Category: Issue Comments

The company wrote to shareholders in October, 2011:

You are invited to a special meeting (the “meeting”) of shareholders of Canadian Banc Recovery Corp. (the “Company”) to be held at 10:00 am (Eastern standard time) on Thursday, November 3, 2011 at the offices of Blake, Cassels & Graydon LLP, 199 Bay Street, 40th floor, Commerce Court West, Toronto, Ontario.

The primary purpose of the meeting is to consider and vote upon a special resolution that would allow shareholders to maintain their investment beyond the scheduled termination date of December 1, 2012.

If the special resolution is approved, the termination date would initially be extended to December 1, 2018.

The Information Circular was published.

The vote was favourable:

Class A Shareholders voted 98.3% in favour of the resolution and Preferred Shareholders voted 86.9% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2018 and to provide holders with the Special Retraction Right and all other resolution items was approved at the meeting held earlier today.

The company decided not to call any preferreds:

In order to maintain the requirement that the same number of each class of shares remain outstanding after completion of the Special Retraction, it is expected that any required equalization adjustments will be done by making an adjustment to the number of Class A shares outstanding. Any such adjustment to the number of Class A shares held by each Class A investor will not affect the value of their investment.

Preferred shareholders lost a big chunk of downside protection:

This special retraction right allowed both classes of shareholders to tender one or both classes of shares and receive a retraction price based on the December 30, 2011 net asset value per Unit ($10 per Preferred Share, $10.68 per Class A Share and $20.68 per Unit, as applicable). In aggregate, there were more Class A shares tendered for retraction than Preferred shares. Since Canadian Banc is required to maintain an equal number of shares outstanding for each Class as per the prospectus, the Company must increase the Class A shares to match the number of Preferred shares.

Immediately after the special retraction payment on January 16, 2012, there will be 6,772,453 Preferred shares and 5,737,131 Class A shares outstanding. In order to restore an equal amount of shares outstanding for each Class, Class A shareholders on record as at January 17, 2012 will receive approximately 1.180459885 Class A shares for each Class A share outstanding. The increase in shares (subdivision) is a non taxable event.

DBRS notes:

Canadian Banc Recovery Corp.: On November 3, 2011, Canadian Banc Recovery Corp. (the Company) announced that 98.3% of Class A shareholders and 86.9% of preferred shareholders had approved the extension of the termination date of the Company by an additional six years from December 1 2012, to December 1, 2018. Holders of the Class A shares and preferred shares were provided with a special retraction right that would allow them to retract their shares on December 1, 2012, as originally intended if they do not wish to continue participating. This resolution also allows the Board of Directors to provide subsequent fi ve-year termination date extensions along with the same retraction rights to shareholders without the need to hold a special shareholder meeting. The Board will also be able to adjust dividend distributions for future extensions to refl ect market conditions at that time.

BK.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

As previously reported, PDV.PR.A was to vote on a term extension.

The company wrote to shareholders in October, 2011:

You are invited to a special meeting (the “meeting”) of shareholders of Prime Dividend Corp. (the “Company”) to be held at 11:00 am (Eastern standard time) on Thursday, November 3, 2011 at the offices of Blake, Cassels & Graydon LLP, 199 Bay Street, 40th floor, Commerce Court West, Toronto, Ontario.

The primary purpose of the meeting is to consider and vote upon a special resolution that would allow shareholders to maintain their investment beyond the scheduled termination date of December 1, 2012.

If the special resolution is approved, the termination date would initially be extended to December 1, 2018.

The Information Circular was published.

The vote was successful:

Class A Shareholders voted 96.1% in favour of the resolution and Preferred Shareholders voted 90.2% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2018 and to provide holders with the Special Retraction Right and all other resolution items was approved at the meeting held earlier today.

There was no call for redemption on the preferreds.

In order to maintain the requirement that the same number of each class of shares remain outstanding after completion of the Special Retraction, it is expected that any required equalization adjustments will be done by making an adjustment to the number of Class A shares outstanding. Any such adjustment to the number of Class A shares held by each Class A investor will not affect the value of their investment.

The retraction right turned out to be based on a NAV of 16.76 per Unit.

DBRS notes:

Prime Dividend Corp.: On November 3, 2011, Prime Dividend Corp. (the Company) announced that 96.1% of Class A shareholders and 90.2% of preferred shareholders had approved the extension of the termination date of the Company by an additional six years from December 1, 2012, to December 1, 2018. Holders of the Class A shares and preferred shares were provided with a special retraction right that would allow them to redeem their shares on December 1, 2012, as originally intended if they do not wish to extend their investment. This resolution also allows the Board of Directors to provide subsequent fi ve-year termination date extensions along with the same retraction rights to shareholders without the need to hold a special shareholder meeting. The Board will also be able to adjust dividend distributions for future extensions to refl ect market conditions at that time.

PDV.PR.A is not tracked by HIMIPref™.

R Split III Corp. has announced:

it has approved a proposal to reorganize the Company. The reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of May 31, 2012 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions on May 31, 2012. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on May 31, 2012.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of a new class of preferred shares in order to provide continuing leverage for the Capital Shares.

A special meeting of holders of the Capital Shares will be held on March 14, 2012 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on February 6, 2012 in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

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

RBS.PR.A was last mentioned on PrefBlog when there was a partial redemption in May, 2011. RBS.PR.A is not tracked by HIMIPref™.

Multiple well-informed sources have advised me that TLM.PR.A, a 4.20%+277 Fixed Reset announced December 5 and which closed on December 13 to general disdain, is being blown out at 23.75.

BAM Split Corp., issuer of BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E, has released its Annual Report to September 30, 2011.

Figures of interest are:

MER: (excluding dividends on preferred shares, issue costs and Class A Preferred Share redemption premium) 0.0%. You don’t see that number very often! A more precise calculation from the Income Statement shows that the expenses totalled $312,000 for the year, or about 2bp p.a. on assets.

The expenses are wel itemized, however, and are a delight for voyeurs. I found the Listing Fees of $101,000 and Rating Fees of $20,000 to be most interesting.

Average Net Assets: This must be calculated if we’re to find the second decimal point on the MER. On 2011-9-30, total assets were 1.541-billion; on 2010-9-30, 1.547-billion. I used the lower figure.

Underlying Portfolio Yield: Given the fund’s portfolio composition and investment policy, deviations from the raw yield on BAM.A will not be material. This is currently 1.865%

Income Coverage: Dividends & Interest of $27.307-million less expenses (before amortization of issue costs) of $0.312-million is $26.995-million, to cover preferred dividends of $24.297-million is 111%.

A noteworthy disclosure in the report is:

0n December 8, 2011, the board of directors authorized the company to exchange $200 million capital shares for $200 million newly created Junior Preferred Shares. The Junior Preferred Shares will be retractable at the option of the holder, will pay a noncumulative quarterly dividend at an annual rate of 5.00% and will rank junior to the publicly held Class A, Class AA and Class AAA Preferred Shares. The company expects to complete the exchange of capital shares for Junior Preferred Shares in January 2012.

There is no further information available on these Junior Preferreds, but it’s probably safe to assume that the new shares will have a par value of $25, and that the capital units outstanding will be adjusted so that a Unit continues to be one preferred and one capital unit.

This means that the $200-million in new preferreds will be comprised of 8-million shares, so there will be 8-million new units outstanding with no new money in the fund. There are now 19.713-million units outstanding, so there will soon be 27.713-million units outstanding and the NAVPU will decline so that it is 19713 / 27713 of its current value, or 71.1%.

Thus, the “diluted NAVPU” will decline to about 53.78 from its Dec. 30 level of 75.65 and Asset Coverage will therefore decline to 2.2-:1 from its current level of 3.0+:1.

This is nasty stuff. BNA has always been notable for its extremely high Asset Coverage and now it’s being smacked down to levels that are simply adequate for its investment-grade rating. More insidiously, it seems to me that the junior preferreds are retractible at any time; in times of trouble they could sneak ahead of the senior issues which are retractible for cash only at a given time in the future.

However, DBRS confirmed the preferreds at Pfd-2(low) on December 13 and must have known about the plans at that time:

The downside protection available to the Class AA Preferred Shares is approximately 66.0%, based on the market value of the BAM Shares as of November 25, 2011. The dividend coverage ratio is approximately 1.1 times. As a result, the Company will initially be able to fund the Class AA Preferred Shares distributions without relying on other methods for generating income or reverting to the sale of common shares in the Portfolio. In the event of a shortfall, the Company will sell some of the BAM Shares or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends.

The Pfd-2 (low) ratings of the Class AA Preferred Shares are primarily based on the downside protection and dividend coverage available to the Class AA Preferred Shares.

The main constraints to the ratings are the following:

(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.

(2) There is a lack of diversification as the Portfolio is entirely made up of BAM Shares.

(3) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Shares dividend coverage.

(4) As the BAM Shares pay dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate – specifically, the appreciation of the Canadian dollar versus the U.S. dollar – which may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares as these dividends are paid in Canadian dollars.

BNA has the following preferred share issues outstanding: BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E.

Dominion Bond Rating Service has announced that it:

has today downgraded the rating of the Preferred Shares issued by Financial 15 Split Corp. (the Company) to Pfd-4 (high) from Pfd-3.
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On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-3 due to the fairly stable level of downside protection available to holders of the Preferred Shares, despite the NAV and downside protection decreasing gradually in the months leading up to the confirmation. However, since the rating confirmation, the NAV has continued to decline, with downside protection falling from 28.3% on August 31, 2011, to 23.4% on November 30, 2011. The dividend coverage ratio is currently around 0.68, but the Company has also written covered call options in order to generate additional income for distributions. However, the current level of downside protection available to the Preferred Shares, together with its trend, is not commensurate with the previously assigned Pfd-3 rating, and as a result of the downside protection dropping below acceptable levels for a sustained period of time, the rating has been downgraded to Pfd-4 (high).

The scheduled final maturity date of the Preferred Shares is December 1, 2015.

The NAV per $10 preferred share is 12.83 as of December 15.

Update: Oddly, the very similar FFN.PR.A, with a NAV per $10 preferred share of 12.10, continues to be rated Pfd-3(low) by DBRS – which doesn’t make any sense at all.

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.
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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.
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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.