Category: Issue Comments

Details are available at SEDI.

The odd number for the total face value (a non-integral multiple of 1,000) has been previously discussed, so don’t start, OK? Totals include all filings commencing August 18.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

Details are available at SEDI.

The odd number for the total face value (a non-integral multiple of 1,000) has been previously discussed, so don’t start, OK? Totals include all filings commencing August 18.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

Details are available at SEDI.

Alert readers will have noticed that the face value reported for the 5.25% of ’16 is not an integral multiple of 1,000, and those alert readers who have not yet successfully completed their anger management courses will have already written me vitriolic eMails pointing out that the Short Form Base Shelf Prospectus dated 2005-3-11 states:

The specific terms of any Securities offered will be described in one or more shelf prospectus supplements (collectively or individually, as the case may be, a ‘‘Prospectus Supplement’’), including, where applicable: (i) in the case of Units, the number of Units being offered, the offering price and any other specific terms; (ii) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price, the procedures for the exchange of the Subscription Receipts for Units and any other specific terms; (iii) in the case of Fund Debt Securities and Holdings Debt Securities (collectively, the ‘‘Debt Securities’’), the specific designation, the aggregate principal amount being offered, the currency, the issue and delivery date, the maturity date, the issue price (or the manner of determination thereof if offered on a non-fixed price basis), the interest rate (either fixed or floating, and, if floating, the manner of calculation thereof), the interest payment date(s), the redemption, the exchange or conversion provisions (if any), the repayment terms, the form (either global or definitive), the authorized denominations and any other specific terms; and (iv) in the case of the Notes, the specific designation, the aggregate principal amount being offered, the currency, the issue and delivery date, the maturity date, the issue price (or the manner of determination thereof if offered on a non-fixed price basis), the interest rate (either fixed or floating, and, if floating, the manner of calculation thereof), the interest payment date(s), the redemption, the repayment terms, the form (either global or definitive), the authorized denominations and any other specific terms. A Prospectus Supplement may include specific variable terms pertaining to the Securities that are not within the alternatives and parameters described in this Prospectus
…
Notes issued hereunder will have a term to maturity of not less than one year and will be issuable in minimum denominations of $5,000 and in $1,000 increments thereafter (or the equivalent thereof in other currencies or currency units at the time of issue) in fully registered definitive or global form, in which case the Notes will be exchangeable only under certain conditions for definitive Notes (as described under the subheading ‘‘Form of Notes’’ below).

… and that the Prospectus and Pricing Supplement No. 1 to this shelf prospectus, dated 2005-11-18, which offers the 5.25% of ’16 does not specify the denomination.

I know, I know. But that’s what’s reported on SEDI, so take it up with them.

At one point while I was with Greydanus, Boeckh, we accidently traded a non-integral multiple of Canada’s once and the dealer processed it. We fixed it up within days … but I remember that at least six months later, we were still seeing custodial reports referring to the invalid number. It was an amusing headache, but a headache nevertheless.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

Details are available at SEDI.

Totals to date include transactions previously reported.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

Hat tip to commenter LongRoad on StockHouse for bringing this to my attention.

Details are available at SEDI.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

Intact Financial Corporation has announced:

that it has closed its $300 million offering of medium term notes (the “Notes”) and its $250 million offering of Non-cumulative Rate Reset Class A Shares Series 3 (the “Series 3 Preferred Shares”).

The Notes were offered on a best efforts basis through a syndicate led by CIBC World Markets Inc., RBC Dominion Securities Inc. and TD Securities Inc. and including Scotia Capital Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc. and Casgrain & Company Limited. The Notes will be direct unsecured obligations of IFC and will rank equally with all other unsecured and unsubordinated indebtedness of IFC. The Notes will bear interest at a fixed annual rate of 4.70% until maturity on August 18, 2021.

The Series 3 Preferred Share offering was underwritten on a bought deal basis by a syndicate of underwriters led by CIBC World Markets Inc., RBC Dominion Securities Inc., Scotia Capital Inc., and TD Securities Inc. and including National Bank Financial Inc., BMO Nesbitt Burns Inc., Canaccord Genuity Corp., GMP Securities L.P., Desjardins Securities Inc., HSBC Securities (Canada) Inc., Macquarie Capital Markets Canada Ltd. and Raymond James Ltd. (the “Underwriters”). IFC entered into an underwriting agreement dated August 11, 2011 with the Underwriters under which the Underwriters agreed to purchase from IFC and sell to the public 9,000,000 Series 3 Preferred Shares at a price of $25.00 per Series 3 Preferred Share for gross proceeds to IFC of $225,000,000. The Underwriters have exercised their over-allotment option and purchased an additional 1,000,000 Series 3 Preferred Shares at a price of $25.00 per Series 3 Share for gross proceeds to IFC of $25,000,000.

