s annual information form,
financial statements and other continuous disclosure documents, the final formula to calculate the termination payment is as follows: Each Class I Preferred share (YLD.PR.A) will be valued at the lesser of (i) $20; and (ii) the Net Assets per unit for the Company on the termination date. Each Class II Preferred share (YLD.PR.B) will be valued at the amount, if any, of the difference between the Net Assets per unit of the Company and $20 (the original issue price of the Class I Preferred shares) subject to a maximum value of $15 per share. Capital shares (YLD) will receive no payment unless the unit value was in excess of $35 per unit at termination date.

The final net asset value per unit as at February 1, 2012 was $18.6989. As a result of the final redemption formula outlined above, a payment of $18.6989 per Class I Preferred share (YLD.PR.A) will be made on February 16, 2012. No payment will be made to Class II Preferred shares (YLD.PR.B) or Capital shares (YLD) as a result of the formula above.

Class I Preferred shareholders have received total dividends of $15.17 per share since inception. The final quarterly dividend of $0.275 to Class I Preferred shareholders was made on January 31, 2012. Class II Preferred shareholders have received total dividends of $10.54 per share since inception. Capital shares have received total dividends of $7.25 per share since inception. Overall, a total of $32.96 per unit in distributions was made since inception.

Payment of the redemption prices as applicable are expected to be made on February 16, 2012 and will be paid to the beneficial holders of such shares through payment to the CDS participant through which such shares are held.

According to DBRS:

DBRS has today downgraded the rating of the 5.5% Class I Cumulative Preferred Shares (the Class I Preferred Shares) issued by Split Yield Corporation (the Company) from Pfd-5 to D and confirmed the rating of the 7.0% Class II Cumulative Preferred Shares (the Class II Preferred Shares) issued by the Company at D.

On December 6, 2011, the Company announced that all of its outstanding Class I and Class II Preferred Shares would be redeemed as scheduled on February 1, 2012 (the Redemption Date), in accordance with the redemption provisions of the shares. Quadravest Capital Management, manager of the Company, began liquidating the portfolio during the latter half of January 2012 in preparation for the final redemption.

On February 1, 2012, all outstanding Class I and Class II Preferred Shares were redeemed. The final redemption prices were $19.00 and $0.005 for the Class I and II Preferred Shares, respectively, which were less than the issue prices of the Class I and Class II Preferred Shares. As a result, the holders of the Class I and Class II Preferred Shares suffered a loss on their principals.

These issues were last mentioned on PrefBlog in the post YLD.PR.A, YLD.PR.B Redemption Announced; Default Almost Certain. YLD.PR.A and YLD.PR.B have both been tracked by HIMIPref™, but have been relegated to the Scraps index on credit concerns.

Brompton Split Banc Corp. has announced:

that its board of directors (the “Board”) has approved a proposal to extend the term of SBC beyond its current final redemption date of November 30, 2012. Under the proposal, the term of SBC may be extended for an additional term of up to 5 years, as determined by the Board. In addition, the termination date may be extended further for successive terms of up to 5 years thereafter, as determined by the Board. The distribution rates on the preferred shares and class A shares for the new term will be announced prior to the extension of the term. If the proposal is approved, class A shareholders and preferred shareholders will be provided a special retraction right which is designed to provide shareholders with an additional option to retract either preferred shares or class A shares at the end of each term (and each successive term thereafter) and receive a retraction price that is calculated in the same way that such price would be calculated if SBC were to terminate on November 30, 2012.

SBC invests in a portfolio, on an approximately equal weight basis, in common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.

SBC will hold a special meeting of holders of preferred shares and class A shares on March 29, 2012 to consider and vote upon the proposal. Shareholders of record at the close of business on February 28, 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. The proposal is also subject to any required regulatory approvals.

I recommend a favourable vote, assuming that there is nothing material in the final documents that isn’t in the press release. Credit quality is good, with a NAV of 20.74 as of 2012-1-26 and the special retraction right is good.

On January 6, Connor, Clark & Lunn Capital Markets Inc. announced:

that that CANADIAN Financials & Utilities Split Corp. (the “Company”) will redeem its Preferred Shares and Class A Shares as scheduled on January 31, 2012 (the “Maturity Date”).

The redemption price payable by the Company for a Preferred Share will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions in respect of the Preferred Shares, and (ii) the NAV of the Company on that date divided by the number of Preferred Shares then outstanding.

The redemption price payable by the Company for a Class A Share on that date will be equal to the greater of (i) the NAV per Unit on that date minus the sum of $10.00 plus any accrued and unpaid distributions on the Preferred Shares, and (ii) nil. One Unit means one Preferred Share and one Class A Share.

As at December 31, 2011, the NAV per Unit of the Company was estimated to be $15.33, which equates to $5.33 per Class A Share and $10.00 per Preferred Share.

The Company’s Preferred Shares and Class A Shares are listed on the TSX under the symbols CFS.PR.A and CFS, respectively.

This was a tiny little issue with less than 1-million shares outstanding. It was added to the HIMIPref™ database because I really liked the credit quality when the issue was announced – but alas, the sponsor was unable to sell enough of them to make the effort worthwhile.

Rating discontinued by DBRS.

DBRS has announced:

has today downgraded the rating of the Preferred Shares issued by Canadian Life Companies Split Corp. (the Company) to Pfd-4 (low) from Pfd-3 (low).

