Category: Issue Comments

Capital Power Corporation has announced:

that it has notified registered shareholders of its Cumulative Rate Reset Preference Shares, Series 3 (Series 3 Shares) (TSX: CPX.PR.C) of the Conversion Privilege and Dividend Rate Notice.

Subject to certain conditions, beginning on December 1, 2023 and ending at 5:00 p.m. (Toronto time) on December 18, 2023, each registered holder of Series 3 Shares will have the right to elect to convert any or all of their Series 3 Shares into an equal number of Cumulative Floating Rate Preference Shares, Series 4 (Series 4 Shares) by delivering an Election Notice to the Corporation.

If Capital Power does not receive an Election Notice from a holder of Series 3 Shares during the time fixed therefor, then the Series 3 Shares shall be deemed not to have been converted (except in the case of an Automatic Conversion, see below). Holders of the Series 3 Shares and the Series 4 Shares will have the opportunity to convert their shares again on December 31, 2028, and every five years thereafter as long as the shares remain outstanding.

On December 1, 2023, the Annual Fixed Dividend Rate for the Series 3 Shares was set for the next five-year period (from and including December 31, 2023, to but excluding December 31, 2028) at 6.86000% and the Floating Quarterly Dividend Rate for the Series 4 Shares was set for the first Quarterly Floating Rate Period (being the period from and including December 31, 2023, to but excluding March 31, 2024) at 2.06233%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 3 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 3 Shares is CDS Clearing and Depository Services Inc. (CDS). All rights of beneficial holders of Series 3 Shares must be exercised through CDS or the CDS participant through which the Series 3 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 3 Shares into Series 4 Shares is 3:00 p.m. (MT) / 5:00 p.m. (ET) on December 18, 2023. Any Election Notices received after this deadline will not be valid. As such, beneficial holders of Series 3 Shares who wish to exercise their rights to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

After December 18, 2023, (i) if Capital Power determines that there would remain outstanding on December 31, 2023, less than 1,000,000 Series 3 Shares, all remaining Series 3 Shares will be automatically converted into Series 4 Shares on a one-for-one basis effective December 31, 2023 (an Automatic Conversion); or (ii) if Capital Power determines that there would remain outstanding after December 31, 2023, less than 1,000,000 Series 4 Shares, no Series 3 Shares will be permitted to be converted into Series 4 Shares effective December 31, 2023. There are currently 6,000,000 Series 3 Shares outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series 4 Shares effective upon conversion. Listing of the Series 4 Shares is subject to the Capital Power fulfilling all the listing requirements of the TSX and upon approval, the Series 4 Shares will be listed on the TSX under the trading symbol CPX.PR.D.

For more information on the terms of, rates and risks associated with an investment in, the Series 3 Shares and the Series 4 Shares, please see Capital Power’s prospectus supplement dated December 10, 2012 which is available on sedarplus.ca or on Capital Power’s website at capitalpower.com.

CPX.PR.C is a FixedReset, 4.60%+323, that commenced trading 2012-12-18 after being announced 2012-12-6. The issue reset at 5.453% effective 2018-12-31. I recommended against conversion; there was no conversion. CPX.PR.C is tracked by HIMIPref™ but relegated to the Scraps – FixedReset Discount index on credit concerns.

Thanks to IrateAssiduousReader for bringing this to my attention!

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P. has announced:

the reset dividend rate on its Class AAA Preference Shares, Series T (“Series T Shares”) (TSX: BPO.PR.T).

If declared, the fixed quarterly dividends on the Series T Shares for the five years commencing January 1, 2024 and ending December 31, 2028 will be paid at an annual rate of 6.79% ($0.424375 per share per quarter).

Holders of Series T Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on December 18, 2023, to convert all or part of their Series T Shares, on a one-for-one basis, into Class AAA Preference Shares, Series U (the “Series U Shares”), effective December 31, 2023.

The quarterly floating rate dividends on the Series U Shares have an annual rate, calculated for each quarter, of 3.16% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the January 1, 2024 to March 31, 2024 dividend period for the Series U Shares will be 2.04438% (8.2% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.511095 per share, payable on March 31, 2024.

Holders of Series T Shares are not required to elect to convert all or any part of their Series T Shares into Series U Shares.

As provided in the share conditions of the Series T Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series T Shares outstanding after December 31, 2023, all remaining Series T Shares will be automatically converted into Series U Shares on a one-for-one basis effective December 31, 2023; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series U Shares outstanding after December 31, 2023, no Series T Shares will be permitted to be converted into Series U Shares. There are currently 10,000,000 Series T Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series U Shares effective upon conversion. Listing of the Series U Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series U Shares will be listed on the TSX under the trading symbol “BPO.PR.Z”.

BPO.PR.T is a FixedReset, 4.60%+316, that commenced trading 2012-9-13 after being announced 2012-9-5. BPO.PR.T reset at 5.383% effective January 1, 2019; I recommended against conversion; and there was no conversion. The issue is tracked by HIMIPref™, but relegated to the Scraps – FixedReset Discount index on credit concerns.

Thanks to Assiduous Reader Fuzzybear for bringing this to my attention.

Update, 2023-12-5: It has been observed that there is a discrepancy between the underlying GOC-5 rates for the resets of BPO.pr.T, CPX.PR.C and BIP.PR.F. I think that this is due to an error or choice in investors’ favour by BPO.

DBRS has announced that it:

upgraded Fairfax Financial Holdings Limited’s (Fairfax or the Company) Issuer Rating to A (low) from BBB (high). DBRS Morningstar also upgraded the Issuer Rating and the Financial Strength Ratings (FSR) of Fairfax’s subsidiaries Northbridge General Insurance Corporation (Northbridge) and Federated Insurance Company of Canada to A (high). The trends on all ratings were changed to Stable from Positive.