The holders of Series 3 Preferred Shares will be entitled to receive fixed non-cumulative preferential cash dividends, as and when declared by the Board of Directors of IFC, on a quarterly basis (with the first quarterly dividend to be paid on September 30, 2011), for the initial fixed rate period ending on September 30, 2016, based on an annual rate of 4.20%. The dividend rate will be reset on September 30, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 2.66%. The Board of Directors has approved and declared the initial dividend of $0.12370 per Series 3 Preferred Share which is payable on September 30, 2011 to holders of record on September 15, 2011.

Holders of the Series 3 Preferred Shares will have the right, at their option, to convert their Series 3 Preferred Shares into Non-cumulative Floating Rate Class A Shares Series 4 (the “Series 4 Preferred Shares”), subject to certain conditions, on September 30, 2016 and on September 30 every five years thereafter. The holders of Series 4 Preferred Shares will be entitled to receive floating rate non-cumulative preferential cash dividends, as and when declared by the Board of Directors of IFC, at a rate equal to the 90-day Canadian Treasury Bill rate plus 2.66%.

IFC intends to use the net proceeds of the Series 3 Preferred Share offering and the Note offering, together with borrowings under acquisition credit facilities previously arranged by IFC, the proceeds of a previously announced subscription receipt offering, the net proceeds from a previously announced private placement of medium term notes, the net proceeds of a previously announced preferred share offering and a portion of IFC’s existing cash resources, to fund the purchase price for its previously announced acquisition of all of the issued and outstanding shares of AXA Canada (the “Acquisition”). The closing of the Acquisition is expected to occur in the fall of 2011 subject to receipt of required competition and insurance regulatory approvals and the satisfaction of certain closing conditions. The Series 3 Preferred Share offering and the Note offering are not conditional upon closing of the Acquisition; if the Acquisition is not completed, the net proceeds from these offerings will be used for general corporate purposes.

The Notes have been given a rating of A(low) with a Stable trend by DBRS Limited and a rating of A3, under review for possible downgrade by Moody’s Investors Service, Inc. DBRS Limited has assigned a rating of Pfd-2(low) with a Stable trend for the Series 3 Preferred Shares.

The Series 3 Preferred Shares will commence trading on the Toronto Stock Exchange on August 18, 2011 under the symbol IFC.PR.C.

IFC.PR.C is a FixedReset, 4.20%+266, announced August 9. As the issue does not have a NVCC clause, I have followed my current policy and added a Deemed Maturity entry to the call schedule for 2022-1-31 in the expectation that the NVCC rules will be imposed on insurers and insurance holding companies in the reasonably near future. The issue will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 425,905 shares today in a range of 24.87-95 before closing at 24.90-94, 30×100.

Vital statistics are:

TD.PR.M & TD.PR.N:

DBRS has today placed the Non-Cumulative Class A 1st Preferred Shares, Series M and Non-Cumulative Class A 1st Preferred Shares, Series M (collectively, the Convertible Preferred Securities) ratings of The Toronto-Dominion Bank (TD or the Bank) Under Review with Negative Implications. The Convertible Preferred Securities are convertible to common equity at the issuer’s option. Today’s actions apply only to the Convertible Preferred Shares that DBRS rates; all other preferred share ratings of the Bank are unaffected.
…
Our review will consider the changing Canadian regulatory landscape as it relates to resolution mechanisms, the ability of the issuer to convert the preferred shares into common equity and the expected losses incurred as a result of the conversion. Additionally, the review will incorporate whether convertible preferred securities will have wider notching, based on the global standard notching for preferred shares, because of additional risk associated with conversion. As guidance, subordinated debt non-viability contingent capital will likely be rated no higher than the standard rating for preferred shares and the preferred share non-viability contingent capital will likely be rated one notch below the standard rating for preferred shares.

For clarity, global standard notching for preferred shares means the starting point for notching preferred share ratings is the intrinsic assessment (IA) rating rather than the final senior debt rating, and the degree of notching from the IA rating to the preferred share rating widens to reflect our perception of the increased risk in these capital instruments. The base notching policy is three notches for AA, four notches for “A” and five notches for BBB and lower IA ratings. Note that when DBRS implemented the changes in the preferred share methodology, on June 29, 2009, to increase the base notching at even the strongest rating categories and the expansion of the base notching as the credit quality of the bank migrates downward, most banks in Canada had their preferred share ratings downgraded to only one notch above the global standard notching for preferred shares.

The language for the other issues is similar, if not identical, so I’ll only quote the first paragraph of each press release.

RY.PR.W:

DBRS has today placed the Non-Cumulative First Preferred Shares, Series W (the Convertible Preferred Security) of Royal Bank of Canada (RBC or the Bank) Under-Review with Negative Implications. The Convertible Preferred Security is convertible to common equity at the issuer’s option. Today’s action applies only to the Convertible Preferred Security that DBRS rates; all other preferred share ratings of the Bank are unaffected.

CM.PR.D, CM.PR.E, CM.PR.G:

DBRS has today placed the ratings of the Non-Cumulative Class A Preferred Shares, Series 26 , Non-Cumulative Class A Preferred Shares, Series 27 and Non-Cumulative Class A Preferred Shares, Series 29 (collectively, the Convertible Preferred Securities) of Canadian Imperial Bank of Commerce (CIBC or the Bank) Under Review with Negative Implications. The Convertible Preferred Securities are convertible to common equity at the issuer’s option. Today’s actions apply only to the Convertible Preferred Securities that DBRS rates; all other preferred share ratings of the Bank are unaffected.

BMO.PR.V (which rarely gets mentioned on PrefBlog because it’s US Funds):

DBRS has today placed the Non-Cumulative Perpetual Class B Preferred Shares, Series 10 (the Convertible Preferred Security) rating of Bank of Montreal (BMO or the Bank) Under Review with Negative Implications. The Convertible Preferred Security is convertible to common equity at the issuer’s option. Today’s action applies only to the Convertible Preferred Security that DBRS rates; all other preferred share ratings of the Bank are unaffected.

Update, 2011-8-18: DBRS is holding a teleconference:

DBRS will be holding a teleconference at 10.30 a.m. today to discuss its recent rating actions on Canadian banks’ non-cumulative preferred shares. Yesterday, DBRS placed various non-cumulative preferred shares of Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank Under Review with Negative Implications following the review of the Office of the Superintendent of Financial Institutions Canada (OSFI) Advisory on Non-Viability Contingent Capital, issued on August 16, 2011 (NVCC Advisory).

The rating actions follow the revision of how DBRS views the elevated risk of conversion in an environment where OSFI is encouraging Canadian banks to put in place resolution mechanisms, including the release of the NVCC Advisory, and the regulator’s ongoing push toward loss absorption from capital instruments, including convertible preferred securities, to generate common equity prior to the declaration of non-viability by OSFI. On conversion, there is the potential for the holder of this instrument to incur losses.

The teleconference, hosted by Brenda Lum, Managing Director, and Robert Long, Senior Vice President, will cover the key analytical considerations in the DBRS rating action and allow for a question-and-answer period
…
A replay will be available immediately after the teleconference until September 1, 2011, at the following numbers:

REPLAY CALL-IN DETAILS
Available until 11:59 p.m. on September 1, 2011
Telephone: +1 905 694 9451 or toll-free at +1 800 408 3053
Pass Code: 5608110

DBRS will also publish a full transcript of the teleconference by the end of business on August 19, 2011. The transcript will be available at www.dbrs.com or by contacting us at info@dbrs.com

Update, 2011-8-22: DBRS released a minor correction to the TD release:

In the DBRS press release published on August 17, 2011, in which DBRS placed the Non-Cumulative Class A 1st Preferred Shares, Series M and Non-Cumulative Class A 1st Preferred Shares, Series N ratings of The Toronto-Dominion Bank Under Review with Negative Implications, the first paragraph referred to only the Series M. The press release has been corrected below and is available at www.dbrs.com or by contacting us at info@dbrs.com

The Canadian Imperial Bank of Commerce has announced:

that it has received confirmation from the Office of the Superintendent of Financial Institutions (OSFI) that its non-cumulative Class A preferred shares, Series 26, 27 and 29 (the Convertible Preferred Shares) will be treated as non-viability contingent capital (NVCC) for the purposes of determining regulatory capital under Basel III.

On May 26, 2011, CIBC announced that it intended to seek to have the Convertible Preferred Shares treated as NVCC once OSFI finalized its advisory on NVCC (the NVCC Advisory). OSFI published the final NVCC Advisory on August 16, 2011.

In connection with receiving this confirmation, CIBC has taken the following actions:

• (i) CIBC has irrevocably renounced its rights to convert the Convertible Preferred Shares into CIBC common shares by way of a deed poll except in circumstances that would be a “Trigger Event” as described in the NVCC Advisory; and
• (ii) CIBC has provided an undertaking to OSFI that CIBC will immediately exercise its rights to convert each of the Convertible Preferred Shares into CIBC common shares upon the occurrence of a Trigger Event.

These are unilateral actions taken at CIBC’s discretion and do not change any of the other terms of the Convertible Preferred Shares including CIBC’s redemption rights.

By renouncing CIBC’s conversion rights except upon the occurrence of a Trigger Event, the Convertible Preferred Shares will continue to not be dilutive to earnings per share following the adoption of International Financial Reporting Standards (IFRS) commencing November 1, 2011 nor for the portion of the IFRS comparative year ending October 31, 2011 that is subsequent to August 16, 2011 the date the conversion rights were renounced.

CIBC announcement that it would seek this status was previously reported on PrefBlog. I discussed the probable rationale for their action in this matter in the June, 2011, edition of PrefLetter.

CM.PR.D, CM.PR.E and CM.PR.G are all tracked by HIMIPref™. All are currently assigned to the PerpetualPremium subindex.

Sun Life Financial has announced:

the successful completion of a Canadian public offering of $200 million of Class A Non-Cumulative Rate Reset Preferred Shares Series 10R (the “Series 10R Shares”) at a price of $25.00 per share and yielding 3.90 per cent annually.

The Series 10R Shares were issued under a prospectus supplement dated August 5, 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 10R Shares are listed on the Toronto Stock Exchange under the ticker symbol SLF.PR.H.

SLF.PR.H is a FixedReset, 3.90%+217 announced August 4. The issue traded 285,750 shares in a range of 24.68-87 before closing at 24.70-72, 9×5.

Vital statistics are:

SLF.PR.H will be tracked by HIMIPref™ and incorporated in the FixedReset subindex.

Yellow Media’s earnings release today contained a lot of interesting news!

In order to improve the financial risk profile and capital position of the Company, the Board of Yellow Media Inc. (Yellow Media) has decided to reduce cash dividends to common shareholders from $0.65 to $0.15 annually
…
For the quarter ended June 30, 2011, the Company recorded a net loss from continuing operations of $20.7 million compared to net earnings of $53.0 million for the same quarter in 2010, resulting primarily from a loss of $50.5 million related to the investment in Ziplocal. The Company reported a net loss of $14.3 million for the quarter compared to earnings of $52.0 million for the prior year.
…
Revenues decreased 4.8% from $360.1 million to $342.7 million resulting from lower print revenues as well as lower revenues associated with our US operations. This was partly offset by higher organic online revenues and revenues generated from Mediative and Canpages. Online revenues for the second quarter of 2011 were $85.9 million or approximately $345 million on an annualized basis, representing growth of 33% versus last year. Online revenues now represent more than 25% of total revenues compared to 18% in the second quarter of 2010.
Income from operations was $110.6 million for the quarter compared to $143.8 million in the second quarter of 2010. EBITDA for the quarter declined from $204.0 million to $176.5 million and EBITDA margin for the second quarter was 51.5% compared to 56.6% for the same period last year. The decrease is mainly attributable to print revenue pressure, higher costs associated with Mediative and Canpages as well as investment in the launch of our 360° Solution. The Company also recorded an unusual bad debt expense of $5 million during the quarter.

In response, DBRS downgraded the preferreds to Pfd-3 with a negative trend:

DBRS continues to believe that given the uncertainty regarding Yellow Media’s digital transition and the higher business risk associated with becoming more dependent on digital revenue, it remains prudent for Yellow Media to strengthen its financial risk profile. As such, DBRS notes that the proceeds from the recent close of the sale of Trader ($708 million net, closed July 28, 2011), along with the additional free cash flow from today’s substantial reduction in the Company’s dividend (more than $200 million per year after the dividend was reduced by 77% to $0.15 per share on an annual basis from the previous rate of $0.65 per share), should position the Company well to achieve a reduction of leverage, with debt-to-EBITDA of approximately 2.0 times (currently at the upper end of the 2.0 times to 3.0 times range), which is now a formalized target.

S&P downgraded to P-4(high):

• Accelerating print revenue declines, increasing margin pressure, and the prospect of increased earnings volatility have led Standard & Poor’s to reassess Montreal-based Yellow Media Inc.’s business risk profile to fair from satisfactory.
• To mitigate rising industry and competitive risks, Yellow Media has articulated more conservative financial policies, including a 77% reduction in dividends and plans to deleverage to 2.0x (reported net debt basis) from 2.9x at June 30, 2011.
• The company’s balance sheet improvement does not sufficiently mitigate rising business risks, in our opinion; therefore, we are lowering the ratings on Yellow Media, including our long-term corporate rating to
  ‘BB+’ from ‘BBB-‘.

• The stable outlook is based on our view that Yellow Media should be able to manage an adjusted debt leverage of 3x in the next couple of years given its plans to repay more than C$1 billion in debt in the near term as well as generate meaningful discretionary cash from its still-sizeable directory operations while it continues to transition its business to online channels.

YLO has four series of publicly traded preferred shares: YLO.PR.A & 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.

Update: DBRS conference call:

DBRS will be holding a teleconference at 4 p.m. today to discuss its recent downgrade of Yellow Media Inc. (Yellow Media or the Company) to BBB and R-2 (high), with Negative trends. The downgrade reflects DBRS’s concern that the business risk of Yellow Media continues to increase as it accelerates its transition from print to digital, even though there is an expectation of a strengthened financial risk profile going forward as a result of recent actions and the ongoing underlying free cash flow that the Company continues to generate.

The teleconference, hosted by Kam Hon, Managing Director, and Chris Diceman, Senior Vice President, will cover the key analytical considerations in the DBRS rating action and allow for a question-and-answer period.

To participate, please dial the appropriate numbers listed below five minutes before the 4:00 p.m. EDT start time.

CALL-IN DETAILS
Telephone: +1 416 695 7806 or toll-free at +1 888 789 9572
Pass Code: 5637701

A replay will be available immediately after the teleconference until August 18, 2011, at the following numbers:

REPLAY CALL-IN DETAILS
Available until 11:59 p.m. on August 18, 2011
Telephone: +1 905 694 9451 or toll-free at +1 800 408 3053
Pass Code: 6233388

Update: There was speculation in March that the loss of an investment-grade debt rating (which is what S&P has done) would trigger a dividend cut through covenants on bank lines:

The “hold” camp includes TD Securities analyst Scott Cuthbertson, who published a note this week examining whether Yellow Media’s 65-cent annualized dividend is sustainable.

His conclusion after poring over the financials: Probably, but it’s not a slam dunk.

“Based on our estimates for 2011 and 2012 (which are in line with consensus), YLO should be able to continue to pay its $0.65 dividend from free cash flow in both years,” he wrote.

“With that said, non-operational items such as acquisitions, divestitures, one-time cash charges etc., could potentially put pressure on both the company’s ability to completely fund its dividends through free cash flow and the achievement of recently articulated debt-reduction goals.”

Maintaining Yellow Media’s investment-grade debt rating is critical to sustaining the dividend at current levels, he said. Losing the rating would trigger more restrictive covenants in Yellow Media’s loan agreements, which would put the dividend in jeopardy because the company would be permitted to pay out a maximum of 50 per cent of distributable cash as dividends.

Note that Mr. Cuthbertson changed his views on the company on July 8.

Update: Marc Tellier, the CEO was interviewed on BNN after the close. He was very, very determined to stay on message and very vague on specifics.

Update: What a day for the preferreds. I can’t remember ever seeing anything like it.

Note that the yield figures for YLO.PR.A and YLO.PR.B assume that the retraction right implies a redemption for $25 cash immediately prior to the right becoming effective. Since the minimum conversion price is $2 on the common, and the common now trades for a little over $1.00, many will feel that this is … somewhat optomistic.

However, I note from SEDI that on July 31, the company:

• Cancelled 77,580 YLO.PR.A, average price 22.43 (about 50,000 bought in July)
• Cancelled 32,172 YLO.PR.B, average price 15.12 (about 19,000 bought in July)
• Cancelled 30,644 YLO.PR.C, average price 15.04 (about 18,000 bought in July)
• Cancelled 14,980 YLO.PR.D, average price 15.17 (about 8,000 bought in July)