Category: Issue Comments

Usually reliable sources tell me that the underwriters of MFC.PR.G are blowing out their inventory at 23.75.

MFC.PR.G is a 4.40%+290 FixedReset that settled December 6 to widespread revulsion and despair … the inventory blow-out is happening while the ink’s still wet on the certificate!

It is interesting to compare this with the BCE.PR.K reopening announced yesterday … BCE.PR.K is a 4.15%+188 FixedReset trading at around par.

I don’t get it.

You want to talk about BCE being a better credit than MFC? We can talk. You want to talk about BCE being non-financial and therefore having some scarcity value? We can talk. But is that worth A WHOLE FRIGGIN’ POINT of dividend after reset? Even before accounting for the price difference? You better talk real good!

A mere affirmation of a rating would not normally warrant a dedicated post, but I’ve spent so much of the past six months writing about the issue, it’s worth highlighting.

DBRS confirmed its ratings on YLO today:

DBRS has today confirmed Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating at BB, its Medium-Term Notes at BB with an RR4 recovery rating, its Exchangeable Subordinated Debentures at B (high) with an RR6 recovery rating and its Preferred Shares at Pfd-4 (low). The trend on its Issuer Rating, debt and preferred shares remains Negative (DBRS lowered its ratings on Yellow Media on September 28, 2011).

DBRS notes that Yellow Media’s unsecured debt has average recovery prospects while its subordinated debt has poor recovery prospects under a base case default/recovery scenario. As such, DBRS has confirmed Yellow Media’s Medium-Term Notes recovery rating at RR4 (30% to 50% expected recovery) with an instrument rating of BB and confirmed its Exchangeable Subordinated Debentures recovery rating at RR6 (0% to 10% expected recovery) with an instrument rating at B (high).
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From a financial risk perspective, DBRS notes that Yellow Media’s limited financial flexibility and liquidity are compounded by little access to the capital markets. This puts the Company in a position of being largely reliant on its internally generated free cash flow as its primary source of liquidity to repay its debt maturities. While DBRS notes that reduced debt in 2011 (largely paid for with proceeds from the sale of Trader Corporation and LesPAC Inc., as well as free cash flow), the lower resulting interest expense and the reduction and ultimate elimination of its common share dividend in Q4 2011 will help in terms of free cash flow, these will only partially offset the aforementioned pressure on EBITDA as the print-to-digital transition continues. Despite these factors, DBRS expects the Company should be able to generate free cash flow of $200 million or more per year (DBRS has assumed cash taxes are paid in the year they are incurred) in 2012. However, DBRS notes that over the four years from 2013 to 2016, roughly two-thirds of Yellow Media’s total debt ($1.9 billion as at September 30, 2011) matures. In 2013, the Company faces its largest maturity year (likely to be approximately $400 million) as its credit facility matures in February, followed by notes in July and December.
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DBRS notes that Yellow Media must demonstrate meaningful traction with its digital transition while attaining additional liquidity to help with refinancing needs to keep its Issuer Rating in the BB range. Alternatively, should its transition take longer while print pressure continues to accelerate, Yellow Media may not have the ability to handle its debt maturities by means of internally generated free cash flow as they mature.

Separately, the commercial paper rating was withdrawn:

DBRS had today discontinued its Commercial Paper rating of Yellow Media Inc. (Yellow Media or the Company) after all of the Company’s outstanding commercial paper was repaid upon maturity in November 2011.

DBRS does not expect Yellow Media to issue commercial paper in the near term.

YLO has four listed issues of preferred shares: 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.

These issues were last mentioned on PrefBlog when S&P downgraded them to P-4(low).