KEY CREDIT RATING CONSIDERATIONS
The credit rating upgrades reflect Fairfax’s consistent and improving underwriting profitability particularly at Brit, the Company’s UK subsidiary where Fairfax has curtailed risk and improved results. Moreover, better overall results have also improved earnings metrics and modestly reduced leverage. Demonstrating improved execution through both acquisitions and organic growth, the reported gross premiums written for YE2022 have more than doubled over the past five years to $27.6 billion (from $12.2 billion in 2017).

The credit ratings and Stable trends reflect Fairfax’s resilient, diversified, and growing franchise, including an expanding market position as a major international Property and Casualty (P&C) insurance and reinsurance group. Higher interest rates have increased risk-adjusted investment income substantially. The Company maintains ample liquid assets at both the holding and operating companies, as well as access to committed lines of credit. Its subsidiaries maintain appropriate regulatory capital ratios with buffers above required solvency levels, allowing Fairfax to handle adverse events.

The credit ratings and Stable trends also consider Fairfax’s earnings volatility that could be caused by exposure to natural catastrophe losses and the impact of financial market fluctuations on unrealized investment gains and losses. Moreover, Fairfax is a large provider of cyber insurance cover in the U.S., ranked number 2 by the NAIC in 2022, which presents some concentration risk.

CREDIT RATING DRIVERS
Over the longer term, less volatile earnings and an improvement in the Company’s risk profile would result in a credit ratings upgrade.

Conversely, the credit ratings would be downgraded if there was a sustained material deterioration in the Company’s risk profile, and overall profitability or capitalization.

CREDIT RATING RATIONALE
Fairfax has developed an extensive and diverse portfolio of global insurance and reinsurance subsidiaries over time, which the Company continues to expand through organic growth and prudent strategic acquisitions. Management of the Company’s insurance and reinsurance operating subsidiaries is decentralized, with each organization having its own autonomous management team. The breakdown of premiums written by line of business has remained consistent over the past five years, with casualty insurance accounting for more than half of the gross premiums written. Gross premiums written from insurance operations in 2022 comprised three broad categories: casualty (56.9%), property (35.2%), and specialty (7.9%).

Fairfax’s risk profile is supported by the Company’s strong underwriting and risk-limit controls, effective claims management, and reinsurance coverage for aggregate claim events or large losses. Moreover, Fairfax has strong internal controls and has been able to operate successfully in multiple jurisdictions. Fairfax’s investment portfolio has good credit quality. The Company continues to hold a significant amount of AAA-rated bonds, which account for more than half of its total fixed income assets as at 9M 2023; however, we note that there has been an increase in the proportion of bonds rated BBB and below as well. This was partly driven by the recent acquisition of approximately 95% interest in specific real estate construction loans from California-based Pacific Western Bank. While this asset class has been under pressure, we note that the loans are secured by real estate located in the United States with a conservative average loan-to-value ratio of approximately 51% and are supported by completion guarantees issued by the project equity sponsors. DBRS Morningstar notes that Fairfax is a large provider of Cyber insurance cover in the U.S., which DBRS Morningstar took into consideration in its assessment of product risk.

The Company reported strong results for the first nine months of 2023 (9M 2023). Fairfax has been successful in transforming Brit’s underwriting results, which has helped improve overall underwriting profitability. The Company is on track for a record year in 2023 with a consolidated net income of $3.4 billion as of 9M 2023 driven by strong underwriting results and positive investment income. The ongoing favorable insurance pricing environment coupled with higher reinsurance prices that benefit its significant reinsurance businesses is expected to contribute positively to Fairfax’s earnings in the short to medium term.

Fairfax’s credit ratings benefit from a sizable holding of liquid assets at the parent-holding company level with approximately $1.2 billion in total for cash and liquid investments as at 9M 2023. DBRS Morningstar considers this level of cash and investments as providing an important liquidity cushion for any potential uptick in insurance claims from the Company’s subsidiaries or potential catastrophe losses. Additionally, Fairfax maintains a committed credit facility of $2 billion that is available to support liquidity needs. The credit facility was undrawn as at September 30, 2023.

Fairfax’s insurance and reinsurance operating subsidiaries are appropriately capitalized, with each major subsidiary having available capital exceeding the required regulatory targets. The Company’s fixed-charge coverage ratios have been volatile over time because of the impact of the accounting treatment of unrealized capital gains and losses within the investment portfolio. The volatility is partly mitigated by the holding company’s strong liquidity position, which provides comfort that fixed charges can be paid under stressed market conditions. The Company’s financial leverage ratio (calculated by DBRS Morningstar on a consolidated basis as debt plus preferred shares to capital) decreased to 29.1% at 9M 2023, in part because of the material improvement in net earnings, and the transition to IFRS 17. The main drivers were adjustments for the discounting of provision for losses and loss adjustment expenses on transition to IFRS 17, which resulted in an increase in common shareholders’ equity.

The S&P rating for FFH continues to be P-3(high). S&P did an annual review for FFH dated 2023-5-30.

Affected issues are: FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.J, FFH.PR.K and FFH.PR.M.

DBRS has announced (on 2023-11-22, they say, but I swear I looked and didn’t see it) that it:

upgraded the Issuer Rating, long-term obligations, and preferred shares credit ratings of Brookfield Corporation (BN or the Company) and its guaranteed subsidiaries, including BN’s Issuer Rating and Senior Notes to “A” from A (low) and its Preferred Shares rating to Pfd-2 from Pfd-2 (low). In addition, DBRS Morningstar confirmed the short-term credit ratings of BN and its guaranteed subsidiaries at R-1 (low). All trends are Stable. These actions remove the long-term and preferred share ratings on BN and its subsidiaries from Under Review with Positive Implications as well as the short-term ratings from Under Review with Developing Implications where they were placed on September 27, 2023, to conduct a review of the Company and the methodological approach to the credit ratings. For more information, please see the related press release here: https://www.dbrsmorningstar.com/research/421150/dbrs-morningstar-places-certain-ratings-of-brookfield-corporation-and-its-subsidiaries-under-review-with-positive-implications.

During the course of its review, DBRS Morningstar conducted a credit analysis of Brookfield Asset Management Ltd. (BAM) using the “Global Methodology for Rating Investment Management Companies” and of Brookfield Reinsurance Ltd. (BNRE) using the “Global Methodology for Rating Insurance Companies and Insurance Organizations.”

KEY CREDIT RATING CONSIDERATIONS
BN’s and its guaranteed subsidiaries credit ratings reflect the Company’s (1) position as the parent company of BAM (75% ownership), (2) position as the substantial owner of BNRE (majority economic interest), (3) position as the parent company of Brookfield Property Partners L.P. (BPY, rated BBB (low) with a Stable trend by DBRS Morningstar; 100% ownership), (4) position as the parent company of Brookfield Renewable Partners L.P. (BEP, rated BBB (high) with a Stable trend by DBRS Morningstar; 46% ownership), and (5) strong consolidated credit metrics, liquidity profile, and industry diversification. For each BN business that contributes a material portion of the Company’s consolidated distributable earnings or already had a DBRS Morningstar public credit rating, DBRS Morningstar assessed its credit quality based on its proportionate contribution, adjusted for BN’s ownership interest in the subsidiary (the Composite Rating). DBRS Morningstar then adjusted the Composite Rating for the following overlay factors: (1) the structural subordination on the leveraged cash flows from BNRE, BPY, and BEP, (2) the Company’s superior industry diversification, and (3) BN’s very strong liquidity. The result is an overall Issuer Rating of “A.”

CREDIT RATING DRIVERS
The credit ratings on the Company and its guaranteed subsidiaries reflect those of its primary business units and operating companies, namely BAM, BNRE, BPY, and BEP. Significant improvement in the credit risk profiles of one or more of these businesses may result in an upgrade of BN’s credit ratings.

Conversely, a deterioration in the credit risk profile(s) of BN’s primary business units and operating companies; a material increase in debt at the Company; debt at BAM that causes debt at BN to be structurally subordinated to a greater percentage of its cash flows; or a deterioration in governance controls may result in a downgrade of BN’s credit ratings.

CREDIT RATING RATIONALE

These credit rating actions reflect DBRS Morningstar’s assessment of BN’s key subsidiaries and overlay factors, including the following:

Subsidiaries
BAM—BAM’s credit profile benefits from its position as one of the largest alternative asset managers in the world, with more than $440 billion of fee-bearing capital, the majority of which is long term (10+ years) or perpetual in nature. Assets under management (AUM) have grown significantly in the last five years, indicative of BAM’s strong fundraising abilities, capital resources, and investment track record. BAM’s capital-light business model, growth in AUM, and high margins have resulted in strong earnings, the majority of which are distributed to BN. BAM also has no corporate debt and very strong liquidity. DBRS Morningstar’s assessment of BAM’s credit profile also considers that the nature of the funds it manages are relatively illiquid and that the current macroeconomic environment could result in increased impairments, defaults, and lower valuations in some of its investments. DBRS Morningstar notes that while in the short-term, this would not have a significant impact on the credit profile of BAM, in the medium to long term this could impact the ability for the business to continue to grow its fee-bearing capital.

BNRE—BNRE’s credit profile is supported by the expectation of improved market position and franchise strength over the near to medium term, particularly in the Annuity and Property and Casualty (P&C) business lines; improved earnings stability as it develops a sizable base of recurring premium revenues; and strong investment from BN to execute on its growth plan and to meet capital requirements. DBRS Morningstar’s assessment of BNRE’s credit profile also considers a limited track record of operations to assess historical profitability of the consolidated entity; the risk and uncertainty related to its aggressive growth plans; and that the credit and market risk of its investment portfolio, its financial leverage, and its capital needs are high relative to other insurers.

BPY—BPY’s credit profile benefits from its market position as a preeminent global real estate company; its high-quality assets (particularly the BPY Core Office and Retail segment) with long-term leases to large, recognizable investment-grade-rated tenants; and its superior diversification by property, tenant, and geography. BPY’s credit profile is constrained by its weak financial risk assessment as reflected in its highly leveraged balance sheet and low EBITDA interest coverage, a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to its Core Office segment, and a higher-risk opportunistic Limited Partnership Investments segment composed of hotel, office, retail, mixed-used, housing, and alternative assets.

BEP—BEP’s credit profile is supported by its long-term contracts with diverse, solid-credit counterparties; its diversified and large generation asset portfolio; and its low environmental risk, low-cost and high-quality assets. DBRS Morningstar’s assessment also considers BEP’s expansion risk; refinancing and recontracting risk at the project level; and hydrology and wind resource risk.

Overlay Factors
Structural Subordination—DBRS Morningstar notes that BN finances its assets on a non-recourse basis without any parental guarantees or cross-collateralization. BN’s debt is structurally subordinated to the leveraged cash flows from BNRE, BPY, and BEP; however, there is no corporate debt held at BAM, which, along with Direct Investments, accounted for 54% of consolidated distributable earnings in the last 12 months ended September 30, 2023.

