Category: Issue Comments

Standard & Poor’s has announced:

• Deteriorating operating performance, combined with substantially weakened access to capital markets, has materially affected the credit quality of Montreal-based classified directory publisher Yellow Media Inc., in our
  opinion.

• As a result, we are lowering our long-term corporate credit rating on Yellow Media to ‘BB-‘ from ‘BB+’ and placing the company on CreditWatch with negative implications.
• At the same time, we are lowering various issue-level ratings on Yellow Media and putting these ratings on CreditWatch, reflecting the downgrade on the company.
• The CreditWatch listing reflects our concerns about Yellow Media’s
  deteriorating cash flows and weakened access to the capital markets, which have increased the risk associated with the company’s ability to refinance its future debt maturities.

…
At the same time, we lowered our issue-level rating on the company’s senior unsecured debt to ‘BB-‘ (the same as the corporate credit rating on Yellow Media) from ‘BB+’, and revised our recovery rating on the debt to ‘4’ from ‘3’. A ‘4’ recovery rating indicates our expectation for average (30%-50%) recovery in the event of a default.

We also lowered our issue-level rating on Yellow Media’s subordinated debt to ‘B’ (two notches below the corporate credit rating) from ‘BB-‘. The recovery rating on this debt is unchanged at ‘6’, indicating our expectation of negligible (0%-10%) recovery in a default situation.

Finally, we lowered our Canada scale rating on the company’s preferred shares to ‘P-4 (Low)’ from ‘P-4 (High)’. All of the issue level ratings have been placed on CreditWatch negative, reflecting the downgrade on the company.
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“The downgrade and CreditWatch listing reflect our concerns about a further deterioration in operating performance and rising refinancing risks at Yellow Media,” said Standard & Poor’s credit analyst Madhav Hari. “Specifically, we now believe that print declines will accelerate beyond our low-to-mid teens percent expectations and that the company will be challenged to increase its online revenue at the levels we had imputed in our previous assumptions,” Mr. Hari added.

As such, erosion of overall revenue could be steeper in the near term while visibility for the timing of revenue stabilization or turnaround is very poor. More important, given print acceleration and the greater degree of investment needed to even sustain a lower pace of online growth, we now believe operating margins could prove to be below our previous expectations of about 50%. Consequently, we expect discretionary operating cash flow to weaken, which would limit the company’s financial flexibility. Given significant uncertainty with regard to the company’s ability to renew or extend its bank facilities beyond February 2013, and arguably poor access to the capital markets (as evidenced by pricing of the company’s equity and debt securities), we believe refinancing risks associated with the company’s future debt maturities, including the C$255 million medium-term notes due 2013, has increased meaningfully.

YLO has four issues of preferreds outstanding: YLO.PR.A & YLO.PR.B (OperatingRetractible) and YLO.PR.C & YLO.PR.D (FixedReset).

These issues were last mentioned on PrefBlog when I published a transcript of the 11Q3 Conference Call. All issues are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

RioCan Real Estate Investment Trust has announced:

that it has successfully completed its issuance of an aggregate of 5,980,000 Cumulative Rate Reset Preferred Trust Units, Series C (the “Series C Units”) at a price of $25.00 per Series C Unit for aggregate gross proceeds of $149,500,000. The aggregate offering was comprised of the previously announced issuance of 5,200,000 Series C Units at $25.00 per Series C Unit for gross proceeds of $130,000,000, together with the option granted to underwriters, which was exercised in full, for an issuance of an additional 780,000 Series C Units for $25.00 per Series C Unit for additional gross proceeds of $19,500,000. The underwriting syndicate for the offering was co-led by RBC Capital Markets, CIBC and TD Securities Inc.

The offering was made under RioCan’s amended and restated base shelf short form prospectus dated December 21, 2010 amending and restating the base shelf short form prospectus dated July 6, 2010. The terms of the offering are described in a prospectus supplement dated November 21, 2011, which was filed with Canadian securities regulators.

REI.PR.C is an interest-bearing FixedReset, 4.70%+318 announced November 18. The issue size was announced as $130-million and a greenshoe for 19.5-million, which has been fully exercised. The issue will be tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

The issue traded 101,982 shares in a range of 24.62-00 today before closing at 24.90-94, 28×1. Vital Statistics are:

TransAlta Corporation has announced:

it has completed its public offering of 11,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series C (the “Series C Shares”) at a price of $25.00 per Series C Share.

The offering, previously announced on November 22, 2011, resulted in gross proceeds to TransAlta of $275 million. The net proceeds of the offering will be used to partially fund capital projects, for other general corporate purposes, and to reduce short term indebtedness of the company and its affiliates. TransAlta may invest funds that it does not immediately require in short term marketable debt securities.

The Series C Shares were offered to the Canadian public through a syndicate of underwriters led by CIBC World Markets Inc., RBC Capital Markets and Scotia Capital Inc. by way of a prospectus supplement that was filed with securities regulatory authorities in Canada under TransAlta’s short form base shelf prospectus dated November 15, 2011.

Holders of Series C Shares are entitled to receive a cumulative quarterly fixed dividend yielding 4.60% annually for the initial period ending June 30, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.10%. Holders of Series C Shares will have the right, at their option, to convert their shares into Cumulative Rate Reset First Preferred Shares, Series D (the “Series D Shares”), subject to certain conditions, on June 30, 2017 and on June 30 every five years thereafter. Holders of Series D Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 3.10%. The Series C Shares are listed on the Toronto Stock Exchange under the ticker symbol TA.PR.F.

TA.PR.F is a FixedReset, 4.60%+310, announced 2011-11-22. TA.PR.F will be tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

The issue traded 219,150 shares in a range of 24.85-95 today before closing at 24.87-92, 1×13. Vital statistics are:

Standard and Poor’s has announced:

• Following a review under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we have lowered our long- and short-term ratings on U.K.-based HSBC Holdings PLC (HSBC or “the group”) to ‘A+/A-1’ from ‘AA-/A-1+’ and the long-term ratings on the group’s core operating subsidiaries to ‘AA-‘ from ‘AA’.
• Other rating actions on debt issues and subsidiaries are listed below.
• The group’s ‘a+’ stand-alone credit profile reflects our view of its very strong business position, adequate capital and earnings, strong risk position, average funding, and adequate liquidity.
• The ratings also reflect its high systemic importance in the U.K.
• The stable outlook on the group reflects our view that the group’s strengths should enable it to withstand any softening in global economic conditions or setbacks in the rundown of its U.S. consumer finance portfolio.

They specifically noted that the P-1(low) rating on the local scale for the preferred stock was affirmed.

HSB has three preferred share issues outstanding: HSB.PR.C and HSB.PR.D (Straight Perpetual) and HSB.PR.E (FixedReset).

Enbridge Inc. has announced:

it has closed its previously announced public offering of cumulative redeemable preferred shares, Series D (the “Series D Preferred Shares”) by a syndicate of underwriters co-led by TD Securities Inc, RBC Capital Markets and Scotia Capital Inc. Enbridge issued 18 million Series D Preferred Shares for gross proceeds of $450 million. The Series D Preferred Shares will begin trading on the TSX today under the symbol ENB.PR.D. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

ENB.PR.D is a FixedReset, 4.00%+237, announced November 14. The issue traded 1,353,175 shares today in a range of 25.05-20 before closing at 25.10-13, 12×5.

For those interested in market trivia, this is the 88th highest daily share volume in the HIMIPref™ database of 632,706 entries.

ENB.PR.D will be tracked by HIMIPref™ and is assigned to the FixedReset index. Vital statistics are:

For those interested, I commissioned a transcript of the YLO 11Q3 conference call. Hymas Investment Management makes no representation or warranties regarding the accuracy or completeness of this transcript – use it at your own risk.

The company has made the call available only as a webcast. The Thomson-Reuters transcript is selling for $54 at time of writing – it was offered earlier for $106.

YLO has four preferred share issues trading on the Toronto Stock Exchange: YLO.PR.A & YLO.PR.B (OperatingRetractible) and YLO.PR.C & YLO.PR.C (FixedReset). All are tracked by HIMIPref™, all are relegated to the Scraps index on credit concerns. The first three issues listed were removed from the TXPR index in October. DBRS downgraded all the issues by four notches in September.

NorRock Realty Finance Corporation has announced:

NorRock Realty Finance Corporation (“NorRock”) (TSX: RF.A; RF.PR.A; RF.WT) and Partners Real Estate Investment Trust (“Partners REIT”) (TSXV: PAR.UN) announced today that they have entered into an acquisition agreement whereby Partners REIT will acquire all the assets of NorRock, consisting of cash, cash equivalents, mortgages and other assets from NorRock in exchange for the issuance of Partners REIT units, certain rights to acquire Partners REIT units and cash. The transaction will be carried out by NorRock as a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).

It is anticipated that, at closing, holders of NorRock preferred shares will receive $23.75 per share in Partners REIT units (based on an agreed issue price of $1.73 per Partners REIT unit), and holders of NorRock Class A shares will receive $5.94 per share in Partners REIT units together with Rights (described below) to receive additional value of approximately $1.47 per share, resulting in proceeds potentially totalling approximately $7.41 per NorRock Class A share. The Rights will represent the right to receive a pro rata share of the net value (determined as described below) of the mortgages and other non-cash assets that Partners REIT will purchase from NorRock at closing, to the extent that such net value exceeds $12.6 million. If the net value of those assets so determined reflects NorRock’s current book value for those assets, then the Rights will have a value of approximately $1.47 per NorRock Class A share.

