Category: Issue Comments

BCE Inc. has announced:

As of November 1, 2011, the Series T Preferred Shares will, should they remain outstanding, pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on a fixed rate equal to the product of: (a) the yield to maturity compounded semi-annually (the “Government of Canada Yield”), computed on October 11, 2011 by two investment dealers appointed by BCE Inc., that would be carried by non-callable Government of Canada bonds with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage Rate” determined by BCE Inc. is 215%. The annual dividend rate applicable to the Series T Preferred Shares will be published on October 12, 2011 in the national edition of the Globe and Mail, the Montreal Gazette and La Presse and will be posted on the BCE Inc. website at www.bce.ca.

BCE’s deadline for conversion is October 18:

Registered holders electing to convert all or part of their Series T Preferred Shares into Series S Preferred Shares must complete and sign the conversion panel on the back of their Series T Preferred Share certificate and deliver it, at the latest by 5:00 p.m. (Eastern time) on October 18, 2011, to one of the following addresses of Canadian Stock Transfer Company Inc. (“Canadian Stock Transfer”):
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Delivery may be done in person, by courier, by registered mail or by mail. However, if share certificates are delivered by courier, by registered mail or by mail, shareholders must ensure that they are sent sufficiently in advance so that they are received by Canadian Stock Transfer by the above-mentioned deadline.

Holders are reminded that their brokers will almost certainly have deadlines that are a day or two prior to the BCE deadline – check well in advance if you intend to convert!

Naturally, the notice for BCE.PR.S, the RatchetRate half of this Strong Pair, specifies the same deadline for those wishing to convert the other way.

It’s too soon to make a recommendation on this – we don’t know the actual rate to which BCE.PR.T will be reset yet! However, as of today the 5-Year GOC rate is 1.45%, so the indicative rate for BCE.PR.T is 3.12%, or $0.78 on its $25 par value, which will – probably, maybe, I think – be preferable to the 3% (100% of Canadian Prime) being paid on BCE.PR.S, since the fraction of prime paid on the latter issue will be reduced if the price goes much above par. It’s a pretty close call though, so watch this space!

Standard & Poor’s has announced:

• CIBC has received confirmation from its regulators establishing two rated hybrid issues as nonviable contingent capital (NVCC) instruments.
• We’re lowering our ratings on the two CIBC hybrids to ‘BBB+’ from ‘A-‘, reflecting contingent capital triggers as detailed in our contingent capital criteria (see “Related Criteria And Research”).
• We are affirming our ‘A+/A-1’ counterparty credit ratings on CIBC, and the outlook remains stable.

“The rating action reflects our view that the level of the trigger and the details of the mechanisms for the conversion of NVCCs are critical,” said Standard & Poor’s credit analyst John Bartko. The Canadian regulator’s (Office of the Superintendent of Financial Institutions, or OSFI) confirmation of treatment of these issues as NVCCs required CIBC to renounce its rights to convert the issues into common shares, except in circumstances considered a trigger event under the OSFI’s NVCC Advisory. The formal designation of these preferred shares as NVCC instruments, in conjunction with relevant OSFI guidance, establishes clear expectations as to circumstances in which the issuer would convert these issues to equity.

“In our opinion, because the conversion would occur at the point of nonviability, and not early enough to preempt nonviability, the formal designation of these instruments as NVCC does not in itself reduce the issuer’s default risk,” said Mr. Bartko. “Instruments with this conversion feature are rated one notch below hybrids that do not have the feature because the instruments would, at nonviability, have a lower ranking in the capital structure. If the issuer moves closer to the trigger point, we could lower the rating further to reflect the increased risk relative to other junior instruments in the issuer’s capital structure.”

The third CM issue to receive NVCC status was CM.PR.G (as reported in August), which is not mentioned in the release. I suspect that this is simply a careless oversight which will soon be corrected. There is also no indication as yet as to whether the downgrade will affect the “National Scale” rating of P-1(low).

I’ve been complaining for a long time – most recently in August – about OSFI’s prediliction for a “low-trigger” conversion rule, which they have never deigned to explain, arrogant idiots that they are. Now the low-trigger is having an observable effect. Thank you OSFI!

Update, 2011-9-17: S&P has updated their on-line rating summaries; the downgrade has not affected the P-1(low) rating on the courser “National Scale”.

Claymore Investments Inc. has announced:

that Big Bank Big Oil Split Corp. (the “Company”) has filed a preliminary short form prospectus in connection with a follow‐on offering (the “Offering”) of Capital Shares and Preferred Shares of the Company.

The Company completed its initial public offering of Capital Shares and Preferred Shares on June 16, 2006. The outstanding Capital Shares and Preferred Shares currently trade on the Toronto Stock Exchange (the “TSX”) under the symbols “BBO” and “BBO.PR.A” respectively.

The Company invests in a portfolio (the “Portfolio”) of common shares of the six big Canadian banks and the ten biggest (by market capitalization) Canadian oil and gas companies utilizing a split share structure. The Company invests on an equal‐weighted basis and provides a low fee approach to the underlying sectors. The Preferred Shares are rated Pfd‐2 by Dominion Bond Rating Service Ltd. The Company may write covered call options and cash covered put options on the Portfolio in order to generate additional returns.

The investment objectives for the Preferred Shares are: (i) to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per Preferred Share; and (ii) to return the original issue price of $10.00 per Preferred Share to holders on December 30, 2016. The investment objectives for the Capital Shares are: (i) to provide holders with regular monthly cash distributions, which are currently $0.09 per Capital Share; and (ii) to provide holders with the opportunity for growth in the net asset value per Capital Share.

The Offering is being made on a best efforts agency basis in each of the provinces and territories in Canada through a syndicate of investment dealers co‐led by TD Securities Inc. and CIBC World Markets Inc. and including GMP Securities L.P., RBC Dominion Securities Inc., Scotia Capital Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., HSBC Securities (Canada) Inc., Raymond James Ltd., Desjardins Securities Inc., Macquarie Private Wealth Inc., Dundee Securities Ltd., Mackie Research Capital Corporation, and Rothenberg Capital Management Inc.

I was startled to see the claim that the issue is rated Pfd-2 by DBRS, because BBO.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-2(low). Did I miss something? Nope – it is still rated Pfd-2(low) and was confirmed at that level 2011-9-6.

Asset Coverage is currently 2.1-:1. The July, 2008 prospectus (for a warrant issue) indicates that there is a NAV test (1.5:1) and monthly retraction [96%(NAV – C)]

The issue has heretofore been too small to warrant tracking by HIMIPref™ (only about 1.6-million outstanding), but who knows? Maybe that will change.

Update, 2011-9-14: I wasn’t the only one who was startled:

Claymore Investments, Inc. wishes to confirm that the outstanding Preferred Shares of Big Bank Big Oil Split Corp. (the “Company”), which trade on the Toronto Stock Exchange under the symbol “BBO.PR.A”, are currently rated Pfd-2(low) by Dominion Bond Rating Service Ltd.

A press release issued on behalf of the Company on September 13, 2011 announcing the filing of a short form preliminary prospectus in respect of a proposed offering of Preferred Shares and Capital Shares of the Company inadvertently referred to the rating as Pfd-2.

Brookfield has announced:

a plan to combine Brookfield Renewable Power Fund and the power generating assets owned Brookfield Renewable Power Inc., to create Brookfield Renewable Energy Partners L.P. (“BREP”), a global, publicly-traded partnership focused on renewable power generation.
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The transaction will require approval by 662/3% of Fund unitholders and a majority of unitholders other than Brookfield and related persons present at the meeting in person or by proxy and Ontario court approvals. In addition, Brookfield will seek approval from 662/3% of the holders of Preferred Shares and Brookfield Renewable Power’s unsecured bondholders, which are conditions to closing. Meeting materials containing details of the proposed transaction are expected to be mailed to security holders of the Fund, Brookfield Renewable Power Equity and Brookfield Renewable Power as soon as practicable. It is anticipated that meetings of security holders to seek the approvals referred to above will be held in October and November of 2011.

In response, DBRS has announced:

has today placed the Senior Unsecured Debentures and Notes rating of Brookfield Renewable Power Inc. (BRPI) Under Review with Developing Implications. DBRS has also placed the Issuer Rating and Income Fund rating of Brookfield Renewable Power Fund (the Fund) and the Preferred Shares, Series 1 (the Preferred Shares) rating of the Fund affiliate Brookfield Renewable Power Preferred Equity Inc. (Equity Inc.) Under Review with Developing Implications.
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Equity Inc.’s Preferred Shares will become the obligation of a BREP subsidiary, guaranteed on a subordinate basis by BREP, mimicking the current structure under which the Preferred Shares are guaranteed on a subordinate basis by the Fund. Similar to the Fund, BREP would feature a contracted generation portfolio, with a weighted-average term of approximately 24 years. For the Preferred Shareholders, DBRS views the Transaction as offering a number of positive aspects that reduce business risk:

(1) BREP would be a much larger and more diverse renewable generator than the Fund, with the addition of contracted assets in the United States and Brazil. BREP’s approximate $13 billion in total assets would be more than double the Fund’s current size (C$5.6 billion as of June 30, 2011). BREP’s generating capacity (approximately 4,400 MW) is also substantially larger than that of the current Fund (approximately 1,700 MW). As mentioned above, BREP is expected to generate $1.1 billion annual EBITDA and $550 million cash flow from operations, based on long-term average hydrology and production levels. The added geographic diversity would result in lower exposure to weak hydrology in any one area.

(2) Average contract prices for the Ontario generation operations, which represent approximately 50% of the Fund’s production, will increase from C$68/MWh to C$88/MWh.

(3) Counterparty exposure to BRPI will be reduced. Currently, BRPI is the counterparty on more than 70% of the Fund’s revenues (DBRS estimate); with the addition of the new assets, this concentration is expected to decline to the range of 50% to 60%.

(4) BREP is expected to have improved access to equity capital given its larger market capitalization and broader investor base.

However, the Transaction is expected to increase the financial risk from the perspective of the Preferred Shareholders as post-Transaction, the Preferred Shares would rank behind the C$1.1 billion of MTNs as opposed to behind the minimal levels of Fund-level debt that existed historically. Additionally, many of the U.S. and Brazilian generating assets have existing non-recourse project debt (as do many of the Fund’s current assets). DBRS views this negative effect as being balanced by the above-mentioned improvement in business risk resulting from the much larger, diverse contracted asset base and, therefore, as neutral from the perspective of an Equity Inc. Preferred Shareholder.

BAM Split Corp., issuer of BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E, has released its Semi-Annual Report to March 31, 2011.

Figures of interest are:

MER: (excluding dividends on preferred shares, issue costs and Class A Preferred Share redemption premium) 0.0%. You don’t see that number very often! A more precise calculation from the Income Statement shows that the expenses totalled $190,000 for the half, or about 2bp p.a. on assets.

The expenses are wel itemized, however, and are a delight for voyeurs. I found the Listing Fees of $97,000 and Rating Fees of $7,000 to be most interesting.

Average Net Assets: This must be calculated if we’re to find the second decimal point on the MER. There was share issuance approximately half-way through the period, so say [1,547,354 (beginning of period) + 1,670,440 (end of period)] / 2 = 1,609-million, about

Underlying Portfolio Yield: Given the fund’s portfolio composition and investment policy, deviations from the raw yield on BAM.A will not be material. This is currently 1.875%

Income Coverage: Dividends & Interest of $14.117-million less expenses (before amortization of issue costs) of $0.190-million is $13.927-million, to cover preferred dividends of $11.298-million is 123%.

Life & Banc Split Corp. has released its Semi-Annual Report to June 30, 2011.

Figures of interest are:

MER: 0.99% of the whole unit value.

Average Net Assets: We need this to calculate portfolio yield, but it’s very rough due to the issuance of $63-million worth of new units on February 22 via a warrant offering. Try [190.8-million (NAV, beginning of period) + 250.3-million (NAV, end of period)] / 2 = about 221-million

Underlying Portfolio Yield: Total income of 4,367,129, times two (semi-annual) divided by average net assets of 221-million is 3.95%.

Income Coverage: Net Investment Income was 3,076,865. Preferred Share Distributions were 3,582,177, but don’t count the 0.13125 dividends on the 3,341,143 preferreds issued in March totalling 438,525. So net preferred dividends were 3,143,652, so Income Coverage is 98%.

Brompton Split Bank Corp. has released its Semi-Annual Report to June 30, 2011.

Figures of interest are:

MER: 1.00% of the whole unit value.

Average Net Assets: We need this to calculate portfolio yield. [128.1-million (NAV, beginning of period) + 132.3-million (NAV, end of period)] / 2 = about 130-million.

Underlying Portfolio Yield: Total income of 2,580,360, times two (semi-annual) divided by average net assets of 130-million is 3.97%

Income Coverage: Net Investment Income of 1,910,961 divided by Preferred Share Distributions of 1,574,707 is 121%.

Huh. It’s not too long ago that the float of BSC.PR.B doubled – now it’s been more than halved.

BNS Split Corp. II has announced:

that it has called 842,301 Preferred Shares for cash redemption on September 22, 2011 (in accordance with the Company’s Articles) representing approximately 46.440% of the outstanding Preferred Shares as a result of the special annual retraction of 1,684,602 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on September 20, 2011 will have approximately 46.440% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $18.85 per share.

In addition, holders of a further 1,320,922 Capital Shares and 660,486 Preferred Shares have deposited such shares concurrently for retraction on September 22, 2011. As a result, a total of 3,005,574 Capital Shares and 1,502,787 Preferred Shares, or approximately 60.641% of both classes of shares currently outstanding, will be redeemed.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including September 22, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on September 22, 2011. From and after September 22, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

BNS Split Corp. II is a mutual fund corporation whose principal undertaking is to invest in common shares of The Bank of Nova Scotia. Capital Shares and Preferred Shares of BNS Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols BSC and BSC.PR.B respectively.

BSC.PR.B was last mentioned on PrefBlog when the warrant issue doubled the float about nine weeks ago. BSC.PR.B is tracked by HIMIPref™ but relegated to the Scraps index on volume concerns.

DundeeWealth Inc. has announced:

that at a special meeting of shareholders of DundeeWealth held earlier today, its shareholders approved a special resolution authorizing an amendment to the Company’s articles to permit the Company to redeem all of the issued and outstanding first preference shares, series 1 (the “Series 1 Shares”) at a price of $26.50 plus accrued and unpaid dividends up to but excluding the redemption date. Of the 2,795,594 votes cast by the holders of Series 1 Shares at the meeting, 99.65% voted in favour of the special resolution. All of the common shares, special shares, series C and first preference shares, series X were voted in favour of the special resolution. On September 8, 2011, the Series 1 Shares will be redeemed by the Company and delisted from trading on the Toronto Stock Exchange.

The potential for redemption was discussed on PrefBlog when the Special Meeting was announced.

DW.PR.A was tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

In the post YLO Discloses August Preferred Share BuyBacks, I noted:

As pointed out by Assiduous Reader radamesb, it appears that the company has reached – and even gone beyond! – its NCIB limit for the two retractibles; it looks like any further purchases of YLO.PR.A and YLO.PR.B will have to be done by public tender (such as was done for the NA high-coupon FixedResets, but – heh-heh – with a lower price).

Assiduous Reader radamesb suggested in the comments (edited to reflect correction):

Cangator pointed out to me in an email that using May 13 June 13 as the start date for Series 1 & 2 comes out to exactly the right amount of Series A shares, and leaves room for Series B if the cancellation of 490,904 shares on May 14 is counted towards the previous year’s buyback (since the original purchases were made before May 13). It seems that while they calculated the volume based on the same dates, that they were permitted to finish the previous year’s buyback before starting the new one, leaving different end dates as well.

I sent an eMail to YLO’s Investor Relations Department:

I have calculated totals for your shares purchased in the past few months, as disclosed on SEDI.

I calculate a total of 1,232,948 YLO.PR.A since May 13, compared to your NCIB annual maximum of 1,127,882.

Similarly, I calculate 771,888 YLO.PR.B since May 13, compared to the NCIB maximum of 684,028.

Can you explain these discrepencies?

The IR department has now responded:

Thank you for your interest in Yellow Media Inc.

Please note that the amount of Series 1 & 2 preferred shares purchased through the NCIB from May 13, 2011 to June 10, 2011 followed the NCIB approved by the TSX on June 8, 2010.

The amount of Series 1 & 2 preferred shares purchased through the NCIB since June 13, 2011 followed the NCIB approved by the TSX on May 11, 2011.