Diversification—DBRS Morningstar believes that the Company benefits from cash flow stability resulting from superior industry diversification of its business units and operating companies. BN’s cash flows are generated from diversified businesses comprising asset management, insurance solutions, real estate, private equity, infrastructure, and renewable power.

Liquidity—DBRS Morningstar considers BN’s liquidity to be very strong because of its $1.5 billion in cash and financial assets, $2.5 billion in undrawn and committed credit facilities, and $4.6 billion in annualized distributions at September 30, 2023. DBRS Morningstar also notes that, including perpetual affiliate liquidity and uncalled private fund commitments, BN and its subsidiaries had a total of $119 billion in liquidity as of September 30, 2023.

Issues affected are (deep breath): BN.PF.A, BN.PF.B, BN.PF.C, BN.PF.D, BN.PF.E, BN.PF.F, BN.PF.G, BN.PF.H, BN.PF.I, BN.PF.J, BN.PF.K, BN.PF.L, BN.PR.B, BN.PR.C, BN.PR.K, BN.PR.M, BN.PR.N, BN.PR.R, BN.PR.T, BN.PR.X and BN.PR.Z. Not to be forgotten is the Brookfield Investments Corporation, BRN.PR.A, which is not tracked by HIMIPref™.

Thanks to Assiduous Reader peet for bringing this to my attention!

Algonquin Power & Utilities Corp. has announced:

that it does not intend to exercise its right to redeem all or part of the currently outstanding 4,800,000 Cumulative Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) on January 2, 2024. As a result, subject to certain conditions, the holders of the Series A Preferred Shares have the right to convert all or part of their Series A Preferred Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”) on January 2, 2024 (the “Conversion Date”).

The terms and conditions of the Series A Preferred Shares, including the right to convert, are described in the short form prospectus of the Company dated November 2, 2012, pursuant to which the Series A Preferred Shares were initially issued for an aggregate of C$120,000,000 (or C$25 per Series A Preferred Share).

Holders of Series A Preferred Shares who do not exercise their right to convert their Series A Preferred Shares into Series B Preferred Shares on the Conversion Date will retain their Series A Preferred Shares.

The dividend rate applicable to the Series A Preferred Shares for the 5-year period from and including December 31, 2023 to but excluding December 31, 2028, and the dividend rate applicable to the Series B Preferred Shares for the 3-month period from and including December 31, 2023 to but excluding March 31, 2024, will be determined and announced by the Company by way of a news release on December 4, 2023.

Beneficial owners of Series A Preferred Shares who wish to exercise their conversion right during the conversion period, which runs from December 4, 2023 to December 18, 2023 at 5:00 p.m. (EST), should communicate as soon as possible with their broker or other nominee for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other nominee time to complete the necessary steps. Any notices received after this deadline will not be valid.

The foregoing conversion rights are subject to the following conditions:

if AQN determines that there would be outstanding on the Conversion Date fewer than 1,000,000 Series B Preferred Shares, after having taken into account all Series A Preferred Shares tendered for conversion into Series B Preferred Shares, then holders of Series A Preferred Shares will not be entitled to convert their Series A Preferred Shares into Series B Preferred Shares, and

alternatively, if AQN determines that there would remain outstanding on the Conversion Date fewer than 1,000,000 Series A Preferred Shares, after having taken into account all Series A Preferred Shares tendered for conversion into Series B Preferred Shares, then all remaining Series A Preferred Shares will automatically be converted into Series B Preferred Shares without the consent of the holders of Series A Preferred Shares, on a one-for-one basis, on the Conversion Date.
In either case, AQN will give written notice to that effect to the registered holder of Series A Preferred Shares no later than December 27, 2023.

About Algonquin Power & Utilities Corp.
Algonquin Power & Utilities Corp., parent company of Liberty, is a diversified international generation, transmission, and distribution utility with approximately $18 billion of total assets. AQN is committed to providing safe, secure, reliable, cost-effective, and sustainable energy and water solutions through its portfolio of generation, transmission, and distribution utility investments to over one million customer connections, largely in the United States and Canada. In addition, AQN owns, operates, and/or has net interests in over 4 GW of installed renewable energy capacity.

AQN’s common shares, preferred shares, Series A, and preferred shares, Series D are listed on the Toronto Stock Exchange under the symbols AQN, AQN.PR.A, and AQN.PR.D, respectively. AQN’s common shares, Series 2019-A subordinated notes and equity units are listed on the New York Stock Exchange under the symbols AQN, AQNB, and AQNU, respectively.

Visit AQN at www.algonquinpowerandutilities.com and follow us on Twitter @AQN_Utilities.

AQN.PR.A is a FixedReset, 4.50%+294, that commenced trading 2012-11-9 after being announced 2012-10-25. The 2018-11-28 notice of extension was reported on PrefBlog. The issue reset at 5.162% effective December 31, 2018. I recommended against conversion and there was no conversion. The issue is tracked by HIMIPref™, but relegated to the Scraps – FixedReset Discount index on credit concerns.

Thanks to Assiduous Reader NK for bringing this to my attention!

AltaGas Ltd. has announced:

its intention to redeem – in accordance with the terms of the Cumulative Redeemable 5-Year Rate Reset Preferred Shares, Series E (the “Series E Shares”) as set out in the Company’s articles – all of its 8,000,000 issued and outstanding Series E Shares on December 31, 2023 (the “Redemption Date”) for a redemption price equal to $25.00 per Series E Share, together with all accrued and unpaid dividends to, but excluding, the Redemption Date (the “Redemption Price”), less any tax required to be deducted or withheld by the Company.

As outlined in the November 10, 2023 press release, AltaGas intends to use the net proceeds from the $200 million of 8.90% Fixed-to-Fixed Rate Subordinated Notes, Series 3 due November 10, 2083 to redeem or repurchase its outstanding Series E Shares.

The Company has provided notice today of the Redemption Price and the Redemption Date to the sole registered holder of the Series E Shares in accordance with the terms of the Series E Shares as set out in the Company’s articles. Non-registered holders of Series E Shares should contact their broker or other intermediary for information regarding the redemption process for the Series E Shares in which they hold a beneficial interest. The Company’s transfer agent for the Series E Shares is Computershare Investor Services Inc. Questions regarding the redemption process may be directed to Computershare Investor Services Inc. at 1-800-564-6253 or by email to corporateactions@computershare.com.

This is a bit of an anticlimax, since they already announced the closing of an issuance of hybrid notes to fund it:

AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) today announced that it has closed its previously announced offering of $200 million of 8.90% Fixed-to-Fixed Rate Subordinated Notes, Series 3 due November 10, 2083 (the “Offering”).

The Company intends to use the net proceeds of the Offering to redeem or repurchase its outstanding cumulative redeemable five-year rate reset preferred shares, series E (TSX: ALA.PR.E) (the “Series E Preferred Shares). Series E Preferred Share dividends are not deductible for tax purposes and are subject to part 6.1 tax at 40 percent. As a result of the Offering, based on current rates, AltaGas expects to save approximately $10 million or $0.01 of annual earnings per share during the initial five-year term of the subordinated notes due to lower taxes and financing charges relative to what the reset rate would have been on the Series E Preferred Share dividends.

The subordinated notes are being offered through a syndicate of underwriters, co-led by CIBC Capital Markets and RBC Capital Markets, under AltaGas’ short form base shelf prospectus dated March 31, 2023, as supplemented by a prospectus supplement dated November 7, 2023.

These subordinated/hybrid notes look a lot like LRCNs but have a step-up in interest rate, which would disqualify them from being Tier 1 Capital for banks and insurers.

ALA.PR.E was issued as a FixedReset, 5.00%+317, that commenced trading 2013-12-13 after being announced 2013-12-4. The 2018-11-28 notice of extension was reported on PrefBlog. The issue reset at 5.393% effective December 31, 2018. I recommended against conversion and there was no conversion. The company announced earlier in November that it was considering redemption. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset Discount subindex due to credit concerns.

Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!

Dundee Corporation has announced:

that it intends to commence a substantial issuer bid (the “Offer”) to purchase for cancellation from the holders thereof who choose to participate up to 975,610 of its Cumulative Floating Rate First Preference Shares, Series 3 in the capital of the Corporation (the “Series 3 Shares”) at a purchase price of C$20.50 (the “Purchase Price”) per Series 3 Share, for a maximum aggregate purchase price of C$20,000,005.

In connection with the Offer, the Corporation has entered into lock-up agreements (the “Lock-up Agreements”) with each of Stornoway Recovery Fund LP and Ravensource Fund (the “Locked-up Shareholders”) pursuant to which, among other things, and subject to the terms and conditions set out therein, the Locked-up Shareholders have agreed to tender to the Offer all of the Series 3 Shares held by them as at the date of the Lock-up Agreements. As at the date of the Lock-up Agreements, the Locked-up Shareholders hold an aggregate of 499,650 Series 3 Shares representing approximately 30.48% of the issued and outstanding Series 3 Shares as at November 20, 2023.

The Offer is expected to commence on November 22, 2023 and will expire at 11:59 p.m. (Toronto time) on December 27, 2023 or such later time and date to which the Offer may be extended by Dundee, unless varied or withdrawn by Dundee.

“This Offer is another important step towards the ongoing streamlining of our capital structure to support the successful execution of our strategic business plan with a focus on capital allocation in the junior mining industry. Reducing the call on our capital from the preferred share dividends preserves our capital base to pursue our core strategy,” said Jonathan Goodman, President and Chief Executive Officer.

“We believe this is an effective way to simplify our balance sheet, lower our overall cost of capital, and reduce our run-rate cash outflows which benefits all classes of shareholders,” said Lila Murphy, Executive Vice President and Chief Financial Officer.

The Board of Directors will continue to review various options for the allocation of capital, including any portion of the C$20,000,005 under the Offer remaining in excess of the aggregate purchase price payable pursuant to the Offer, with such options including, but not limited to, further repurchases of the Corporation’s securities, including without limitation, its Class A Subordinate Voting Shares and Series 2 Shares (as defined below). Beginning in early 2018, the Corporation has focused on the implementation of its strategy of rationalizing its portfolio of investments and monetizing non-core assets as it exists [sic] business lines which are no longer deemed to be aligned with its longer-term mining-focused strategy. As part of this process, the Corporation has taken significant steps to streamline its capital structure and strengthen its balance sheet. In line with the Corporation’s longer-term strategy and commitment to creating value for the Corporation, the Board of Directors believes that the purchase of Series 3 Shares under the Offer represents an attractive investment opportunity for Dundee and will be welcomed by certain holders of Series 3 Shares who may wish to reduce their share ownership positions.

Treatment of Declared Dividend

The Corporation previously announced on November 8, 2023, that the Board of Directors approved the payment of a quarterly cash dividend for the quarter ended December 31, 2023 of C$0.58351 per Series 3 Share, which is payable on January 2, 2024 to shareholders of record on December 19, 2023 (the “Series 3 Dividend Record Date”). Shareholders of record on the Series 3 Dividend Record Date will be entitled to receive the quarterly cash dividend declared by the Board of Directors for each Series 3 Share held on the Series 3 Dividend Record Date, whether or not such shareholders decide to deposit their Series 3 Shares under the Offer and whether or not all or any portion of their Series 3 Shares are taken up and paid for by the Corporation pursuant to the Offer, and whether or not such shareholders continue to hold some or all of such Series 3 Shares following the Series 3 Dividend Record Date. Such quarterly cash dividend will be paid by the Corporation on January 2, 2024 to shareholders of record on the Series 3 Dividend Record Date (less any tax required to be deducted or withheld by the Corporation) in accordance with the restated articles of the Corporation. Any shareholder who acquires Series 3 Shares after the Series 3 Dividend Record Date will not, in respect of such Series 3 Shares acquired by them after the Series 3 Dividend Record Date, under any circumstances be entitled to receive from the Corporation the quarterly cash dividend declared by the Board of Directors for the quarter ended December 31, 2023, nor will such shareholder be entitled to receive any pro-rata portion of such quarterly cash dividend, irrespective of whether or not such shareholder decides to deposit such Series 3 Shares under the Offer and whether or not all or any portion of such Series 3 Shares are taken up and paid for by the Corporation pursuant to the Offer. The terms of the Offer reflect and take into account that the quarterly cash dividend for the quarter ended December 31, 2023 of C$0.58351 per Series 3 Share will be paid by the Corporation to shareholders of record on the Series 3 Dividend Record Date on January 2, 2024 (less any tax required to be deducted or withheld by the Corporation) in accordance with the restated articles of the Corporation. Holders of record of Cumulative 5-Year Rate Reset First Preference Shares, Series 2 (the “Series 2 Shares”) on the dividend record date for the quarterly cash dividend declared by the Board of Directors on such Series 2 Shares for the quarter ended December 31, 2023 will be entitled to receive such quarterly cash dividend, with such quarterly cash dividend to be paid by the Corporation on January 2, 2024 (less any tax required to be deducted or withheld by the Corporation) in accordance with the restated articles of the Corporation. In accordance with the restated articles of the Corporation, the Corporation has set aside for payment out of cash on hand sufficient funds to satisfy all declared and unpaid dividends on outstanding Series 3 Shares and outstanding Series 2 Shares.

Additional Details of the Offer

The Corporation expects to fund any purchases of Series 3 Shares under the Offer using first the funds advanced under the Loan (as defined below) and then as necessary using the Corporation’s available cash on hand, and expects to fund any fees and expenses related to the Offer using the Corporation’s available cash on hand. All Series 3 Shares purchased by the Corporation under the Offer will be cancelled in due course.

If 975,610 or fewer Series 3 Shares are validly deposited on or before the expiry time of the Offer (and not properly withdrawn), then Dundee will, upon the terms and subject to the conditions of the Offer, purchase at the Purchase Price all such Series 3 Shares deposited. If more than 975,610 Series 3 Shares are validly deposited on or before the expiry time of the Offer (and not properly withdrawn), then upon the terms and subject to the conditions of the Offer, the Corporation will purchase the Series 3 Shares on a pro rata basis after giving effect to “odd lot” tenders (of holders beneficially owning fewer than 100 Series 3 Shares), which will not be subject to pro-ration. Series 3 Shares that are not purchased will be returned to shareholders.

The Offer and all deposits of Series 3 Shares are subject to the terms and conditions set forth in the offer to purchase, the accompanying issuer bid circular and the related letter of transmittal and notice of guaranteed delivery (all such documents, as amended or supplemented from time to time, collectively constitute and are herein referred to as, the “Offer Documents”). Further details of the Offer, including the terms and conditions thereof and instructions for tendering Series 3 Shares, will be included in the Offer Documents. The Offer Documents will be mailed to holders of Series 3 Shares, filed with the applicable Canadian securities regulatory authorities and made available without charge on SEDAR+ at www.sedarplus.ca in accordance with applicable securities laws, as well as being posted on the Corporation’s website at www.dundeecorporation.com, on November 22, 2023.

As of November 20, 2023, the Corporation had 1,639,022 Series 3 Shares issued and outstanding. The Series 3 Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “DC.PR.D”. On November 17, 2023, the last full trading day prior to the day the terms of the Offer were publicly announced, the closing price of the Series 3 Shares on the TSX was C$20.20.

The Offer will not be conditional upon any minimum number of Series 3 Shares being deposited. However, the Offer will be subject to certain conditions that are customary for transactions of this nature and as will be set out in more detail in the Offer Documents.

Dundee previously received approval from the TSX for normal course issuer bids (“NCIBs”) for its Series 2 Shares and Series 3 Shares through the facilities of the TSX from April 12, 2023 to April 11, 2024. The Corporation has suspended share repurchases under its NCIBs and the NCIBs will remain suspended until at least the day following the expiration of the Offer or the termination of the Offer.

Dundee has appointed Computershare Investor Services Inc. (the “Depositary”) to act as depositary for the Offer. Any questions or requests for information or assistance regarding the Offer may be directed to the Depositary at the contact details set out in the Offer Documents.

Additional Details of the Loan

In connection with the Offer, the Corporation has entered into a loan agreement dated November 17, 2023 (the “Loan Agreement”) among the Corporation, as borrower, Dundee Resources Limited, as guarantor, and Earlston Investments Corp., as lender. The loan, to be advanced by the lender, will be in a principal amount of up to C$20,000,000 and will be available to the Corporation upon satisfaction of certain customary conditions precedent (the “Loan”). The Loan will be guaranteed by Dundee Resources Limited and secured by a security interest over all present and after-acquired personal property of the Corporation and Dundee Resources Limited, including a pledge of the shares of Reunion Gold Corporation held by Dundee Resources Limited (such shares of Reunion Gold Corporation, the “Collateral”). The Loan Agreement provides that the Corporation shall use the proceeds of the Loan to repurchase all or any portion of the Series 3 Shares pursuant to the Offer, and for no other purpose, except with the prior written consent of the lender. Interest on the Loan will accrue: (i) at a rate equal to the greater of (a) The Toronto-Dominion Bank prime rate plus 1.95% per annum, and (b) 9.15% per annum, during the first 24 months of the Loan; and (ii) thereafter, at a rate equal to The Toronto-Dominion Bank prime rate plus 6.50% per annum. The Loan will be repayable on February 27, 2026. At any time after June 28, 2024, the Corporation may voluntarily prepay all or any portion of the Loan together with all interest accrued thereon without premium or penalty. The Corporation must repay (i) any portion of the Loan not used to fund the purchase of Series 3 Shares under the Offer, (ii) periodically, if the value of the Collateral is not at least 250% of the outstanding principal amount of the Loan plus overdue interest (if any), such amount as required to ensure the value of the Collateral is at least 250% of the outstanding principal amount of the Loan plus overdue interest (if any), and (iii) if Dundee Resources Limited sells any of the Collateral in certain circumstances as set out in the Loan Agreement, an amount equal to the net proceeds of such sale.

This news release is for informational purposes only and does not constitute an offer to buy or the solicitation of an offer to sell any Series 3 Shares. The solicitation and the offer to buy Series 3 Shares will only be made pursuant to the Offer Documents filed with the Canadian securities regulatory authorities. The Offer will not be made to, nor will deposits be accepted from or on behalf of, shareholders in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of any such jurisdiction. However, Dundee may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and to extend the Offer to shareholders in any such jurisdiction.

The Board of Directors has authorized and approved the Offer. However, none of Dundee, the Board of Directors or the Depositary makes any recommendation to any shareholder as to whether to deposit or refrain from depositing any or all of such shareholder’s Series 3 Shares pursuant to the Offer. Shareholders are strongly urged to carefully review and evaluate all information provided in the Offer Documents, to consult with their own financial, legal, investment, tax and other professional advisors and to make their own decisions as to whether to deposit Series 3 Shares under the Offer and, if so, how many Series 3 Shares to deposit.

The affected issue is DC.PR.D, although the company may buy back other shares if there’s any money left over from the loan following the purchase of tendered shares.

Thanks to Assiduous Reader Dan Good for bringing this to my attention, to Avoid the Herd for foreshadowing the announcement and to DR, niagara and skeptical for helping me understand how this can make financial sense.

Update, 2023-11-24: The discussion initiated by Dan Good included some questioning regarding why DC.PR.B was not included in the SIB, given that it is interconvertible with DC.PR.D at the next Exchange Date, 2024-9-30. My guess is that the lock-up agreements referred to in the second paragraph of the press release played a role in this: the locked-up shareholeders, I presume, hold lots of DC.PR.D and want to dispose of them all at the favourable price they have negotiated; including DC.PR.B in the SIB would increase the chance that their tender would be pro-rated on closing.

DBRS has announced that it:

downgraded its credit rating on the Preferred Shares issued by Canadian Banc Corp. (the Company) to Pfd-3 (low) from Pfd-3. The Preferred Shares have experienced a reduction in downside protection. Macroeconomic factors, including central banks’ responses to inflation levels and geopolitical tensions like the Russia-Ukraine war, have led to increased volatility in equity markets for most of 2023. In addition, the closures of certain U.S. regional banks because of liquidity and solvency concerns led to widespread and significant declines in the equity market prices of financial services companies in the United States and Canada. Consequently, this affected both the Company’s net asset value (NAV) and downside protection, especially in 2023.

As of August 31, 2023, the Company invested in a portfolio of common shares of the six largest Canadian banks representing approximately 57.7% of the portfolio: Royal Bank of Canada (16.5%), The Toronto-Dominion Bank (13.3%), National Bank of Canada (9.2%), Bank of Montreal (8.8%), Canadian Imperial Bank of Commerce (5.0%), and Bank of Nova Scotia (4.9%). The Company may invest up to 20% of the NAV in equity securities of Canadian or foreign financial services corporations other than the core holdings mentioned above. As of August 31, 2023, 16.1% of the portfolio was invested in five well-known U.S. financial services companies (Morgan Stanley, JP Morgan Chase, Bank of America, Goldman Sachs, and Citigroup Inc.) and 26.0% was held in cash and cash equivalents. As mentioned above, 16.1% of the portfolio was invested in U.S. financial services entities and denominated in U.S dollar (USD). The Company has not hedged its USD exposure to currency fluctuations; however, it closely monitors USD/Canadian dollar currency movements.

Holders of the Preferred Shares receive monthly distributions at a rate of Prime + 1.5% per annum (minimum 5.0%, maximum 8.0%), currently 8.0%. Holders of the Class A Shares are entitled to receive monthly cash distributions targeted to be at a rate of 15% annually based on the volume weighted-average market price of the Class A Shares for the last three trading days of the preceding month. The Company announced the extension of the termination date for a further five-year period to December 1, 2028, from December 1, 2023. In connection with the term extension, the Company decided to maintain the distribution rate for the Preferred Shares at the existing rates. No monthly distributions to the Class A Shares will be made if the dividends of the Preferred Shares are in arrears or the NAV of the portfolio falls below $15 per unit.

Over the past 12 months, downside protection has been volatile. As of October 31, 2023, downside protection stood at 44.8%, down from 51.7% as of October 31, 2022. The Preferred Shares’ dividend coverage based on the current dividend yield on the portfolio was 0.6 times (x). Without giving consideration to the capital appreciation potential or any source of income other than the dividends earned by the portfolio, the targeted monthly distributions to the Class A Shares along with the Preferred Shares’ dividend coverage shortfall are likely to create an average annual grind on the portfolio’s NAV equivalent to 5.4% over the remaining term to maturity. To supplement portfolio income, the Manager may engage in covered call option writing on all, or a portion of, the securities held in the portfolio or rely on realized capital gains.

DBRS Morningstar notes the following announcements from the Company during the past 12 months:

The Company:

(1) On January 31, 2023
Completed an overnight treasury offering of Class A and Preferred Shares, raising approximately $45.1 million in gross proceeds. The Class A Shares were offered at a price of $13.75 per share for a yield to maturity of 14.47%, and the Preferred Shares were offered at a price of $10.00 per share for a yield to maturity of 7.95%.

(2) On March 2, 2023
Extended the termination date of the Company for a further five-year period to December 1, 2028, from December 1, 2023.

(3) On May 19, 2023
Renewed its at-the-market (ATM) Program effective until June 18, 2025, which allows maximum gross proceeds of $140 million. The ATM Program allows the Company to issue Class A Shares and Preferred Shares from time to time at the Company’s discretion.

(4) On May 25, 2023
Announced that the Toronto Stock Exchange (the TSX) has accepted its notice of intention to make a Normal Course Issuer Bid (the NCIB) to purchase its Preferred Shares and Class A Shares through the facilities of the TSX and/or alternative Canadian trading systems. The NCIB commenced on May 29, 2023, and will terminate on May 28, 2024.

(5) On September 21, 2023
Announced that it will maintain the distribution rates for both the Class A Shares and Preferred Shares at existing levels.

Giving consideration to the decline in downside protection, the extension of the Company’s termination date for a further five-year term, the projected grind in the portfolio from expected distributions on the Class A Shares and the Preferred Shares’ dividend coverage shortfall, concentration of the portfolio in one industry and the unhedged foreign exchange exposure, DBRS Morningstar downgraded the credit rating on the Preferred Shares to Pfd-3 (low) from Pfd-3.

The main constraints to the credit rating are the following:

(1) Market fluctuations resulting from high inflation and interest rate hikes could affect the Company’s NAV. Resulting volatility in prices along with changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.

(2) Reliance on the Portfolio Manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.

(3) The high concentration of the portfolio in one industry (banking).

(4) Potential foreign exchange risk because the income received on the portfolio is not hedged all the time.

(5) Stated monthly distributions on the Class A Shares may create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

This action was ‘preannounced’ by Quadravest yesterday.

The affected issue is BK.PR.A.

Quadravest has announced (emphasis added):

Canadian Banc Corp. (the “Company’) is pleased to announce it will undertake an offering of Preferred Shares (TSX: BK.PR.A) of the Company. The offering will be led by National Bank Financial Inc.

The sales period of this overnight offering will end at 9:00 a.m. EST on November 16, 2023. The offering is expected to close on or about November 23, 2023 and is subject to certain closing conditions including approval by the TSX.

The Preferred Shares will be offered at a price of $9.80 per Preferred Share to yield 8.16%.

The closing price on the TSX of the Preferred Shares on November 14, 2023 was $9.97.

Since the inception of the Company, 219 consecutive dividends have been declared for the Preferred shares. The aggregate dividends declared on the Preferred Shares total $9.97 per share. All distributions to date have been made in tax advantaged eligible Canadian dividends.

The Company has been advised by DBRS that effective November 17, 2023, the rating on the Preferred shares will be Pfd-3 (low).

The net proceeds of the offering will be used by the Company to invest in a portfolio consisting primarily of six publicly traded Canadian Banks as follows:

Bank of Montreal	Canadian Imperial Bank of Commerce	Royal Bank of Canada
The Bank of Nova Scotia	National Bank of Canada	The Toronto-Dominion Bank

The Company’s Preferred Share investment objectives are to:
i. provide holders with cumulative preferential floating rate monthly cash dividends at a rate per annum equal to the prevailing Canadian prime rate plus 1.50% (minimum annual rate of 5.0% and maximum annual rate of 8.0%) based on original $10 issue price; and
ii. on or about the termination date, currently December 1, 2028 (subject to further 5 year extensions and it has been extended in the past) to pay holders the original $10 issue price of those shares.

The affected issue is BK.PR.A.

Thanks to Assiduous Reader niagara for bringing this to my attention!

AltaGas Ltd. has announced:

that it is considering an offering of hybrid subordinated debt securities under its short form base shelf prospectus dated March 31, 2023.

If a successful offering is priced and completed, the Company intends to use the net proceeds of the offering to redeem or repurchase its outstanding cumulative redeemable five-year rate reset preferred shares, series E (TSX: ALA.PR.E). There is no certainty that AltaGas will ultimately complete the offering being considered or as to the timing or terms on which such an offering might be completed.

ALA.PR.E was issued as a FixedReset, 5.00%+317, that commenced trading 2013-12-13 after being announced 2013-12-4. The 2018-11-28 notice of extension was reported on PrefBlog. The issue reset at 5.393% effective December 31, 2018. I recommended against conversion and there was no conversion. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset Discount subindex due to credit concerns.

The market seems to be ascribing a pretty fair chance of success with their refunding (which is reasonable, since the company will be very hesitant to announce a longshot): the issue was quoted at 22.20-22 at the ‘close’ (actually, 4:30pm) yesterday, opened at 22.20 today (some poor sucker with a GTC order? Or somebody bailing without seeing the news?), traded just below 24.50 at about 10:30am, and is now (11:20am) at 24.94. So some people are making a few bucks!

This is another example of just how cheap the preferred share market is nowadays against its comparables.

Thanks to the Assiduous Reader who brought this to my attention!