Category: Issue Comments

Veresen Inc. has announced:

it has closed its previously announced bought deal offering of 8,000,000 Cumulative Redeemable Preferred Shares, Series A (“Series A Preferred Shares”) at a price of $25.00 per share (the “Offering”) for aggregate gross proceeds of $200 million. The previously announced underwriters’ option was exercised in full. The Series A Preferred Shares were offered to the public through a syndicate of underwriters with Scotiabank and TD Securities Inc. having been appointed as the bookrunners and including CIBC, RBC Capital Markets, BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp. and HSBC Securities (Canada) Inc.

The holders of Series A Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 4.40%, payable quarterly for an initial period up to but excluding September 30, 2017, as and when declared by the Board of Directors of Veresen. The first quarterly dividend of $0.4117 is scheduled for June 30, 2012. The dividend rate will reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.92%. The Series A Preferred Shares are redeemable by Veresen, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.

Holders of Series A Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series B (“Series B Preferred Shares”), subject to certain conditions, on September 30, 2017, and on September 30 of every fifth year thereafter. The holders of Series B Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.92%.

The Series A Preferred Shares have been rated Pfd-3 (High) by DBRS Limited and P-3 (High) by Standard & Poor’s, a division of The McGraw Hill Companies, Inc. Net proceeds from the Offering will be used to reduce indebtedness, partially fund capital expenditures and for other general corporate purposes.

The Series A Preferred Shares are listed on the Toronto Stock Exchange under the symbol “VSN.PR.A”.

As noted, DBRS rates this Pfd-3(high).

VSN.PR.A is a FixedReset, 4.40%+292 announced February 3.

The issue traded 532,720 shares in a tight range of 25.05-14 today before closing at 25.05-07, 44×39. Vital statistics are:

VSN.PR.A will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today downgraded Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating to B (high) from BB; its Medium-Term Notes to B (high) from BB, with an RR4 recovery rating; its Exchangeable Subordinated Debentures to B (low) from B (high), with an RR6 recovery rating; and its Cumulative Preferred Shares to Pfd-5 (low) from Pfd-4 (low). The trend on all ratings remains Negative.
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Today’s downgrade reflects recent actions taken by Yellow Media that may indicate that its business transformation may take longer than previously anticipated, while its debt maturities over the medium term remain significant. DBRS believes that this may greatly restrict the Company’s ability to handle its maturing debt by means of internally generated free cash flow and, potentially, by drawing on external sources.
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DBRS also notes that drawing on its revolving credit facility precludes Yellow Media from repurchasing up to $125 million of its 2013 debt maturities in the open market, as would have been allowable under its September 2011 amended credit agreement.

The Negative trend reflects the possibility that Yellow Media’s ratings could be further downgraded should the Company undertake refinancing actions that would entail some form of compromise for its existing creditors. Additionally, DBRS remains concerned that the digital transition may continue to take longer than currently anticipated and could include (1) accelerated pressure on Yellow Media’s traditional print business while digital revenue continues to grow but fails to compensate for print revenue pressure; and (2) further pressure on liquidity and free cash flow, rendering it insufficient to handle the Company’s sizable upcoming debt maturities.

YLO was last mentioned on PrefBlog in the post YLO Suspends Dividends. YLO has four issues of preferreds outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible) and YLO.PR.C and YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Canadian Banc Corp. released its Semi-Annual Report to May 31, 2011 some time ago when it was still named Canadian Banc Recovery Corp.

Figures of interest are:

MER: The MER per unit of the Fund, excluding the cost of leverage, was 1.39% as at May 31, 2011.

Average Net Assets: Net assets were 192.0-million on 2011-5-31 and 181.6-million on 2010-11-30; average is 186.8-million.

Underlying Portfolio Yield: Total income of 3,259,530, times two (semi-annual) divided by average net assets of 186.8-million is 3.49%

Income Coverage: Net Investment Income of 1,948,474 divided by Preferred Share Distributions of 2,042,484 is 95%.

On January 26, Moody’s announced:

Moody’s Investors Service has downgraded the insurance financial strength (IFS) rating of Sun life Assurance Company of Canada (U.S.) (Sun Life US) — a wholly owned subsidiary of Sun Life Financial, Inc. (SLF: TLS; SLF) – to A3 from Aa3. Other affiliated U.S. ratings were also downgraded (see complete ratings list, below). Moody’s also downgraded the preferred stock rating of SLF to Baa3 (hyb) from Baa2 (hyb), but affirmed the Aa3 IFS rating of SLF’s Canadian insurance subsidiary, Sun Life Assurance Company of Canada (SLA), as well as the ratings of other Canadian affiliates. The outlook on all ratings of SLF and its Canadian and U.S. affiliates is negative. The action concludes a review for possible downgrade of Sun Life US and its affiliates, initiated on October 18, 2011.
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Commenting on the downgrade of the SLF preferred rating to Baa3 (hyb) from Baa2 (hyb), Moody’s said that it reflects a widening of the typical 3-notch differential that previously existed between SLF’s implied senior debt rating and the Aa3 IFS rating of SLA, because of: 1) the weakening of the stand-alone credit profile of Sun Life US; and 2) the credit profiles of SLF’s other key operating subsidiaries (i.e., MFS; UK insurance, and Asia insurance — not rated by Moody’s), which are relatively weaker than the Aa3 IFS rating on SLA. In addition, SLF’s financial flexibility has diminished due to the significant accounting charges taken during 2011 — mostly associated with the problematic Sun Life US business — which have reduced SLF’s capital, increased its financial leverage, and decreased its debt service coverage ratios.
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Commenting on the negative outlook for the entire SLF group, the rating agency noted its concerns related to the execution risks of the runoff strategy for the U.S. businesses and that any further charges arising from Sun Life US’ and the U.S. branch’s closed blocks would remain a drag on SLF’s consolidated earnings, and possibly SLA’s earnings. The negative outlook on SLA also reflects the potential of additional capital support being needed at Sun Life US. Furthermore, there is uncertainty about the timing for SLF to lower its currently elevated financial leverage, as well as future capital releases from Sun Life US to SLF and the profitability of the remaining employee benefits and voluntary product businesses at the U.S. branch, now that its life insurance business and the U.S. subsidiary’s operations are in run-off.

Moody’s stated that SLF expects run rate expenses for the U.S. subsidiary to be reduced by $160 -$180 million annually, and capital to be released over time. “This strategy is not without execution risk, however, and waiting to see at least a few quarters of experience before addressing the outlook for the organization as a whole is appropriate at this time”, Beattie added.

SLF has a lot of preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) as well as SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indices noted.

S&P has announced:

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

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

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

Yellow Media has announced:

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

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

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

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

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

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

The new directors have dealmaking experience:

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

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

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

YLO has four issues of preferreds outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible) and YLO.PR.C and YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Atlantic Power has announced:

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

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

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

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

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

Split Yield Corporation (run by Quadravest):

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

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

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

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

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

According to DBRS:

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

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

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

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

Brompton Split Banc Corp. has announced:

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

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

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

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

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

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

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

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

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

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

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

Rating discontinued by DBRS.