Category: Issue Comments

Enbridge Inc. has announced:

it has closed its previously announced public offering of cumulative redeemable preferred shares, series b (the “Series B Preferred Shares”) by a syndicate of underwriters co-led by Scotia Capital Inc., RBC Capital Markets, and TD Securities Inc. Enbridge issued 20 million Series B Preferred Shares for gross proceeds of $500 million. The Series B Preferred Shares will begin trading on the TSX today under the symbol ENB.PR.B. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

ENB.PR.B is a FixedReset, 4.00%+240 announced September 21.

The issue traded 978,815 shares in a range of 25.15-25 before closing at 25.19-20, 24×100. Vital statistics are:

Claymore Investments has announced:

that Big Bank Big Oil Split Corp. (the “Company”) has completed its previously announced follow‐on offering (the “Offering”) of 1,546,550 preferred shares (the “Preferred Shares”) of the Company at a price of $10.20 per Preferred Share (of which 146,550 were sold pursuant to the exercise of the over‐allotment option) and 1,546,550 capital shares (the “Capital Shares”) of the Company at a price of $9.95 per Capital Share (of which 146,550 were sold pursuant to the exercise of the over‐allotment option) for total gross proceeds of $31,162,982.50 pursuant to a short form prospectus dated September 22, 2011.

The Capital Shares and Preferred Shares trade on the Toronto Stock Exchange 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 in the Portfolio on an equal‐weighted basis and provides a low fee exposure to the underlying sectors. The Preferred Shares are rated Pfd‐2 (low) by DBRS 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 was 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.

The offering was discussed on PrefBlog in the post BBO.PR.A To Get Bigger Via Treasury Offering

The additional 1.5-million-odd shares basically doubles the size of the fund. BBO.PR.A is not currently tracked by HIMIPref™, but I’m going to have to start thinking about it!

See updates, below

I have heard from a non-authoritative source that:

4. The series 9 Preferred Shares curently pay a fixed annual dividend of 4.35% applied to $25.00 per share, payable quarterly. the final quarterly dividend payable at this rate of 40.271875 per share in Canadian funds is payable on November 1, 2011 to shareholders of record 15, 2011.

5. After November 1, 2011, the Series 9 Preferred shares will pay, on a quaterly basis, as and when declared by the Board of Directors of the Corporation, a fixed annual dividend of $0.95 per share in Canadian funds for the following five years, representing a yield of 3.80% applied to $25.00 per share.

However I see nothing on the Brookfield website about this, nor is there anything on SEDAR. A rate of 3.80% would be very generous compared with my estimate of 3.12% for BCE.PR.T (which will be finalized in mid-October).

I have sent an inquiry to the company.

The issue is convertable to and from BAM.PR.E on 2011-11-1

Update, 2011-9-29: The company directed me to a web page with all the information. The Notice of Conversion Privilege for BAM.PR.G‘s Point 5 reads in full:

Click for Big

Click for Big

Yellow Media’s press release of this morning (discussed previously) has had some immediate consequences!

DBRS has announced that it:

has today downgraded the ratings of Yellow Media Inc. (Yellow Media or the Company), including the Medium-Term Notes to BB from BBB, its Exchangeable Subordinated Debentures to B (high) from BBB (low) and its Commercial Paper to R-4 from R-2 (high). The trends remain Negative. As part of our leveraged finance rating methodology, DBRS has also assigned an Issuer Rating of BB to Yellow Media and a recovery rating of RR4 to the Medium-Term Notes (indicating expected recovery of 30% to 50%) and an RR6 to the Exchangeable Subordinated Debentures (indicating expected recovery of 0% to 10%).

The downgrade reflects increased concern regarding the timing, execution and success of Yellow Media’s transition from print to digital and a meaningful reduction of the Company’s financial flexibility. DBRS notes that as part of Yellow Media’s goodwill impairment testing that was announced today, the Company indicated that EBITDA will be pressured as a result of the accelerated transition from print to digital, which raises uncertainty regarding the timing and ability of digital to offset the ongoing pressure on print. The uncertainty and lack of visibility around the Company’s progress on this transition continue to mount. As a result, DBRS expects revenue and EBITDA could be meaningfully less than DBRS had previously anticipated.

Secondly, DBRS believes Yellow Media’s financial flexibility and liquidity have been significantly reduced despite completing $700 million of debt reduction in Q3 2011 (gross debt-to-EBITDA was approximately 3.0 times at June 30, 2011). This is reflected by the fact that the Company’s credit facility was reduced from $1 billion to $500 million, while maintaining a February 2013 maturity, and that it has reduced access to the capital markets with a significantly higher cost of capital.

DBRS notes that these factors have accelerated since DBRS’s previous downgrade on August 4, 2011, which included changing the trend to Negative from Stable. As such, the Company’s credit risk profile is no longer consistent with an investment-grade credit rating. The Negative trend on August 4, 2011, reflected risks associated with executing the digital transition, generating reasonable levels of EBITDA and cash flow from operations and maintaining an adequate level of financial flexibility.

Today’s action follows Yellow Media’s announcement that a non-cash goodwill impairment charge of $2.9 billion will be taken in Q3 2011; that its common dividend will be eliminated following its October 17, 2011, payment; and that it will be making a number of amendments to its credit facility, including reducing it to $500 million.

The Negative trend reflects the following: (1) heightened uncertainty surrounding Yellow Media’s business profile as print pressure accelerates and the timing and scale of digital growth remain unknown; (2) concerns related to the execution of its digital strategy; (3) DBRS’s concern that the transforming businesses’ income and the capacity to generate cash flow from operations may not be sufficient to support Yellow Media’s evolving capital structure; and (4) the Company’s reduced ability in terms of financial flexibility to manage through this transition.

There has been no announcement of a rating change from S&P (yet!).

YLO has four issues of preferred shares outstanding: YLO.PR.A & YLO.PR.B (retractible) and YLO.PR.C & YLO.PR.D (FixedReset).

Update: S&P has spoken:

Standard & Poor’s Ratings Services today said that the ratings on Montreal-based classified directory publisher Yellow Media Inc. (BB+/Stable/–) and its related entities are unchanged following the company’s announcement today to take a C$2.9 billion noncash goodwill impairment charge to earnings in the quarter ended Sept. 30, 2011, eliminate future dividends on its common shares, and amend its bank credit facilities.
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Given our current expectations for funds from operations in the next 12-18 months, our assumption of about C$200 million of availability under the company’s C$250 million operating revolver due Feb. 18, 2013, modest capital requirements, and minimal mandatory debt repayments in 2012, we view Yellow Media’s liquidity as adequate, as per our definitions. We expect the company to remain compliant with its revised financial covenants in the next 12 months.

Ratings remain at P-4(high) for preferreds and BB+ local long-term.

Yellow Media Inc. has announced (bolding added):

• Company will record a goodwill impairment charge of $2.9 billion
• Company eliminates future dividends on its common shares
• Company agrees to amend credit agreement following recent downgrade to its credit ratings
• Company decisively reduces debt while maintaining adequate liquidity
• Company is focused on executing its 360 Solution digital strategy

Montreal (Quebec), September 28, 2011 – As announced in the second quarter, Yellow Media Inc. (TSX: YLO) determined that, depending on the outcome of the review of its strategic and operating plans, the fair value of the Company’s assets may be determined to be less than their carrying value. As a result, the Company tested the goodwill and other long-lived assets related to its business for potential impairment. The impairment testing has now been completed and, as a result, the Company will record a goodwill impairment charge of $2.9 billion in net earnings for the period ending September 30, 2011.

This impairment charge is a non-cash item and does not affect the Company’s operations, its liquidity or cash flow from operating activities, its bank credit agreement or its note indentures. This charge will be reflected in the Company’s financial statements for the period ending September 30, 2011. It is the result of a combination of factors, including the decrease in the Company’s common share price and the pressure on EBITDA due to the accelerated transition from print to online, the uncertainties, if or when, new product introductions will compensate for the declining trend in print revenues and the lower margins from recent business acquisitions.

“We are decisively taking action to reduce our debt. The Board, the management team and all our employees are focused on the successful transformation of Yellow Media toward a digital media company through the execution of our 360 Solution strategy,” said Marc P. Tellier, President and CEO of Yellow Media.

Dividends on Common Shares to be Eliminated

The Yellow Media Board of Directors has determined that it is in the best interest of the Company to eliminate future dividends on its common shares. This decision is in compliance with the amendments that the Company has agreed to make to its principal credit agreement and will improve its financial profile and capital position. The $0.025 dividend per common share that was previously declared by the Company and announced on August 4, 2011 remains payable on October 17, 2011 to shareholders of record at the close of business on September 30, 2011. The cash retained from the elimination of dividends will be used to reduce indebtedness.

Yellow Media is committed to improving its financial position through further debt reduction by pursuing a prudent financial policy and by maintaining a capital structure that provides flexibility through diverse funding sources and timing of its debt maturities. Management’s current focus is to reinforce the Company’s financial foundation upon which to execute Yellow Media’s digital transformation. Yellow Media expects to achieve stronger credit protection measures through sustained cash flow generation and deleveraging of its balance sheet.

With the debt repayment announced today, the Company will have reduced its total indebtedness by approximately $700 million during the quarter (representing the amount of net proceeds from the previously announced sale of Trader Corporation), including the repayment of $238 million principal amount of Medium Term Notes.

Amendments to Existing Credit Agreement

As a result of the recent downgrade of its credit ratings, Yellow Media and its lenders have agreed to amend the terms of its principal $1 billion senior unsecured credit facility, which currently consists of a $750 million revolving term loan and a $250 million non-revolving term loan, each maturing on February 18, 2013. Yellow Media has agreed with the unanimous support of the banks forming part of the syndicate of lenders under the principal credit facility to repay a total amount of $500 million of its bank indebtedness and to reduce the committed size of the revolving term loan from $750 million to $250 million. The committed size of the non-revolving term loan remains unchanged. As a result, upon the effective date of the amendments, the new principal $500 million senior unsecured credit facility will consist of a $250 million revolving tranche and a $250 million non-revolving tranche, each maturing on February 18, 2013.

The Company has agreed to make quarterly payments of $25 million on the non-revolving term loan commencing in January 2012. Pursuant to the amendments, Yellow Media has also agreed to suspend future dividends on its common shares, except for the scheduled dividend payment on October 17, 2011.

Upon the downgrade of its credit ratings announced on August 4, 2011, Yellow Media became subject to a restriction contained in its credit agreement that limits the aggregate amount of excess cash that can be paid as dividends and for the repurchase of securities during any trailing 12-month period. As part of the amendments, Yellow Media is receiving a waiver of this distribution restriction in respect of the prior 12-month period.

A copy of the second amended and restated credit agreement will be available on www.sedar.com.

Whoosh! There’s nothing on SEDAR yet, but presumably it will be there by the weekend.

The impairment is trivial – YLO’s balance sheet has never been worth anything. As I remarked in the August PrefLetter, the business is all about relationships and turning those relationships into cash – it’s always been the statement of cash flows that has been important. If it were not for everything else in the release, the writedown could be dismissed as an effort by the new CFO (introduced on September 6) to put her mark on the company. But there were other things in the release…

What is important is that not only has the size of the revolving term loan been reduced to $250-million from $750-million, but that YLO has agreed to pay down the term loan in advance, in $25-million installments. Further, they do not appear to have got anything in exchange for these concessions – a longer term on the facilities would have been nice.

I remarked in PrefLetter that the important thing to watch for was any signs that the company might be losing access to the capital markets. Well … an important thing may have just happened.

It is also somewhat scary that they’ve eliminated the dividend. I’ve been saying since the 11Q2 report that the best thing that happened to preferred share and debt holders was the downgrade, as that forced a dividend cut under the old credit agreement – only a CEO educated at Lower Canada College or a sell-side analyst could possibly have thought the old rate was sustainable and the downgrade forced a little dose of reality into the company’s opium dreams. But total elimination? That’s a very stringent condition.

I don’t think the preferred dividend is at risk – companies will typically only eliminate their preferred dividends when they’re actually standing on the steps of bankruptcy court and cash flow is still positive. However, the probabilities of conversion of YLO.PR.A and YLO.PR.B into common at the earliest opportunity (March 2012 for the former; June 2012 for the latter) have now risen quite sharply.

The next big step is the 11Q3 results. The note about the “declining trend in print revenues and the lower margins from recent business acquisitions” makes it possible to speculate that revenues have fallen off a cliff.

In addition to the two retractibles, YLO.PR.A and YLO.PR.B, the company has two FixedResets outstanding, YLO.PR.C and YLO.PR.D, which are not convertible into common.

Canadian Utilities has announced:

it has closed its previously announced public offering of Cumulative Redeemable Second Preferred Shares Series Y, by a syndicate of underwriters co-led by RBC Capital Markets and BMO Capital Markets, and including TD Securities Inc. and Scotia Capital Inc. As a result of the underwriters exercising in full their option to purchase an additional 2 million Series Y Preferred Shares, Canadian Utilities Limited issued 13 million Series Y Preferred Shares for gross proceeds of $325 million. The Series Y Preferred Shares will begin trading on the TSX today under the symbol CU.PR.C. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

CU.PR.C is a FixedReset 4.00%+240 announced September 13. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex.

The issue traded 471,280 shares today in a range of 25.15-25 before closing at 25.21-25, 9×181. Vital statistics are:

TD Bank has announced:

that it will exercise its right to redeem all of its 14 million outstanding Class A First Preferred Shares, Series M (the “Series M Shares”) on October 31, 2011 at the price per share of $25.50 (for an aggregate total of approximately $357 million). The redemption price represents a $0.50 premium to the $25.00 per share face price.

TD also announced it will exercise its right to redeem all of its 8 million outstanding Class A First Preferred Shares, Series N (the “Series N Shares”) on October 31, 2011 at the price per share of $25.50 (for an aggregate total of approximately $204 million). The redemption price represents a $0.50 premium to the $25.00 per share face price.

On September 1, 2011, the Board of Directors of TD declared a quarterly dividend of $0.29375 per Series M Share and $0.2875 per Series N Share. These will be the final dividends on the Series M Shares and Series N Shares, respectively, and will be paid in the usual manner on October 31, 2011 to shareholders of record on October 11, 2011, as previously announced. After October 31, 2011, the Series M Shares and Series N Shares will cease to be entitled to dividends and the holders of such shares will not be entitled to exercise any right in respect thereof except that of receiving the redemption amount.

TD recommends shareholders consult with their tax advisors to determine the appropriate treatment and impact of the redemptions. A general summary of the tax implications will be available shortly on our website, www.td.com, under Investor Relations/Share Information/Preferred Shares.

Instructions with respect to receipt of the redemption amount will be set out in the Letter of Transmittal to be mailed to registered holders of the Series M Shares and Series N Shares shortly. Inquiries should be directed to our Registrar and Transfer Agent, CIBC Mellon Trust Company, at 1-800-387-0825 (or in Toronto 416-643-5500). Beneficial holders who are not directly the registered holder of these shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Further details and instructions will be posted shortly to our website, http://www.td.com/investor-relations/ir-homepage/share-information/preferred-shares/preferred.jsp.

Holders are reminded that the fifty-cent premium over the par value that will be paid on redemption is a deemed dividend for tax purposes and will be taxed as a dividend. Many investors will therefore wish to sell into the market shortly before the last possible date in order that whatever premium received (probably just a few pennies less than the fifty cents) will be treated as a capital gain (or reduction of capital loss, as the case may be)

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”):
….
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.