Category: Issue Comments

Standard and Poor’s has announced:

• Atlantic Power Corp. has completed its acquisition of Capital Power Income L.P. (CPILP) and we have assigned Atlantic Power our corporate credit rating of ‘BB-‘ (see related research update).
• We are lowering CPILP’s and CPI Preferred Equity Ltd.’s rating to ‘BB-‘ to match the rating on their parent, Atlantic Power.
• At the same time, we are assigning a ‘5’ recovery rating to CPILP’s senior unsecured notes and a ‘4’ to Curtis Palmer LLC’s senior unsecured notes. We are lowering the issue rating for CPILP’s unsecured notes to ‘B+’ and the Curtis Palmer senior unsecured notes to ‘BB-‘.
• We are lowering the preferred shares of CPI Preferred equity ‘B-‘, which
  corresponds to a Canada scale rating of ‘P-4(low)’.

Standard & Poor’s Ratings Services said today it lowered the long-term corporate credit rating on Capital Power Income L.P. (CPILP) and CPI Preferred Equity Ltd. (CPIPE) to ‘BB-‘. This action follows the completion of Atlantic Power Corp.’s acquisition of CPILP
on Nov. 5, 2011. After the completion of the acquisition, we assigned our corporate rating of ‘BB-‘ to Atlantic Power. As CPILP and CPIPE are both wholly owned subsidiaries of Atlantic Power after the close of the
transaction, their long-term corporate credit ratings now match those of their corporate parent.
…
The outlook on the ratings is stable. We could revise the ratings if availability or generation is lower than expected, or if operation and maintenance costs are higher. In addition, the ratings could come under pressure from potential lower revenues from projects with recontracting exposure, as they represent about 56% of generation. Improved recovery prospects or material improvements in the risk profiles of several assets could result in higher ratings.

These issues were last mentioned on PrefBlog when they were downgraded to Pfd-4 by DBRS.

CZP.PR.A is a PerpetualDiscount; CZP.PR.B is a FixedReset. Both are relegated to the Scraps index on credit concerns.

DBRS has announced:

has today confirmed the Pfd-3 (low) rating on the Cumulative Preferred Shares of Canaccord Financial Inc. (Canaccord or the Company) following the announcement on December 15, 2011, that the Company would be acquiring Collins Stewart Hawkpoint plc (Collins Stewart) for consideration worth £253 million, or $407 million. However, the trend has been changed to Negative, given the relative size of the transaction, the current economic and market environment, and some ambiguity with respect to the longer-term financing of the cash portion of the transaction. Once Canaccord demonstrates that a successful integration has been achieved and that longer-term take-out financing has been provided, the Stable trend should be readily re-assigned, all else being equal. Today’s rating action follows additional analysis conducted by DBRS on the transaction, as well as an assessment of the acquired company, and clarifying discussions with the Canaccord management team.
…
On a pro forma basis, using the last 12-month results for both companies, the combined company would have had a debt plus preferred share capital ratio of 23.2% and a debt plus preferred-to-EBITDA ratio of 1.3 times. The pro forma fixed charge coverage ratio, assuming the incremental $150 million preferred share issue, is 9.0 times, which remains reasonable for the rating. While the acquisition stresses the Company’s financial flexibility in the current environment, there is a strong case to be made for the acquisition from a strategic perspective.

Benefiting from revenue and expense synergies associated with larger and more diversified operating platforms, the Company is well-positioned to grow its revenues and earnings substantially when the global capital markets stabilize. In the meantime, the more stable wealth management and advisory revenues of Collins Stewart add favourable diversification to the Company’s overall business risk profile, which otherwise remains concentrated in the small and mid-cap Canadian equity markets. While the Pfd-3 (low) rating with a Stable trend assigned to the Canaccord preferred shares in June 2011 took into account anticipated volatility associated with broker-dealers, this material acquisition in the current uncertain economic and market environment introduces an additional degree of risk that cannot be ignored. The ambiguity regarding longer-term take-out financing was also a consideration in assigning a Negative trend at this time.