Bell Aliant has announced:

that its subsidiary, Bell Aliant Preferred Equity Inc. (the “Company”), has closed the sale of 4,600,000 4.55% Cumulative 5-Year Rate Reset Series C Preferred Shares (the “Series C Preferred Shares”) at a price of $25.00 per Series C Preferred Share for total gross proceeds of $115 million. This follows the Company’s previously announced bought deal public offering led by RBC Capital Markets, Scotia Capital and BMO Capital Markets, and includes the exercise in full by the syndicate of underwriters of their over-allotment option. The Series C Preferred Shares begin trading on the TSX under the symbol “BAF.PR.C” today.

BAF.PR.C is a FixedReset, 4.55%+309, announced November 21. BAF.PR.C will be tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

The issue traded 151,545 shares today in a range of 24.75-00 before closing at 25.00-06, 8×24.

Vital statistics are:

TD Securities’ Big 8 Split Inc. has announced:

that it has called a total of 368,040 Preferred Shares, comprised of 174,186 Class B Preferred Shares and 193,854 Class C Preferred Shares, for cash redemption on December 15, 2011 representing approximately 20.0% of all outstanding Preferred Shares as a result of holders of 368,040 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 14, 2011 will have approximately 20.0% of their Preferred Shares redeemed.

The redemption price for the Preferred Shares will be $12.00 per share. Holders of Preferred Shares that have been called for redemption will only be entitled to receive dividends on those which have been declared but remain unpaid up to and including December 15, 2011.

As a result, a total of 368,040 Preferred and Capital Shares, or approximately 20.0% of both classes of shares currently outstanding will be redeemed.

Payments and delivery of cash and common shares owing as a result of shareholders having exercised their retraction privilege and the above notice of call, will be made by the Company on December 15, 2011.

Big 8 Split was established to generate dividend income for holders of the Preferred Shares while providing holders of the Capital Shares, with a leveraged opportunity to participate in capital appreciation from a portfolio of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation, and Sun Life Financial Inc.

Information concerning Big 8 Split Inc. is available on our website at www.tdsponsoredcompanies.com.
The Capital Shares and Preferred Shares of Big 8 Split are listed on the Toronto Stock Exchange under the symbols BIG.A, BIG.pr.B and BIG.pr.C respectively.

BIG.PR.B & BIG.PR.C were last mentioned when there was a partial redemption call in 2010. Neither BIG.PR.B nor BIG.PR.C are tracked by HIMIPref™.

Capstone Infrastructure Corporation has announced that it:

updated its outlook for 2012 for Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and payout ratio, which is based on Adjusted Funds From Operations (“AFFO”), to reflect the impact of certain external events and internal initiatives subsequent to the Corporation’s previous outlook.
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The Corporation currently expects 2012 Adjusted EBITDA to be approximately $120 million compared with previous estimates of approximately $140 million. The 2012 payout ratio is expected to be approximately 120% to 130% compared with the previously provided outlook of approximately 85% to 90%
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Based on the Corporation’s existing portfolio, outlook and current dividend level, management expects the payout ratio in 2013 and 2014 to return to the 100% or below range. Notwithstanding this view, at the current dividend level the Corporation’s 2012 payout ratio is now expected to be higher than previously anticipated. Based on the assumptions underlying the 2012 outlook, as identified above and which are subject to change, it is unlikely that the Corporation will continue to pay the current dividend through 2014 as previously expected. The Corporation expects to gain clarity on Cardinal’s future cash flow profile in the first half of 2012. As a result, the Board of Directors and management intend to re-evaluate the Corporation’s dividend policy in 2012.

Outlook for 2011
The Corporation also updated its outlook for 2011 to reflect the impact of IFRS adjustments related to the accounting for Bristol Water. Excluding the one-time costs related to the internalization of management in April 2011, Adjusted EBITDA is expected to be approximately $70 to $75 million, which is generally consistent with the previously provided outlook of approximately $75 million. The payout ratio in 2011, which is based on AFFO and excludes internalization costs, is expected to be approximately 130% compared with approximately 120% previously. The 2011 outlook remains subject to the final purchase price accounting treatment and final transaction costs (such as stamping fees) for Bristol Water, which will be finalized in early 2012.

The common dived:

Stock in utility owner Capstone Infrastructure Corp. (TSX:CSE) dropped by more than a third on Tuesday as the company indicated it would likely be forced to lower its dividend next year.

On the Toronto Stock Exchange, shares in the owner of power plants, a water utility and an interest in a heating business in Sweden closed down $2.06, or 37 per cent at $3.54.

Roughly six million shares traded hands, making it one of the most active issues on the Toronto market.
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Capstone said it would review the dividend in the first half of next year, but gave no indication of the size of any cut it might make.

The stock currently pays a monthly dividend of 5.5 cents per share, representing an annual yield of almost 11.8 per cent based on the company’s share price Monday and nearly 19 per cent based on the stock price Tuesday.

Capstone’s portfolio includes gas cogeneration, wind, hydro, biomass and solar power facilities with an installed capacity of some 370 megawatts, a 33.3 per cent interest in a district heating business in Sweden and a 70 per cent interest in a regulated water utility in the United Kingdom.

… and the preferred share price went along for the ride, closing at 15.71-99, down about 20% from Monday’s close of 19.62-20, on volume of 80,845 shares (a little under 3% of the 3-million shares outstanding).

The company is not rated by DBRS; S&P has them at P-3 and did not take any action today.

Standard and Poor’s has announced:

• We are revising our outlook on Enbridge Inc. (EI), Enbridge Pipelines Inc., and Enbridge Gas Distribution Inc. to stable from negative
• We are also affirming our ratings, including our ‘A-‘ long-term corporate credit ratings, on the three.
• The outlook revision reflects our view of the lower probability of funds from operations-to-debt falling below 13% in the next two years.
• Nevertheless, we expect forecast credit metrics to remain weak for the ratings, primarily as a result of EI’s ongoing large capital program that could exceed C$6 billion in 2012.
• We expect Enbridge and its subsidiaries to manage their balance sheets and credit metrics in part through issuing preferred shares, asset dropdowns, and a reduction of its ownership stake in its sponsored
  investments, consistent with recent actions.

• We have not changed our view that the competitive toll settlement, which went into affect July 1, 2011, has marginally increased EI’s business risk.

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The stable outlook on EI reflects our view that credit metrics, while weak for the ratings are expected to remain above established thresholds. A deterioration in adjusted last-12-month FFO-to-debt below 13% would likely result in a downgrade. In addition, deterioration in the business risk profile, either through a single event or a more gradual shift, could lead us to lower the ratings. Without a material reduction in leverage, an upgrade is unlikely.

The company was affirmed by DBRS today:

The improvement in ENB’s credit metrics since the year-end 2008 trough reflects rising earnings and cash flow from projects placed in service combined with lower capex and investments that have led to smaller free cash flow deficits and financing requirements over the subsequent 33-month period. Net proceeds from the issuance of preferred shares in late Q3 2011 ($0.5 billion) and of common equity in the form of reinvested dividends ($0.6 billion since year-end 2008) reduced the Company’s incremental debt financing needs relative to previous levels. ENB’s credit metrics in the nine months ending September 30, 2011 (9M 2011) were stronger than in 9M 2010, reflecting higher net income (before extraordinary items) and the full period benefit of cash earnings from two major projects placed into service in 2010 (the Alberta Clipper Project (Alberta Clipper) on April 1, 2010, and Southern Lights Diluent Import Pipeline (Southern Lights) on July 1, 2010) compared with cash earnings since the in-service dates and non-cash allowance for equity funds used during construction (AEDC) and all of the associated debt in 9M 2010.

Enbridge has three issues of preferred shares outstanding: ENB.PR.A (5.5% PerpetualPremium, currently callable at par), and the FixedResets ENB.PR.B (4.00%+240) & ENB.PR.D (4.00%+237).

Manulife Financial Corporation has announced:

that it has completed its offering of 8 million Non-cumulative Rate Reset Class 1 Shares Series 5 (the “Series 5 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $200 million.

The offering was underwritten by a syndicate of investment dealers co-led by RBC Capital Markets and Scotia Capital Inc. The Series 5 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.G.

The Series 5 Preferred Shares were issued under a prospectus supplement dated November 29, 2011 to Manulife’s short form base shelf prospectus dated September 3, 2010.

The $200-million issue size implies that not a single dollar of the $50-million greenshoe was exercised.

MFC.PR.G is a 4.40%+290 FixedReset announced November 29. This issue will be tracked by HIMIPref™ and is assigned to the FixedReset index.

The issue traded 93,042 shares today in a range of 23.66-56, a very high range for an investment-grade opening day, before closing at 24.10-28, 11×5.

Vital statistics are:

Split Yield Corporation (managed by Quadravest) has announced:

Notice of Final Redemption of all Shares Effective February 1, 2012

Split Yield Corporation (the”Company” hereby provides formal notice that all of its outstanding Class I Preferred shares (YLD.PR.A), Class II Preferred shares (YLD.PR.B) and Capital shares (YLD) will be redeemed effective February 1, 2012. This redemption is required by and will occur in accordance with the provisions of the Company’s articles of incorporation, as amended, and has previously been discussed in the Company’s annual information form, financial statements and other continuous disclosure documents filed earlier this year.

As more fully described in the Company’s annual information form, financial statements and other continuous disclosure documents, the Class I Preferred shares rank in priority to the Class II Preferred shares and the Class II Preferred shares rank in priority to the Capital shares with respect to the payment of dividends and repayment of capital upon the winding up of the Company. The final formula to calculate the termination payment is as follows: Each Class I Preferred share 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 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. As such, if the net asset value per unit remains below $20 per unit on termination date, this would mean that each Class II Preferred share would receive no payment. Capital shares will receive no payment unless the unit value was in excess of $35 per unit at termination date. The net asset value per unit as at November 30, 2011 was $17.74. Any retractions received under the January 2012 monthly retraction privilege will be calculated in the same manner as the final termination amount for each class of share.

Class I Preferred shareholders have received total dividends of $14.90 per share since inception. The final quarterly dividend of $0.275 to Class I Preferred shareholders will be made on January 31, 2012. Class II Preferred shareholders have received total dividends of $10.54 per share since inception. Any quarterly Class II Preferred share dividends suspended since July 2008 cannot be declared or made payable if the net asset value is below $20 per unit due to the priority ranking of the Class I Preferred shares. Capital shares have received total dividends of $7.25 per share since inception. Overall, a total of $32.69 per unit in distributions was made since inception.

The Manager will begin liquidating the portfolio during the latter half of January 2012 in preparation for the final redemption. A final net asset value will be calculated as at January 31, 2012 and will be used to determine the final redemption prices.

Payment of the redemption prices as applicable are expected to be made no later than 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.

The Company anticipates that trading in all three classes of shares on the Toronto Stock Exchange will be halted at the opening of trading on February 1, 2012 and that such shares would then be de-listed from the Exchange effective the close of trading on that date. Once all necessary tax clearance certificates are obtained and other corporate formalities observed, it is expected that the Company will then be dissolved.

So in a nutshell, YLD.PR.A gets the first $20, YLD.PR.B gets the next $15 and YLD gets the balance. Trouble is the NAV is currently only 17.74.

YLD.PR.A and YLD.PR.B have both been tracked by HIMIPref™, but have been relegated to the Scraps index on credit concerns. Tracking of YLD.PR.B will cease immediately, but tracking of YLD.PR.A is expected to continue until redemption. YLD.PR.A and YLD.PR.B were last discussed on PrefBlog in connection with the 09H1 Financial Statements.

If we look at the January 2011 Annual Report, we can get a good feel for how this happened: