Category: Issue Comments

C.A. Bancorp Canadian Realty Finance Corporation has announced:

that the Corporation’s special meeting of Class A and Series 1 Preferred Shareholders (the “CRFC Shareholders”) to be held today (the “Special Meeting”) to consider the previously announced Proposed Transaction has been adjourned until May 5, 2011.

An insufficient number of holders of Series 1 Preferred Shares was present in person or represented by proxy to constitute a quorum for the conduct of business at the Special Meeting. The adjourned Special Meeting will be held on May 5, 2011 at 4:00 p.m. EST at the Corporation’s offices at 401 Bay Street, Suite 1600, Toronto, Ontario. Proxies for the adjourned Special Meeting must be received no later than May 3, 2011 at 4:00 p.m. EST.

CRFC Shareholders are encouraged to read the Information Circular for the Special Meeting, which contains detailed information about the Proposed Transaction, and to vote their shares. A copy of the Information Circular is available under the corporate profile of CRFC on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and on CRFC’s website at www.cabancorp.com.

CRFC Shareholders who have questions about the information contained in the Information Circular or the Proposed Transaction or who require assistance in completing the applicable form of proxy, are encouraged to contact Kingsdale Shareholder Services Inc. by telephone at 1-866-581-1513 toll free in North America or 416-867-2272 outside of North America or by email at contactus@kingsdaleshareholder.com.

Director Resignation

The Corporation also announced today that Robert Wolf has tendered his resignation as a director of the Corporation. The Board will consider the need for a replacement director if the Proposed Transaction described in the Information Circular does not proceed. In the meantime, the remaining two directors will continue to carry out the duties of the Board. The Board is currently comprised of John Driscoll (Chair) and Paul Haggis.

The information circular is available on-line and was discussed in the post RF.PR.A: Shareholders to Vote on Manager Change.

In that post I pointed out that the proposed new manager is a hedge fund specialist with no publicly published track record and concluded:

Well, I just plain don’t like this issue and recommend that preferred shareholders vote against the plan. A change in recommendation will be dependent upon:

• The company should obtain a credit rating for the preferreds
• The company should present a credible plan for funding the redemption of the preferreds (e.g., a credit line with a major bank).
• The NAV test should be more stringent.

I see no reason to change the recommendation as yet. Vote No!

BCE Inc. has announced:

that 370,067 of its 10,051,751 Cumulative Redeemable First Preferred Shares, Series AG (series AG preferred shares) have been tendered for conversion on May 1, 2011, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AH (series AH preferred shares). In addition, 1,159,372 of its 3,948,249 series AH preferred shares have been tendered for conversion on May 1, 2011, on a one-for-one basis, into series AG preferred shares. Consequently, on May 1, 2011, BCE will have 10,841,056 series AG preferred shares and 3,158,944 series AH preferred shares issued and outstanding. The series AG preferred shares and the series AH preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.G and BCE.PR.H, respectively.

The series AG preferred shares will pay on a quarterly basis, for the five-year period beginning on May 1, 2011, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 4.50%.

The series AH preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on May 1, 2011, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series AH preferred shares in the preceding month) and the Designated Percentage for the preceding month.

The conversion notice was reported on March 29; the dividend reset on BCE.PR.G was also reported.

Both issues are tracked by HIMIPref™; both are relegated to the Scraps index based on credit concerns.

Preferred Share Investment Trust was mentioned previously on PrefBlog, in the post Catapult Financial Offering Actively-Managed Preferred Share Trust. I haven’t paid much attention to it since, because the name is something of a misnomer – the indicative portfolio given in the prospectus was 32% bonds, 6% convertible bonds.

However, it was mentioned to me today so I thought I’d look it up: there are very few documents available on the fund’s official website, you have to go to SEDAR for the good stuff.

My first stop was the “Management report of fund performance – English”, filed 2011-3-31, and what immediately hit my eye was:

For the fiscal year ended December 31, 2010, the Net Assets per unit of the Fund was $11.88 after payment of distributions to securityholders compared to $11.80 on December 31, 2009. The Fund paid cash distributions of $0.91 per unit during the year. The Fund had a total return of 8.4% compared to the S&P/TSX Preferred Share Index which returned 2.0%.

Huh? 2.0%?

It appears they are using the Price Index, not the total return index. The total return on the S&P/TSX Preferred Share Index was 7.73% in 2010. Price Index, Schmice Index. The long term expected return on the price index for any fixed income category is a big fat (all together now, folks! 3, 2, 1…) ZERO.

Right away I’ve lost all sympathy and most of my interest in these guys. Let’s just say that comparing fund total return to benchmark price return, particularly in the fixed income sector, is not quite strictly a practice I recommend, and leave it at that, OK? But I’ll soldier on and look at the “Audited annual financial statements – English”, also filed 2011-3-31.

At year-end 2010, they had $21.8-million in margin debt and $56.2-million in equity, for a leverage factor of 1.39:1, while at year end 2009, the figures were $14.3-million, $69.6-million, 1.21:1. So they were levered up big-time during a bull market and were only just able to beat their benchmark after fees.

Ah yes, fees.

TheManager is entitled to an annual fee of 2.10% based on the Net Asset Value of the Fund. This fee is calculated daily and payable monthly in arrears. The Manager is responsible for fees payable to the Portfolio Manager.

In addition, the Manager is entitled to an amount equal to the service fee payable to dealers, which is equal to 0.40% annually of the Net Asset Value of the Fund held by clients of the sales representatives of dealers. This fee is calculated daily and paid quarterly in arrears.

The Fund is responsible for all costs relating to its administration.

The total MER is reported in the Fund Performance hand-out. 3.33%. Nice work if you can get it!

The portfolio at year end was:

• CAD Preferreds 73.49% (no breakdown by type)
• USD Preferreds 3.71%
• CAD ‘bonds, notes and convertibles’ 19.58%
• USD ‘bonds, notes and convertibles’ 3.08%
• Gain on USD to CAD forwards 0.14%

Sadly, I have no more interest in the fund now than I had this morning.

National Bank of Canada has announced:

all of the Preferred Shares validly deposited under the Offers and not withdrawn as of April 11, 2011 have been taken up and accepted for payment by the Bank. As a result, the Bank has taken up 4,372,089 Preferred Shares Series 21, 4,162,483 Preferred Shares Series 24 and 3,629,923 Preferred Shares Series 26 under the Offers for an aggregate consideration of $335,636,846.27.

The Preferred Shares taken up under the Offers represent approximately (i) 54.31% of the outstanding Preferred Shares Series 21, (ii) 61.21% of the outstanding Preferred Shares Series 24, and (iii) 62.58% of the outstanding Preferred Shares Series 26.

The Bank also announced that it is extending the expiry date of the Offers to 5:00 p.m. (Montréal Time) on April 26, 2011 (the “Expiration Time”) to allow more holders of the Preferred Shares (the “Shareholders”) who desire to deposit their Preferred Shares to do so, unless the Offers are otherwise extended or withdrawn by the Bank. Aside from the above-described extension, the terms and conditions set forth in the Offers and issuer bid circular dated March 4, 2011 remain unchanged. A formal notice of extension will be mailed promptly to Shareholders of the Bank. The notice of extension will also be available at www.sedar.com.
…
If, by the Expiration Time or within 120 days after the date of the issuer bid circular, whichever occurs first, an Offer has been accepted by the holders of not less than 90 per cent of the Preferred Shares of any series to which such Offer relates, the Bank currently intends to acquire the Preferred Shares held by those Shareholders who have not accepted such Offer either by extending the relevant Offer or pursuant to the compulsory acquisition provisions of Sections 283 to 293 of the Bank Act (Canada) on the same terms and at the same price for which the Preferred Shares were acquired under the relevant Offer (a “Compulsory Acquisition”). For greater certainty, in the event that less than 90 per cent of any of the Preferred Shares of any series is taken up, then a Compulsory Acquisition would only apply to the series of Preferred Shares of which 90 per cent or more were taken up and paid for under the Offer.

If the Bank acquires less than 90 per cent of the Preferred Shares of any series under the Offers, the Bank currently intends to redeem all outstanding Preferred Shares held by those Shareholders who have not accepted the Offers, and which have not been taken up and paid for by the Bank, in accordance with the redemption right attached to such Preferred Shares on the first date at which such Preferred Shares may be redeemed by the Bank at a price equal to $25.00 per share (together with all declared and unpaid dividends thereon up to the date set for redemption).

I strongly recommend that holders tender their shares or sell on the market. It will be remembered that tendering has important tax implications as the premium paid above par is a deemed dividend for tax purposes.

The three issue tickers are NA.PR.N, NA.PR.O, NA.PR.P

Dividend 15 Split Corp. II has released its Annual Report to November 30, 2010.

Using the S&P TSX 60 index rather than “Dividend Aristocrats” seems a little odd to me – but we’ll let them choose their benchmark!

Figures of interest are:

MER: 1.23% of the whole unit value

Average Net Assets: We need this to calculate portfolio yield. No change in Number of Units Outstanding, so the Net Assets figure for the whole corporation can be used: $84.2-million

Underlying Portfolio Yield: Dividends received (net of withholding) of 3,239,572 divided by average net assets of 84.2-million is 3.85%

Income Coverage: Net Investment Income of 2,210,176 divided by Preferred Share Distributions of 2,655,975 is 83%.

Brompton Group has announced:

At special meetings of Preferred and Class A shareholders of Brompton Equity Split Corp. (“BE”) and Dividend Growth Split Corp. (“DGS”) held today, shareholders approved special resolutions to amalgamate BE and DGS to form a new fund to be named Dividend Growth Split Corp. (“New DGS”). The effective date of the merger is expected to be May 18, 2011, subject to applicable regulatory approvals. The merger is expected to be implemented on a tax deferred basis to shareholders of BE and DGS, subject to the assumptions and qualifications outlined in the joint management information circular for the meetings.

At the meeting, the extension of the term for New DGS for up to 5 years beyond the scheduled termination date for DGS of November 30, 2014 and thereafter for successive terms of up to 5 years as determined by the New DGS Board of Directors was approved. Shareholders will be able to redeem either their Preferred Shares or Class A Shares of New DGS at Net Asset Value per Share prior to any such extension and New DGS will provide at least 60 days’ notice to Shareholders of the extended retraction date by way of press release.

In addition, as a result of the approval of the special resolutions, shareholders of BE will have the opportunity to redeem their shares of BE prior to the merger if they do not wish to participate in the merger. Shareholders wishing to redeem their BE shares may surrender such BE shares to Computershare Investor Services Inc. up until 5:00 p.m. (Toronto time) on April 15, 2011. Shares are held on behalf of beneficial holders through CDS Participants who may have earlier cut off times.

New DGS will have the same investment objectives, strategies and restrictions as DGS as well as substantially the same preferred share and class A share attributes. DGS invests on an equally weighted basis in a portfolio of 20 large capitalization Canadian equities that have among the highest dividend growth rates on the TSX.

Under the merger proposal, each issued and outstanding preferred share of BE will become one preferred share of DGS. Each issued and outstanding class A share of BE will become the number of class A shares of DGS determined by dividing the net asset value per class A share of BE by the net asset value per class A share of DGS, each calculated on April 28, 2011. In order to maintain the same number of DGS class A and preferred shares outstanding following the merger, class A shares or preferred shares of BE may be redeemed by BE on a pro-rata basis prior to the merger as outlined in the joint management information circular.

The plan was reported on PrefBlog in the post BE.PR.A and DGS.PR.A to Merge?. BE.PR.A is not tracked by HIMIPref™. DGS.PR.A is tracked by HIMIPref™ but is assigned to the Scraps index on credit concerns.

DBRS comments:

If the 1:1 ratio of preferred shares to class A shares outstanding is maintained, the merger will not result in a decrease in downside protection for existing DGS Preferred Shareholders. As a result, provided BE exercises its right to restore the 1:1 ratio, DBRS expects that the New DGS Preferred Shares will be assigned the same rating as the DGS Preferred Shares.

BCE Inc. has announced:

BCE Inc. will, on May 1, 2011, continue to have Cumulative Redeemable First Preferred Shares, Series AG outstanding if, following the end of the conversion period on April 21, 2011, BCE Inc. determines that at least two million Series AG Preferred Shares would remain outstanding. In such a case, as of May 1, 2011, the Series AG Preferred Shares will 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 an annual fixed dividend rate equal to 4.50%.

BCE.PR.G forms a Strong Pair with BCE.PR.H. BCE has announced previously that the date for providing notice of conversion is April 21. Most brokers will have an internal deadline a few days in advance of this date.

A Pairs Equivalency Calculator for determining the break-even Prime Rate when choosing between these two (and other) issues has been published on PrefBlog.

While the pundits have been tireless in warning us that Prime is set to increase, they are less voluble on the matter of how much and how fast. There is also the question of how corporate paper will react to the increase – I suggest there will be some effect, but it won’t be one-to-one.

BCE Ratchet Rate issues such as BCE.PR.H are trading in the $23-24 range and have been paying 100% of prime for quite some time. As noted in the prospectus:

From May 1, 2006, Öoating adjustable cumulative preferred cash dividends, if declared, will be payable monthly on the twelfth day of each month following the month of May 2006, with the annual Öoating dividend rate for the Ñrst month equal to 80% of Prime. The dividend rate will Öoat in relation to changes in Prime and will be adjusted upwards or downwards on a monthly basis whenever the Calculated Trading Price of the Series 18 Preferred Shares is $24.875 or less or $25.125 or more respectively. The maximum monthly adjustment for changes related to the Calculated Trading Price will be
4.00% of Prime. However, the annual Öoating dividend rate applicable in a month will in no event be less than 50% of Prime or greater than Prime.

Thus, if prime should increase dramatically, there is every possibility that the proportion paid on Prim will decline equally dramatically.

The break-even rate for the Ratchet Rate is equal to the new Fixed-Floater rate of 4.5% over the next five years, given that the prices are identical (if not, you can currently buy the cheaper and convert to the more expensive issue). To achieve this breakeven rate, Prime would have to increase by 300bp over the next five years, or 60bp per year. I consider that not only such an increase to be a bit on the high side but, as mentioned, the calculation of the break-even is dependent upon BCE.PR.H continuing to pay 100% of Prime, which is by no means assured in such a scenario.

Thus, I recommend that holders of BCE.PR.G hold on to their issue, and that holders of BCE.PR.H exercise their conversion rights. If I’m wrong and hyperinflation comes to Canada … fear not! You’ll get another chance to convert in 2016.

NewGrowth Corp. has announced:

the closing of its warrant offering. The gross proceeds of the offering totaled $91.5 million, representing 100% of the maximum available subscription amount.

The net proceeds of the offering will be invested in accordance with the investment objectives of the Company.

NewGrowth Corp. is a mutual fund corporation whose investment portfolio consists of publicly-listed securities of selected Canadian chartered banks, telecommunication, pipeline and utility issuers. The Capital Shares and Preferred Shares of NewGrowth Corp. are all listed for trading on The Toronto Stock Exchange under the symbols NEW.A and NEW.PR.C respectively.

NEW.PR.C was last mentioned on PrefBlog when it was added to the HIMIPref™ database. It is currently assigned to the SplitShares index.

Manulife Asset Management Limited has announced:

that securityholders of the Corporation did not approve the extension of the termination date of the Class A Shares and Preferred Shares of the Corporation for an additional term of five years from May 31, 2011 to May 31, 2016. The Corporation will, therefore, terminate effective May 31, 2011 in accordance with its constating documents. On termination, shares of the Corporation will be redeemed and, following the payment or reservation for payment of all liabilities of the Corporation, the remaining property of the Corporation will be distributed to the Corporation’s shareholders in accordance with the terms of the Corporation’s constating documents. Shareholders need not take any action to receive the final distribution proceeds on termination of the Corporation.

This constitutes a rare victory of preferred shareholders over abusive management-inspired shareholder votes, for which the main cheerleaders were the directors:

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

Preferred share investors should exercise greater than usual caution before purchasing preferred shares issued by any corporation which includes any of these persons as directors.

ASC.PR.A was last mentioned on PrefBlog in the post ASC.PR.A Rigamarole Extraordinarily Abusive. ASC.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.