Category: Issue Comments

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:

DBRS has announced that it:

has today downgraded the long-term rating of RONA inc. (Rona or the Company) to BBB (low) from BBB, maintaining the Negative trend. At the same time, DBRS has downgraded the Company’s Preferred Shares rating to Pfd-3 (low) from Pfd-3, also with a Negative trend.

On May 11, 2011, DBRS changed the trends on Rona’s ratings to Negative from Stable.
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Subsequent to that statement, Rona released its Q2 2011 results, which delivered same-store sales growth of -9.6%, overall revenue decline of -2.4% and EBITDA of $90 million (versus $133 million year-over-year) as the Company continued to engage in heavy promotional activity to spur growth. Yesterday, Rona released its Q3 2011 results, which delivered same-store sales growth of -5.1%. Overall revenue increased by 2.1% (due to the inclusion of acquisitions and new store openings), resulting in EBITDA of $105.4 million, an increase of 1.7% year-over-year. As such, combined with a moderate increase in debt from the previous year, lease-adjusted debt-to-EBITDAR for the last twelve months ended Q3 2011 increased to 3.1x.
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The deteriorating operating performance and weakened credit metrics result in a credit risk profile that is no longer consistent with a BBB rating. In terms of outlook, DBRS has maintained the Negative trend on the ratings as we believe meaningful recovery will remain challenging, since Rona is expected to continue facing intense competition in a highly promotional-based, consumer-challenged environment. The Company expects to generate some cost savings, which may help offset investment in pricing. Nevertheless, DBRS expects that any significant improvement in performance will be difficult to realize without same-store sales and margin stabilization over the near term.

If the Company’s plans and performance lead to signs of stabilization in same-store sales, operating income and key credit metrics (lease-adjusted debt-to-EBITDAR of approximately 3.0x) over the next year, the ratings outlook could stabilize. However, a continued and meaningful decline in same-store sales, operating income and key credit metrics over the course of 2012 could result in a downgrade to BB (high).

RON.PR.A was last discussed on PrefBlog in the post RON.PR.A: Ripe for Credit Downgrade?. RON.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

DBRS reports that they have:

today assigned a rating of “A” with a Stable trend to the following TransCanada PipeLines Limited (TCPL) new debt issuance:

(1) Proposed $500 million 3.65% unsecured medium-term notes maturing on November 15, 2021.

(2) Proposed $250 million 4.55% unsecured medium-term notes maturing on November 15, 2041.

The issues are expected to settle on November 15, 2011.

The new debt will rank equally, except as to sinking funds, with all of TCPL’s existing and future senior unsecured debt. Net proceeds from the offering will be used to repay indebtedness and for general corporate purposes.

It’s odd that DBRS considers these to be “proposed” issues: the WSJ says it’s not only been done, but that the offering raised $250-million more than the minimum amount targetted and notes:

It also raised C$250 million from an offering of long bonds maturing November 2041. The issue was priced at 184 basis points over the Government of Canada 2041 benchmark to yield 4.587%. The bonds carry a coupon of 4.55%

TCA has two issues of preferred shares outstanding, TCA.PR.X and TCA.PR.Y, both PerpetualPremiums, both with a par value of $50, and both with annual dividends of $2.80, or 5.6%. Sadly, both are trading at levels of about $53, making the YTW scenario a call in the near term, so a comparison to long bonds is of dubious value.

By way of contrast, non-preferred-share-issuing Encana issued in USD at 5.15%:

DBRS has today assigned a rating of A (low) with a Negative trend to the following Encana Corporation (Encana) new debt issuance:

(1) Proposed $600 million 3.9% senior unsecured notes maturing November 15, 2021.

(2) Proposed $400 million 5.15% senior unsecured notes maturing November 15, 2041.

The issues are expected to settle on November 14, 2011.

The new debt will rank equally with all of Encana’s existing and future senior unsecured debt. Net proceeds from the offering will be used to pay down commercial paper indebtedness and for general corporate purposes.

Notes:
All figures in U.S. dollars unless otherwise noted

DBRS has commented:

RONA inc. (RONA or the Company) today announced that it has offered to purchase for cash, by way of two successive offers, up to $200 million of the aggregate principal amount of its 5.40% unsecured debentures due October 20, 2016.
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On May 11, 2011, DBRS revised RONA’s trend to Negative from Stable. That rating action reflected DBRS’s concern that weak operating performance and a challenging consumer environment may result in RONA’s credit risk profile deteriorating to a level that is no longer consistent with the current rating categories. DBRS’s concern was highlighted by continued weakness in same-store sales growth and the negative impact this was having on operating margins and income. At that time (end of Q1 2011), lease-adjusted debt-to-EBITDAR had increased to 2.82 times (x) from 2.55x a year earlier. DBRS stated that if RONA was successful in implementing a sustainable recovery, including improved operating performance (during the critical summer season, in particular) and prudent capital management that results in a lease-adjusted debt-to-EBITDAR ratio closer to the 2.5x level by the end of the year, it may consider changing the trend to Stable. On the other hand, a lack of improvement in sales, operating income and key credit metrics could result in a downgrade to the ratings before the end of the year.

Since then, RONA released its Q2 2011 results, which delivered same-store sales growth of -9.6%, overall revenue decline of -2.4% and EBITDA of $90 million (versus $133 million year-over-year) as the Company continued to engage in heavy promotional activity to spur growth. This performance resulted in the last 12 months lease-adjusted gross debt-to-EBITDAR of 3.1x.
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DBRS maintains its view that stabilization will require significant improvement in sales, operating income and significant capital conserving measures – including prudence with regards to capex, working capital management, dividend payouts, share repurchases and debt-financed acquisitions – for an extended period. Lack of improvement in sales, operating income, and key credit metrics in the near term could result in a ratings downgrade.