Category: Issue Comments

Newgrowth Corp. has announced:

that it has called 803,467 Preferred Shares for cash redemption on June 24, 2011 (in accordance with the Company’s Articles) representing approximately 22.620% of the outstanding Preferred Shares as a result of the special annual retraction of 803,467 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 June 23, 2011 will have approximately 22.620% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $13.70 per share.

In addition, holders of a further 849,325 Capital Shares and 849,325 Preferred Shares have deposited such shares concurrently for retraction on June 24, 2011. As a result, a total of 1,652,792 Capital Shares and 1,652,792 Preferred Shares, or approximately 37.5521% 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 June 24, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on June 24, 2011. From and after June 24, 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.

Huh. It was only two months ago that their warrant offering was completely subscribed and only three months ago that I was so pleased with the growth in shares outstanding that I added it to the HIMIPref™ database. Market timing … market schmiming, that’s what I say!

NEW.PR.C is tracked by HIMIPref™ and is assigned to the SplitShare index.

It has been announced that GLOBAL X FUNDS LAUNCHES FIRST CANADA PREFERRED ETF (CNPF):

Global X Funds, the New York based provider of exchange traded funds, today launched the Global X Canada Preferred ETF (Ticker: CNPF). This is the first ETF to target Canadian companies that issue preferred stock.

For investors seeking income, preferred shares are an asset class worth considering due to their unique combination of bond and equity characteristics. Like bonds, preferred shares generally pay stable dividends with more frequent distributions than common shares. Like equity, preferred shares trade on an exchange and have the potential to appreciate in value, offering additional income growth potential for investors. Moreover, preferred shareholders have priority over common shareholders with regard to claims on company earnings and assets, which provide some downside protection.

In addition, preferred shares of Canadian companies offer investors an opportunity to diversify outside the U.S. and increase their international issuer and currency exposure, which may help reduce overall portfolio risk. A shrinking budget deficit paired with strong economic growth and higher commodity prices make Canada a strong contender for investment dollars when compared to the current budget and debt issues of its southern neighbor (Wall Street Journal, 2011).

“CNPF provides a relatively efficient way for investors to reap the benefits of this hybrid asset class as well as receive international exposure via the Canadian issuers traded on the Toronto Stock Exchange,” said Bruno del Ama, chief executive officer of Global X Funds. “We are pleased to expand our global offering to income generating asset classes.”

The Global X Canada Preferred ETF tracks the Solactive Canada Preferred Stock Index, which is designed to measure the performance of preferred stocks from Canadian issuers traded on the Toronto Stock Exchange. The Underlying Index does not seek to directly reflect the performance of the companies issuing the preferred stock. The Underlying Index is comprised of preferred shares that meet certain criteria relating to size, liquidity, issuer rating, maturity and other requirements as determined by Structured Solutions AG. As of May 16, 2011, the three largest components of the index were Transcanada Corp., Manulife Financial Corp., and Canadian Imperial Bank.

I can think of some people who just may take issue with the statement that “This is the first ETF to target Canadian companies that issue preferred stock.”! Michael Johnson of ETFdb notes:

There are multiple ETFs listed in Canada offering exposure to the country’s preferred stock market; the Claymore S&P/TSX CDN Preferred Share Trust has more than $600 million in AUM, and the actively-managed Horizons AlphaPro Preferred Share ETF (HPR) is another options for accessing this asset class. iShares filed earlier this year for an international preferred stock ETF that would include a heavy tilt towards Canadian securities, along with issuers from Japan, New Zealand, and the U.K.

The Solactive Canada Preferred Stock Index is admirably transparent. The indexing agent is Structured Solutions AG, which is based in Frankfurt. My, aren’t we getting international! They appear to do a lot of business with Global X, a New York based firm that has a hatful of thinly sliced ETFs.

At 58bp, this ETF doesn’t have anything special going for it on the fee side. I have not yet checked – and may never check! – the composition of the index, so I won’t comment on that. I am also being lazy and not checking whether Canadian dividends will retain their character for Canadian investors when routed through a US ETF, but it’s something I would find out before plunking any money down! In the meantime, I’m wondering (a) why Americans would buy Canadian preferreds on a passive basis, when they have no tax advantage, and (b) when the first Canadian listed US Municipal bond ETF will start up.

Barron’s gave the fund a civil mention. ETFdb reports the fund has $3.75-million in market cap.

CNPF is NYSE listed and, according to Yahoo!, closed today at 14.20-12, 10×2. If that spread is any indication of normality, it might be fun to make a market in it!

Many thanks to Assiduous Reader NS for bringing this to my attention. He’s wondering whether this listing is a sign of doom … maybe it is, but more likely for the increasingly ridiculous ETF market than for Canadian preferreds.

Allbanc Split Corp. has announced:

the completion of its warrant offering. The gross proceeds from the exercise of the warrants previously issued totaled $26.9 million, representing 40% of the maximum available subscription amount.

The net proceeds from the exercise of the warrants will be invested in accordance with the investment objectives of the Company.

AllBanc Split Corp. is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Class A Capital Shares and Class B Preferred Shares of AllBanc Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols ABK.A and ABK.PR.B respectively.

As previously noted, the warrants were significantly in-the-money, but sometimes that doesn’t mean the money comes in!

Sadly, this leaves the preferred shares with only about $34-million worth outstanding … getting up there, but still a little on the small side to be included in the HIMIPref™ universe. Maybe next time!

On an unrelated thread, Assiduous Reader prefhound writes in and says:

Why is BPO.PR.I still outstanding? As of Jan 1 this year, the company could have redeemed at par $25 and the investor could have retracted at a discount for common shares of value $26.04.

In spite of this, the pref trades at a dividend adjusted price of about $25.10. Why wouldn’t the “astute” buyer buy the pref, retract and pocket an expected $1 profit (all be it with a bit of risk on the common performance until paid)?

Why is BPO sitting on the fence? It either wants the balance sheet equity from conversion (so would call the issue), or it doesn’t.

How do these issues normally evolve at and past retraction (“maturity”) date and how do you calculate a YTW?

The 2010 Annual Report shows 7,130,228 shares outstanding, the same as is currently reported by the TMX. So none have been cancelled since year-end.

Prospectus:

On and after December 31, 2008, the Corporation may, at its option: (i) upon not less than 30 days and not more than 60 days prior written notice, redeem for cash the Series I Preference Shares, in whole at any time or in part from time to time, at $25.75 per share if redeemed before December 31, 2009, at $25.50 per share if redeemed on or after December 31, 2009, but before December 31, 2010, and at $25.00 per share if redeemed thereafter, plus, in each case, all accrued and unpaid dividends up to but excluding the date fixed for redemption; or (ii) upon not less than 30 days and not more than 60 days prior notice, subject, if required, to stock exchange approvals, convert the outstanding Series I Preference Shares into freely tradeable Common Shares. The number of Common Shares into which each Series I Preference Share may be so converted will be determined by dividing the then applicable redemption price per Series I Preference Share, together with all accrued and unpaid dividends up to but excluding the date fixed for conversion, by the greater of $2.00 and 95% of the then Current Market Price (as defined herein) of the Common Shares at such time. See ‘‘Details of the Offering’’.

On and after December 31, 2010, upon at least 30 days notice, each Series I Preference Share will be convertible at the option of the holder on the last day of each of March, June, September and December in each year into that number of freely tradeable Common Shares determined by dividing $25.00, together with all accrued and unpaid dividends up to but excluding the date fixed for conversion, by the greater of $2.00 and 95% of the then Current Market Price (as defined herein) of the Common Shares. If a holder of Series I Preference Shares elects to convert any of such shares into Common Shares, the Corporation may, on not less than 20 days notice prior to the conversion date, elect to redeem such Series I Preference Shares for cash or arrange for the sale of those shares to substitute purchasers. See ‘‘Details of the Offering’’.

prefhound later wrote:

Hmmm, I think I have my answer:

According to the prospectus, BPO can give $25 cash to a pref owner who wants to convert to common, or get a third party to buy the pref for $25. Obviously, if the price is $25.10 it won’t be hard to find such parties!

Thus, it seems to me that this clause means that YTW should be based on a $25 maturity price, not $26.04.

How common is this type of clause?

Thoughts?

Yes, you’re quite right – but the YTW is always based on the $25.00 rather than the $26.04, since the issuer always has the right to pre-empt retractions for shares. Always? Well, as far as I know.

Note that this “Mexican stand-off” is inherently unstable: the company has to be prepared to pay cash at any time, so the issue is basically a demand loan; and the shareholders have to be prepared to get cash at any time, but can treat the investment as (rather low-grade) money market paper. But for now the arrangement seems to meet the needs of both parties.

HIMIPref™ calculates the YTW by assuming OptionCertainty one month hence on all calculation dates.

Manulife Investments / Manulife Financial has issued a press release:

AIC Global Financial Split Corp. (TSX: ASC/ASC.PR.A) (the “Corporation”) today announced that the Corporation completed the redemption of all of its outstanding Preferred Shares and Class A Shares and terminated on May 31, 2011 (the “Termination Date”), as contemplated by the constating documents of the Corporation. In connection therewith, the Corporation redeemed each Class A Share for $.0643 per share. Preferred Shares were redeemed for $10.00 per share plus any accrued dividends. The redemption proceeds will be paid by the Corporation on or about June 6, 2011 through CDS Clearing and Depository Services Inc.

ASC.PR.A was last mentioned on PrefBlog in the post ASC.PR.A Holders to Get Partial Dividend on Redemption. Preferred shareholders were victorious in the shareholder vote, despite a recommendation by the directors of the firm:

• Paul Lorentz
• Sheila Hart
• Jennifer Mercanti
• Warren Law

that they should vote in favour of the plan. Hey guys – just a little friendly advice: if I should ever advertise an opening for an entry credit analysis position, don’t spend a lot of money express-posting your resume, OK?

ASC.PR.A was tracked by HIMIPref™ prior to its maturity.

Yellow Media has announced:

is issuing this press release regarding certain market speculation at the request of the Investment Industry Regulatory Organization of Canada, on behalf of the Toronto Stock Exchange.

Yellow Media Inc. is today providing an update on the status of its definitive agreement to sell Trader Corporation to funds advised by Apax Partners announced on March 25, 2011. While it is Yellow Media Inc.’s policy not to comment on market rumours or speculation, the company is today confirming that the transaction is proceeding as planned and in accordance with the terms of the definitive agreement entered into between Yellow Media Inc. and Apax Partners. The transaction is subject to regulatory approvals and other customary conditions.

Under the terms of the definitive agreement, Yellow Media Inc. has agreed to sell Trader Corporation to funds advised by Apax Partners for a purchase price consideration of $745 million in cash, subject to working capital and other adjustments. The proceeds from the sale will be largely used to reduce indebtedness and for general corporate purposes. For more information about this transaction, refer to the press release issued on March 25, 2011 at: http://www.ypg.com/en/newsroom/488-yellow-media-inc-announces-the-divestiture-of-trader-corporation.

The company reaffirms its cash dividend of $0.65 annually per common share. The company has a stated dividend payout policy representing between 60% and 70% of Adjusted Earnings per share. The dividend policy is reviewed periodically by the Board of Directors of Yellow Media Inc. taking into account a number of factors including, among others, the current and prospective performance of the business.

YLO has four issues of preferred shares outstanding: YLO.PR.A, YLO.PR.B (Operating Retractible) and YLO.PR.C & YLO.PR.D (FixedReset). All are tracked by HIMIPref™ and all are assigned to the Scraps index on credit concerns.

The recent precipituous decline in these issues has been highly entertaining and was reported on PrefBlog on May 25, May 26, May 27, May 30 and May 31.

SJR.PR.A, the 4.50%+200 FixedReset announced May 18 settled today, trading 603,924 shares in a range of 25.00-19 before closing at 25.10-13, 20×22.

Vital statistics are:

SJR.PR.A is tracked by HIMIPref™, but is assigned to the Scraps index on credit concerns.

Standard & Poor’s has announced:

•We are raising the ratings on DundeeWealth Inc., including the long-term counterparty credit rating to ‘A’ from ‘BBB-‘, and removing the ratings
from CreditWatch positive where they had been placed following Scotiabank’s Nov. 22, 2010, acquisition announcement.

The upgrade reflects our view the company is “strategically important” to Scotiabank and its wealth management operations and thus benefits from the implied support from being associated with a higher rated entity; we applied three notches of support to the stand-alone rating for being strategically important.

The stable outlook reflects our expectation that DundeeWealth will maintain or improve its position in the Canadian wealth management sector.

This is a rather stunning 4-notch upgrade on the Preferred scale, to P-2(high) from P-3, and from BB to BBB+ on the global scale.

DBRS continues to rate the issue Pfd-3 (Review-Positive).

DW.PR.A was last mentioned on PrefBlog when the acquisition by Scotia was announced. DW.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on (rather dubious) credit concerns.

The Canadian Imperial Bank of Commerce has announced:

that it intends to seek to have its non-cumulative Class A preferred shares, Series 26, 27 and 29 (the Convertible Preferred Shares) treated as non-viability contingent capital (NVCC) for the purposes of determining regulatory capital under Basel III.

The Office of the Superintendent of Financial Institutions (OSFI) has indicated that it is not aware of a factual basis that would question the compliance of the Convertible Preferred Shares with the principles specified in OSFI’s draft advisory on NVCC published in February 2011 (the NVCC Advisory), provided that:

• (i) CIBC irrevocably renounces 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 provides 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.

OSFI has indicated that certain features of the Convertible Preferred Shares will not be acceptable terms and conditions for future instruments to be considered NVCC.

CIBC intends to seek formal confirmation from OSFI regarding the capital treatment of the Convertible Preferred Shares after OSFI finalizes the NVCC Advisory. These actions do not restrict CIBC’s existing redemption rights under the terms of the Convertible Preferred Shares.

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, 2012 nor for the portion of the IFRS comparative year ending October 31, 2011 that is subsequent to the renunciation date.

“NVCC Status”, as defined in the OSFI draft advisory, was discussed on PrefBlog in the post OSFI Releases Contingent Capital Draft Advisory. This change, if enacted, will mean these issues will no longer be considered DeemedRetractibles and require a re-think of the issues considered to be members of this group.

This plan is made possible by prospectus language that states, in the case of CM.PR.D:

The Series 26 Shares will not be convertible at the option of CIBC prior to April 30, 2008. On or after this date, CIBC may, subject to the approval, if required, of the stock exchanges upon which any shares of CIBC are listed, convert all, or from time to time any part, of the outstanding Series 26 Shares to be converted into that number of freely-tradeable Common Shares determined (per Series 26 Share) by dividing the then applicable redemption price per Series 26 Share, together with declared and unpaid dividends to the date fixed for conversion, by the greater of $2.00 and 95% of the weighted average trading price of the Common Shares on the TSX for the 20 trading days ending on: (i) the fourth day prior to the date specified for conversion, or (ii) if such fourth day is not a trading day, the last trading day prior to such fourth day. Fractional Common Shares will not be issued on any conversion of Series 26 Shares but in lieu thereof CIBC will make cash payments.

Update, 2011-12-17: Other issues with similar prospectus provisions entitling them to make a similar application are ELF.PR.G, ELF.PR.F, RY.PR.W, TD.PR.M and TD.PR.N.