Canadian Imperial Bank of Commerce has announced:

its intention to redeem all of its issued and outstanding Non-cumulative Class A Preferred Shares Series 31 for cash. The redemptions will occur on January 31, 2012. The redemption price is $26.00 per Series 31 share.

The $0.293750 per share quarterly dividend declared on November 30, 2011 will be the final dividend on the Series 31 shares and will be paid on January 27, 2012 to shareholders of record on December 28, 2011, as previously announced.

Holders of the Series 31 shares should contact the financial institution, broker or other intermediary through which they hold the shares to confirm how they will receive their redemption proceeds.

I confessed puzzlement yesterday about the price of YLO.PR.A … trading with an implied common conversion price of about $0.10, about half the current price of YLO. Assiduous Reader prefhound stepped up with two reasons:

• ex-dividend: as he says, the price drop on the 12/12 ex-date was extreme – the bid went from 2.30 to 1.80 after a dividend of $0.26563, a Drop Off Rate of 188% … but not so severe as September’s DOR of 670%!
• tax-loss selling: this is entirely reasonable when we look at YLO.PR.A in isolation, or even if we look at the whole YLO complex; but I feel the ratios should be better preserved

For more on the Dividend Drop Off Rate (in general, academic terms) see the May, 2011, edition of PrefLetter.

It’s the ratios that get me … say you’re an investor wanting to take a flutter on YLO. You can buy the common at $0.20 – and lots of people are; as many, in fact, as are selling at $0.20 – or you can buy YLO.PR.A as a common substitute at $0.10 / share. So why choose the former? The downside of the choice will only show up if the common goes above $2.00 before the end of March (assuming early conversion) or the end of 2012 (assuming late conversion) … if the buyers really do have conviction that this will happen, then why isn’t this showing up in the price?

And one thing that bothers me about the tax-loss selling idea is that it works a whole lot better in reverse. Say you own YLO common. You’ve taken a beating, but you want to maintain exposure. So, sell your damn YLO already and buy YLO.PR.A! Then you get your tax loss AND you maintain exposure AND you get the common cheaper. What’s not to like? The only thing I can think of that’s not to like (other than the potential for the common going above $2) is that this means you have to think about it, something I suspect many YLO holders are trying to avoid.

Assiduous Reader MC pointed out via eMail:

• Hard to borrow YLO, therefore hard to arbitrage the spread with a short YLO / long YLO.PR.A strategy
• Liquidity discount on the YLO.PR.A
• Fear of (forced?) selling of YLO common on conversion

With respect to the first point … that makes sense. Assiduous Reader SF tells me that his brokerage is issuing buy-in notices like crazy. This could also be a factor if we turn the question upside down: maybe it’s not YLO.PR.A that’s cheap, maybe it’s YLO that’s expensive, due to all the buy-ins.

We can all remember (or claim that we vaguely remember, anyway) the relatively recent example of Air Canada (?) common shortly before its reorganization. Remember? The company kept emphasizing that common shareholders would be wiped out, and the thing kept trading at around $1 anyway, due to buy-ins and people gambling that the buy-in pressure woud increase.

The third rationale doesn’t appeal to me much, since that should apply equally to both instruments; but it has occured to me that you can make an argument in favour of this mechanism based on differential awareness of the exchange … at this point, I presume that virtually all participants in the market for YLO.PR.A are aware of the potential for conversion, but I’m not sure how many of the common stock guys are. The Efficient Market Hypothesis, of course, says they all are, but maybe, just maybe, this is just one more hole to poke in the poor old thing.

So, in my continuing series of Worthwhile MBA Theses I suggest that some eager student look at as many similar situations as possible and see if the convertING instrument is always (mostly? statistically significantly?) undervalued relative to the convertED instrument. It’s certainly possible!

MC’s other two reasons sound good to me … but I’m still bothered by size of the deviation from fair value. You want to tell me these mean a discount of 10%, I’ll say fine. You say 20%, I’ll swallow hard and say OK. But 50%? Really?

Empire Company has announced:

that it will redeem all of its Series 2 Preferred Shares on January 31, 2012 in accordance with their terms. Currently 164,900 Series 2 Preferred Shares are issued and outstanding. The Series 2 Preferred Shares will be redeemed at a price of $25 per share plus an amount equal to all dividends accrued and unpaid to January 31, 2012.

This is a tiny little issue with only 164,900 shares outstanding – market capitalization is $4.1-million.

EMP.PR.B was last mentioned on PrefBlog when it was downgraded to Pfd-4(high) by DBRS. DBRS discontinued the rating in February 2009.

5Banc Split Inc, operated by TD Securities, has announced:

that it has completed an offering of 2,580,135 Class C preferred shares, series 1 (the “Class C Preferred Shares”) at a price of $10.00 per Class C Preferred Share raising gross proceeds of approximate $25.8 million. The Class C Preferred Shares were offered on a best efforts basis by a syndicate of agents led by TD Securities Inc. which included Scotia Capital Inc., BMO Capital Markets and National Bank Financial Inc.

The Company holds a portfolio of publicly listed common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank in order to provide holders of the Class C Preferred Shares with fixed cumulative preferential dividends and to provide holders of its Class B capital shares (the “Capital Shares”) with a leveraged investment and excess dividends, if any, subject to the prior rights of holders of Class C Preferred Shares and after payment of the expenses of the Company and dividends payable on the Class C Preferred Shares.

The Class C Preferred Shares and the Capital Shares are listed and posted for trading on the Toronto Stock Exchange under the symbols FBS.PR.C and FBS.B, respectively. The Class C Preferred Shares are rated Pfd-2 (low) by DBRS Limited. The Class B preferred shares of the Company have been redeemed today in accordance with their terms.

The prospectus for FBS.PR.C is posted on the fund’s site.

FBS.PR.B was last mentioned on PrefBlog when the refunding was announced.

FBS.PR.C will be tracked by HIMIPref™ and will be eligible for the SplitShare index, but is expected to be relegated to the Scraps index on volume concerns.

Update: DBRS rates FBS.PR.C at Pfd-2(low).

Update: Vital statistics for FBS.PR.C are:

Talisman Energy Inc. has announced:

it has completed the sale to a syndicate of underwriters led by RBC Capital Markets and CIBC of 8,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 at a price of CAD$25.00 per share, pursuant to its previously announced public offering of the preferred shares in Canada.

There was a greenshoe for another 2-million shares which was not exercised.

TLM.PR.A is a FixedReset, 4.20%+277 announced December 5. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 68,600 shares in a range of 24.25-88 before closing at 24.10-25. Vital statistics are:

Standard and Poor’s has announced:

• Following a review of The Toronto-Dominion Bank (TD Bank) under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we are affirming our ratings on the bank, including the ‘AA-/A-1+’ long- and short-term issuer credit ratings. The outlook is stable.
• The ratings on TD Bank are based on its strong business position, adequate capital and earnings, adequate risk position, and above-average funding and adequate liquidity, compared with those of global peers with the same industry and economic risk scores.
• The ratings on TD Bank benefit from a one-notch uplift for potential extraordinary government support in a crisis.
• We expect stable performance from TD Bank’s retail-oriented Canadian and U.S. franchises, based on resilient asset quality and ongoing revenue growth opportunities, despite an uncertain economic outlook.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ratings on The Toronto-Dominion Bank (TD Bank), including the ‘AA-/A-1+’ long- and short-term issuer credit ratings. The stand-alone credit profile (SACP) on TD Bank is ‘a+’. In addition, we lowered the rating on TD Bank’s nondeferrable subordinated debt to ‘A’ from ‘A+’ and the rating on its preferred shares to ‘A-‘ from ‘A’. The outlook is stable.

The Preferred Share Scale ratings for the issue remain at P-1(low).

TD has the following issues outstanding: TD.PR.O, TD.PR.P, TD.PR.Q and TD.PR.R (DeemedRetractible) and TD.PR.A, TD.PR.C, TD.PR.E, TD.PR.G, TD.PR.I, TD.PR.K, TD.PR.S and TD.PR.Y (FixedReset).

Standard & Poor’s has announced:

• Following a review of Bank of Montreal (BMO) under our revised bank criteria (published on Nov. 9, 2011), we are affirming our ‘A+/A-1’ issuer credit rating on BMO. The outlook is stable.
• Our rating on BMO reflects our adequate scores for the bank’s business position, capital and earnings, and risk position, and average funding and adequate liquidity.
• The issuer credit rating on BMO incorporates one notch of uplift, reflecting BMO’s high systemic importance in Canada and our assessment of the Canadian government as supportive.
• We expect the bank to continue to generate consistent earnings, supported by its stable retail banking operations and to benefit from its higher proportion of commercial lending with better growth prospects and manageable loan losses.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ issuer credit rating on Bank of Montreal (BMO). The stand-alone credit profile (SACP) is ‘a’. At the same time, we lowered our ratings on the bank and its subsidiaries’ hybrid securities and preferred stock to ‘BBB+’ from ‘A-‘, two notches below the SACP, consistent with application of our revised bank hybrid capital criteria (published Nov. 1, 2011). The outlook is stable.

As a result of this, the global scale rating is now BBB+; the preferred scale rating is P-2(high); for all issues.

BMO has the following preferred share issues outstanding: BMO.PR.H, BMO.PR.J, BMO.PR.K and BMO.PR.L (DeemedRetractible); and BMO.PR.M, BMO.PR.N, BMO.PR.O, BMO.PR.P and BMO.PR.Q (FixedReset).

Standard & Poor’s has announced:

• Following a review under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we have affirmed our ‘A+/A-1’ issuer credit rating on Canadian Imperial Bank of Commerce (CIBC). The outlook is
  stable.

• Our ratings on CIBC reflect our adequate assessments for its business position, capital and earnings, risk position, and liquidity, and average funding.
• The ratings on CIBC benefit from one notch of uplift for potential extraordinary government support in a crisis.
• We expect CIBC’s profitability to continue to improve as loan quality improves and the company further executes on its core banking strategy.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ issuer credit rating (ICR) on CIBC. The outlook is stable. The stand-alone credit profile (SACP) is ‘a’. In addition, we lowered the rating on CIBC’s nondeferrable subordinated debt to ‘A-‘ from ‘A’ and the rating on its preferred stock to ‘BBB+’ from ‘A-‘. CIBC’s nondeferrable subordinated debt is rated one notch below the ‘a’ SACP as opposed to being notched from the ‘A+’ ICR, based on our new hybrid criteria. Nondeferrable subordinated debt is rated below a bank’s SACP in countries whose legal or regulatory frameworks may not support this type of debt in a stress scenario. Recent guidance from Canada’s Office of the Superintendant of Financial Institutions expresses an expectation that all Tier 1 and Tier 2 capital instruments “must be able to absorb losses in a failed financial institution.” We expect different treatment would apply to capital instruments and senior debt as a Canadian bank approaches a state of nonviability. Preferred stock is rated two notches below the ‘a’ SACP, consistent with our new hybrid criteria.

CM has the following preferred share issues outstanding: CM.PR.D, CM.PR.E and CM.PR.G (PerpetualPremium); CM.PR.I, CM.PR.J and CM.PR.P (DeemedRetractible); and CM.PR.K, CM.PR.L and CM.PR.M (FixedReset).

The change has affected the rating of the preferreds on the local scale: CM.PR.D and CM.PR.E are now P-2 (CM.PR.G is not rated by S&P): all other issues are now P-2(high).