Category: Issue Comments

Power Financial Corporation has announced:

the successful completion and closing of an offering of 10,000,000 5.50% Non-Cumulative First Preferred Shares, Series R (the “Series R Shares”) priced at $25.00 per share to raise gross proceeds of $250 million.

The issue was bought by an underwriting syndicate co-led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

The Series R Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “PWF.PR.R”. Proceeds from the issue will be used to supplement Power Financial Corporation’s financial resources and for general corporate purposes.

PWF.PR.R is a 5.50% Straight Perpetual announced February 13.

PWF.PR.R traded 901,316 shares in a range of 24.95-25 before closing at 25.22-34, 2×100. The issue will be tracked by HIMIPref™ and is assigned to the PerpetualPremium index. Vital statistics are:

Manulife Financial Corporation has announced:

that it has completed its offering of 10 million Non-cumulative Rate Reset Class 1 Shares Series 7 (the “Series 7 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $250 million.

The offering was underwritten by a syndicate of investment dealers co-led by Scotia Capital Inc., RBC Capital Markets and TD Securities. The Series 7 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.H.

The Series 7 Preferred Shares were issued under a prospectus supplement dated February 14, 2012 to Manulife’s short form base shelf prospectus dated September 3, 2010.

MFC.PR.H is a FixedReset, 4.60%+313 announced February 14.

The issue traded 649,139 shares today in a range of 24.90-05 before closing at 25.00-03, 25×141. The issue will be tracked by HIMIPref™ and assigned to the FixedReset index. Vital statistics are:

Great West Lifeco has announced:

the closing of its previously announced offering of 10,000,000 Non-Cumulative First Preferred Shares, Series P (the “Series P Shares”) through a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets, and Scotiabank for gross proceeds of $250 million. The Series P Shares will be posted for trading on the Toronto Stock Exchange under the symbol “GWO.PR.P”.

GWO.PR.P is a Straight Perpetual, coupon 5.40%, announced February 10.

The issue traded 648,620 shares today in a range of 24.95-09 before closing at 25.01-03, 24×21. This issue will be tracked by HIMIPref™ and assigned to the DeemedRetractibles index. Vital statistics are:

Standard & Poor’s has announced:

• On Feb. 21, 2012, Fortis Inc. announced it entered into an agreement to acquire all of the shares of CH Energy Group Inc. for about C$1.5 billion.
• As a result, we are placing our ratings, including our ‘A-‘ long-term corporate credit rating, on Fortis Inc. on CreditWatch with negative implications.
• The CreditWatch reflects our expectation of increased debt at the holding company level to finance the acquisition and that post-acquisition, deconsolidated credit metrics may be below our established thresholds.

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“We will resolve the CreditWatch once greater details related to the transaction become available, including a financing plan, and the transaction closes,” said Standard & Poor’s credit analyst Gavin MacFarlane. We could lower the ratings if debt levels increase as a result of the transaction and the company is unable to meet established thresholds we associate with the current ratings, including company-level debt coverage from cash flows from its subsidiaries of more than 20% and consolidated adjusted funds from operations to debt of more than 10%. However, while less likely, we could still affirm the ratings on Fortis and return to a stable outlook if a very meaningful component of the financing plan consists of equity and we conclude
that forecast credit metrics are at levels consistent with the current ratings.

Fortis’ preferreds are currently rated P-2 [Watch Negative] by S&P and Pfd-2(low) [Review Developing] by DBRS.

Fortis has several series of preferred shares outstanding: FTS.PR.C & FTS.PR.E (Operating Retractible); FTS.PR.F (PerpetualPremium); FTS.PR.G & FTS.PR.H (FixedReset). All are tracked by HIMIPref™ and assigned to the indicated indices.

Canadian Life Companies Split Corp has announced:

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

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

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

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

NB Split Corp has announced:

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

– Redemption Price per two Capital Shares: $43.94

– Redemption Price per Preferred Share: $32.72

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

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

DBRS has discontinued the rating.

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

Moody’s Investors Service has announced:

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

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

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

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

Update: RY is irritated:

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

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

Standard and Poor’s has announced:

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

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

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

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

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

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

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

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

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

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

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

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

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

Fitch Ratings has announced:

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

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

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

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

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

Meanwhile DBRS commented on MFC’s 11Q4:

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

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