In April 2003, the Company issued 8.2 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The termination date for both classes of shares issued is December 1, 2012.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies: Manulife Financial Corporation, Sun Life Financial Inc., Great-West Lifeco Inc., and Industrial Alliance Insurance and Financial Services Inc. (each a Portfolio Company and collectively, the Portfolio). Each Portfolio Company generally represents no less than 10% and no more than 30% of the net asset value (NAV) of the Portfolio. Up to 20% of the net asset value (NAV) of the Company may be invested in equity securities of foreign life insurance companies or other Canadian or foreign financial services corporations other than the Portfolio Companies. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on their issue price of $10 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.10 per Class A Share, yielding 8% annually on their issue price of $15 per share. However, these Class A Share distributions have been suspended since May 31, 2011, due to the NAV per Unit falling below the $15 threshold. In addition, no special year-end dividends will be paid if, after such payment, the NAV of the Portfolio would be less than $25.

On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-3 (low) due to the sufficient level of downside protection at the time. However, over the past few months, the NAV of the Portfolio has experienced significant decline, due to the negative performance of Canadian life insurance companies over the previous quarter. The downside protection available to the Preferred Shares has fallen from 23.3% on August 31, 2011, to 8.5% on December 30, 2011, and stands at 12.05% as of January 13, 2012. As a result of the downside protection dropping below acceptable levels for a sustained period of time, the rating has been downgraded to Pfd-4 (low).

The scheduled final maturity date of the Preferred Shares is December 1, 2012. DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

It’s about time! The NAV was 11.37 as of January 13.

LFE.PR.A was last mentioned on PrefBlog when their warrants expired out of the money in October 2010. LFE.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Brookfield Asset Management has engaged in a very familiar transaction – shuffling assets down the line:

Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”) (TSX: BEP.UN) and Brookfield Asset Management (“Brookfield”) (TSX: BAM.A, NYSE: BAM) today announced a bought-deal secondary offering with a syndicate of underwriters led by Scotia Capital Inc. and TD Securities Inc., through which a wholly-owned subsidiary of Brookfield has agreed to sell 11,430,000 L.P. units of Brookfield Renewable at an offering price of $26.25 per L.P. unit. The Underwriters have been granted an over-allotment option to purchase up to an additional 1,714,500 L.P. units from Brookfield at the offering price, under the same terms, exercisable for a period of 30 days from closing of the Offering.

Brookfield currently owns approximately 73% of Brookfield Renewable on a fully-exchanged basis. Upon the completion of the offering, but before giving effect to the over-allotment option, it is anticipated that Brookfield will own, directly and indirectly, 179,465,109 L.P. units, representing approximately 68% of Brookfield Renewable on a fully-exchanged basis.

Boyd Ermann of the Globe & Mail comments:

Brookfield Asset’s cash hoard will increase by about 18 per cent after it takes in the proceeds of the sale. As of the end of the third quarter, Brookfield Asset listed cash and financial assets of $1.7-billion (U.S.).

Look for the money to head across the Atlantic. On the company’s last quarterly conference call, chief executive officer Bruce Flatt said Brookfield expects “to find opportunities to acquire international assets from European companies which are endeavoring to deleverage their balance sheets, and we’re working with a number of excellent companies to assist them in this regard.”

BAM has issued a host of preferreds: BAM.PR.B, BAM.PR.E, BAM.PR.G, BAM.PR.H, 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 are all tracked by HIMIPref™.

DBRS has announced that it:

has today downgraded the rating of the Preferred Shares issued by SL Split Corp. (the Company) to Pfd-5 from Pfd-4 (low).

In November 2007, the Company issued 1.055 million Preferred Shares (at $25.78 each) and 2.11 million Capital Shares (at $15.26 each), raising gross proceeds of $59.4 million. The termination date for both classes of shares issued is January 31, 2013.

The Company holds a portfolio consisting of common shares of Sun Life Financial Inc. (Sun Life). Dividends received from the portfolio are used to fund a fixed cumulative quarterly dividend to the holders of the Preferred Shares yielding 5% annually on their issue price of $25.78 per share. Holders of the Capital Shares are expected to receive all excess dividend income after Preferred Share distributions and Company expenses have been paid.

On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-4 (low) due to the sufficient level of downside protection available at the time, despite the net asset value (NAV) and downside protection having gradually decreased in the months leading up to the confirmation. However, since the rating confirmation, the NAV has continued to decline, due to the negative performance of Canadian life insurance companies as a whole over the previous quarter, with the common shares of Sun Life in particular declining in value by 28.2% from $26.31 on September 1, 2011, to $18.90 on December 30, 2011. The downside protection available to the Preferred Shares has fallen from 1.7% on September 1, 2011, to -37.9% on December 30, 2011. As a result of the magnitude of the level of negative downside protection available to holders of the Preferred Shares and the overall negative trend observed since the previous rating action, the Preferred Shares have been downgraded to Pfd-5 from Pfd-4 (low).

The scheduled final maturity date of the Preferred Shares is January 31, 2013. DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

The NAVPU is now 20.38 to cover a preferred share obligation of 25.78, so the Asset Coverage Ratio is currently 0.8-:1. SLS.PR.A was last mentioned on PrefBlog when there was a small call for redemption in January 2011. SLS.PR.A is not tracked by HIMIPref™.

I have heard from multiple authoritative sources that a big holder of BCE.PR.F is selling 2-million shares at 24.25 through a syndicate of dealers. They were last quoted at 24.53-60, 3×48, having traded 8,206 shares today in a range of 24.46-60.

BCE.PR.F was last mentioned on PrefBlog when the BCE.PR.E / BCE.PR.F Conversion Results were announced on 2010-1-19. BCE.PR.F is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.