On November 16, the parties announced (not yet on the NorRock website):

NorRock Realty Finance Corporation (“NorRock”) (TSX: RF.A; RF.PR.A) and Partners Real Estate Investment Trust (“Partners REIT”) (TSXV: PAR.UN) announced today that NorRock has obtained an interim order of the Ontario Superior Court of Justice. The interim order provides for, among other things, the holding of a special meeting of holders of NorRock Preferred Shares, Series 1 and the holders of NorRock Class A shares (collectively, the “NorRock Shares”) to approve the previously announced plan of arrangement under the Business Corporations Act (Ontario) regarding the sale of substantially all of the assets of NorRock, consisting of cash, cash equivalents, mortgages and other assets, to Partners REIT in exchange for the issuance of Partners REIT units, certain rights to acquire Partners REIT units and cash.
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The NorRock Meeting will be held on December 15, 2011 at the offices of Bennett Jones LLP, Suite 3400, First Canadian Place, 100 King Street West, Toronto, Ontario at 10:00 a.m. (Toronto time) and the proxies and the joint management information circular are expected be mailed to holders of NorRock Shares on or about November 23, 2011. This meeting date has been changed from the previously announced date of December 8, 2011 to December 15, 2011.

I will not make a recommendation on this vote.

RF.PR.A was last mentioned on PrefBlog in the post Special Resolution Passes. RF.PR.A is not tracked by HIMIPref™.

Ask and ye shall receive! Just yesterday, I noted:

I think there must be something going on behind the scenes at Atlantic Power / CPI Preferred Equity with respect to the ratings on CZP.PR.A & CZP.PR.B. The takeover closed two weeks ago, after DBRS had warned of a massive downgrade … and nothing’s happening. Perhaps ATP is frantically trying to put some kind of deal together? We shall see!

Well, what we see is a DBRS announcement:

DBRS has today downgraded the ratings of Capital Power Income L.P.’s (CPILP or the Partnership) Senior Unsecured Debt & Medium-Term Notes, to BB from BBB (high) and also downgraded the Cumulative Preferred Shares of CPILP’s affiliate, CPI Preferred Equity Ltd., to Pfd-4 from Pfd-3. The trends are now stable. As part of our leveraged finance rating methodology, DBRS has also assigned an Issuer Rating of BB to CPILP and a recovery rating of RR4 (indicating an expected recovery of 30% to 50%) on the Senior Unsecured & Medium Term Notes.

The downgrade reflects the closing of the previously announced acquisition of CPILP by Atlantic Power Corporation (ATP, not rated by DBRS) (the Transaction) on November 7, 2011. DBRS had stated in its October 21, 2011, Comment that if the Transaction closes as currently anticipated, the Transaction is expected to result in a downgrade of CPILP’s ratings to BB. CPILP’s Issuer Rating of BB is based on DBRS’s assessment of the new combined entity.
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Current estimated credit metrics for the combined entity of EBITDA-to-interest of 2.7 times (x), cash flow from operation-to-debt of 10.7%, debt-to-capital of 59% and debt-to-EBITDA of 5.6x are weaker than CPILP’s stand-alone credit metrics. Furthermore, CPILP and various subsidiaries will be providing guarantees to the following ATP obligations:

(1) ATP’s new $300 million secured credit facility.

(2) ATP’s $460 million senior unsecured note with 9% coupon due in 2018. The guarantees of the ATP bonds will be senior unsecured obligations of the respective guarantors and will rank equally in right of payment with all of the guarantors existing and future senior debt of the guarantor and will be effectively subordinated in right of payment to all secured debt of each guarantor.

All of CPILP’s bonds will be subordinated to ATP’s $300 million credit facility. Due to the binding of ATP and CPILP through the guarantees, DBRS views the entities as a combined credit.

CZP.PR.A (a PerpetualDiscount) and CZP.PR.B (a FixedReset) were last mentioned on PrefBlog in the post CZP.PR.A, CZP.PR.B: Takeover by ATP Approved – Downgrade Coming. Both are tracked by HIMIPref™; both are relegated to the Scraps index on credit concerns.

Sun Life Financial has announced:

the successful completion of a Canadian public offering of $300 million of Class A Non-Cumulative Rate Reset Preferred Shares Series 12R (the “Series 12R Shares”) at a price of $25.00 per share and yielding 4.25 per cent annually. The offering, initially for $250 million of Series 12R Shares, was increased to $300 million following exercise by the underwriting syndicate, co-led by Scotia Capital Inc., CIBC and TD Securities Inc., of an option to purchase an additional $50 million of Series 12R Shares.

The Series 12R Shares were issued under a prospectus supplement dated November 3, 2011, which was issued pursuant to a short form base shelf prospectus dated April 12, 2011. Copies of those documents are available on the SEDAR website for Sun Life Financial Inc. at www.sedar.com. The Series 12R Shares are listed on the Toronto Stock Exchange under the ticker symbol SLF.PR.I.

SLF.PR.I is a FixedReset, 4.25%+273, announced November 3.

The issue traded 398,680 shares today in a range of 24.60-90 before closing at 24.55-60, 10×4. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset index. In accordance with my views on DeemedRetractibles, a hardMaturity entry has been added to the call schedule, on the assumption that regulatory changes applied to banks with respect to Tier 1 Capital will be extended to apply to insurers and insurance holding companies.

Vital statistics are: