Category: Issue Comments

Scotia Managed Companies has announced:

The Board of Directors of Energy Split Corp. Inc. (the “Company”) today declared a return of capital distribution of $0.23625 per Class B Preferred Share payable on September 16, 2011 to holders of record at the close of business on September 15, 2011.
In addition, the Board of Directors of the Company has declared a capital gains distribution of $0.1700 per Capital Yield Share, payable on September 16, 2011 to holders of record at the close of business on September 15, 2011.

Holders of Class B Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $0.23625 per Preferred Share. The Capital Yield Shareholders are provided with a leveraged play on the yield and price performance from a fixed portfolio consisting of 15 oil and gas royalty trusts listed on the Toronto Stock Exchange. The Company’s Capital Yield Share distribution policy is to pay a quarterly distribution on the Capital Yield Shares equal to the excess of the distributions received on the royalty trust portfolio minus the Class B Preferred Share distributions and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the distribution, would be greater than the original issue price of the Class B Preferred Shares.

The Capital Yield Shares and Class B Preferred Shares will be redeemed by the Company on September 16, 2011 in accordance with the redemption provisions as detailed in the prospectus dated September 7, 2006. Pursuant to these provisions, the Class B Preferred Shares will be redeemed at a price per share equal to the lesser of $21.00 and the Net Asset Value per Unit. The Capital Yield Shares will be redeemed at a price equal to the amount by which the Net Asset Value per Unit exceeds $21.00. The Net Asset Value per Unit was $37.74 as at August 30, 2011.

A further press release will be issued by the Company in connection with the redemption prices on September 15, 2011. Payment of the amounts due to holders of Capital Yield Shares and Class B Preferred Shares will be made by the Company on September 16, 2011.

Capital Yield Shares and Class B Preferred Shares of Energy Split Corp. Inc. are listed for trading on The Toronto Stock Exchange under the symbols ES and ES.PR.B respectively.

ES.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS in April. ES.PR.B is not tracked by HIMIPref™.

Update 2011-9-15: Redemption Prices:

Redemption Price per Class B Preferred Share: $21.00
Redemption Price per Capital Yield Share: $15.19

Faircourt Asset Management has announced:

that it has filed a final short form prospectus for an offering of warrants to unitholders of the Trust (the “Offering”). Each unitholder will receive one whole Series A warrant (each, a “Series A Warrant”) for each unit of the Trust (each, a “Unit”) on the record date of September 23, 2011.

Each Series A Warrant will entitle the holder thereof to purchase one Unit, one half of a 6.25% preferred security of the Trust (each, a “Preferred Security”) and one Series B warrant (each, a “Series B Warrant”) upon payment of the subscription price of $10.92 (which is the sum of (a) the most recently calculated NAV per Unit prior to the date of the preliminary short form prospectus, (b) $5.00 (which is one-half of the principal amount of a Preferred Security) and (c) the estimated per Unit fees and expenses of the Offering). The Series A Warrants may be exercised on a weekly basis every Friday commencing on September 30, 2011 and ending on December 2, 2011.

Each Series B Warrant will entitle the holder on and only on June 27, 2012 to subscribe for one Unit at the subscription price of $7.25. The Series B Warrants may be only exercised on June 27, 2012.

The TSX has conditionally approved this listing of the Series A Warrants distributed pursuant to the Offering, and the Units, Preferred Securities and Series B Warrants issuable upon the exercise thereof, on the TSX.

Successful completion of the Offering will (a) provide the Trust with additional capital that can be used to take advantage of attractive investment opportunities; (b) increase the trading liquidity of the Units; (c) reduce the leverage associated with the Preferred Securities of the Trust which has increased in recent years due to market conditions and the redemption of Units; (d) bring the Trust closer to achieving a matched position where the number of outstanding Units and Preferred Securities are equal; and (e) reduce the management expense ratio of the Trust.

Asset coverage for this issue has been a continuing matter of interest, with an unmatched retraction of capital units on June 30 being followed by a a matching redemption of preferred securities shortly afterwards. As with many other investment vehicles, the fund is now slightly behind where it was on May 31, the effective date of the retraction.

FCS.PR.B is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

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.

The price paid for the 5.71% April 21, 2014 is considerably lower than they have paid before.

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.

World Financial Split Corp has released its Semi-Annual Report to June 30, 2011:

Distributions to Class A shareholders remained suspended in accordance with the terms of the prospectus which states: “No distribution will be paid to the Class A shares if (i) the distributions payable on the Preferred shares are in arrears; or (ii) after the payment of the distribution by the Fund, the net asset value per unit would be less than $15.00”.
…
During the six months ended June 30, 2011, the total return of the Fund was negative 4.1 percent reflecting a decline in value of the securities in the portfolio. The MSCI World Financials Index (the “Financials Index”) total return in Canadian dollar terms during the same period was negative 1.1 percent. As a result of the Fund being limited to a specific universe of stocks and utilizing a covered call writing strategy to generate income, comparison with a market index may not be appropriate. The Financials Index is calculated without the deduction of management fees and fund expenses, whereas the performance of the Fund is calculated after deducting such fees and expenses.

MER:

The MER for 2011 excluding warrant exercise fees and special resolution expense
is 1.65%.

Average Net Assets: This is difficult to calculate from the financial statements, but if we accept that MER is based on the average, and that the expenses used for this calculation were the “Subtotal Expenses” on the income statment, we arrive at Average Net Assets of 56.5-million, which looks like a reasonable figure.

Underlying Portfolio Yield: Investment income (sum of interest, dividends and withholding taxes) of $1.244-million received multiplied by two (since it’s a six month figure) divided by average net assets of $56.5-million is 4.40%.

Income Coverage: Net investment income of $1.244-million less expenses before special resolution expense of $0.932-million is $0.312-million, to cover preferred dividends of 1.894-million is about 16%.

With respect to the Monthly Retraction Right, the Special Resolution (which was approved) states:

If the Reorganization is approved and implemented, shares will have to be surrendered for retraction by a holder of Class A Shares or Preferred Shares at least ten business days prior to a Valuation Date in order to be retracted on such Valuation Date and such shareholder will receive payment on or before the tenth business day following such Valuation Date.
…
Shareholders whose Preferred Shares are retracted on a Valuation Date will be entitled to receive a retraction price per share (the “Preferred NAV Retraction Price”) equal to 96% of the lesser of (a) the NAV per Unit as of the applicable Valuation Date less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (b) 10.00.
…
Under the Reorganization, the monthly retraction price for the Preferred Shares will be changed and shareholders whose Preferred Shares are retracted on a Valuation Date will be entitled to receive a retraction price per share equal to the lesser of:
(a) the Preferred NAV Retraction Price; and
(b) 96% of the lesser of (i) the Unit Market Price less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (ii) $10.00.

For this purpose, the cost of the purchase of a Preferred Share or a Class A Share will include the purchase price of the share, commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of such share. Any declared and unpaid distributions payable on or before a Valuation Date in respect of Class A Shares or Preferred Shares tendered for retraction on such Valuation Date will also be paid on the retraction payment date. In addition, the following terms have the meanings set forth below.

Class A Market Price: means the weighted average trading price of the Class A Shares on the principal stock exchange on which the Class A Shares are listed (or, if the Class A Shares are not listed on any stock exchange, on the principal market on which the Class A Shares are quoted for trading) for the 10 trading days immediately preceding the applicable Valuation Date.

Preferred Market Price: means the weighted average trading price of the Preferred Shares on the principal stock exchange on which the Preferred Shares are listed (or, if the Preferred Shares are not listed on any stock exchange, on the principal market on which the Preferred Shares are quoted for trading) for the 10 trading days immediately preceding the applicable Valuation Date.

Unit Market Price: means the sum of the Class A Market Price and the Preferred Market Price.

This is somewhat more complex than it used to be! Using current figures from the Mulvihill site:
NAV: 10.29
Preferred Share Price: 8.66
Class A Share Price: 1.07

And assuming that the average trading price (determined after the shares are tendered) is equal to the current price and that the NAV also doesn’t change (always a risk with this type of retraction; sometimes significant!) we may derive:

Preferred NAV Retraction Price = 96% of lesser of (a) 10.29 – 1.07 and (b) 10.00
= 96% of 9.22
= 8.85

The Unit Market Price is 8.66+1.07 = 9.73; the cost to the fund of purchasing a class A share is assumed to be 1.07; so part (b) of the calculation is now
96% of the less of (i) 9.73 – 1.07 = 8.66
and (ii) 10.00
= 96% * 8.66
= 8.31

So, careful examination of the above will reveal that the monthly retraction privilege is now useless for preferred shareholders: the price you get may be assumed (given prudence) to be 96% of what you would get on the market, so what’s the point? Very clever, Mr. Mulvihill … but “Clever Dick came to a bad end” is a Victorian nursery proverb that comes to mind.

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: