Category: Issue Comments

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.

R Split III Corp. has announced:

that it has called 138,250 Preferred Shares for cash redemption on May 31, 2011 (in accordance with the Company’s Articles) representing approximately 8.9583729% of the outstanding Preferred Shares as a result of the annual retraction of 276,500 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 May 30, 2011 will have approximately 8.9583729% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $29.22 per share.

In addition, holders of a further 150,000 Capital Shares and 75,000 Preferred Shares have deposited such shares concurrently for retraction on May 31, 2011. As a result, a total of 426,500 Capital Shares and 213,250 Preferred Shares, or approximately 13.1778% 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 May 31, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on May 31, 2011. From and after May 31, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any rights in respect of such shares except to receive the amount due on redemption.

R Split III Corp. is a mutual fund corporation created to hold a portfolio of common shares of Royal Bank of Canada. Capital Shares and Preferred Shares of R Split III Corp. are listed for trading on The Toronto Stock Exchange under the symbols RBS and RBS.PR.A respectively.

RBS.PR.A was last mentioned on PrefBlog when there was a partial call for redemption in May, 2010. RBS.PR.A is not tracked by HIMIPref™.

Allbanc Split Corp has announced:

Allbanc Split Corp. (the “Company”) is pleased to announce that it will be hosting an investor update conference call on Tuesday, May 24, 2011, with Brian McChesney, President and CEO of Scotia Managed Companies Administration (the “Administrator”).
The conference call will provide an update on the Company’s portfolio and performance.

Investors and investment advisors are reminded that the Fund currently has warrants outstanding which expire on June 6, 2011 at 5:00 p.m. (Toronto time). Note that investment dealers may have deadlines earlier than June 6, 2011.

Conference Call
Tuesday, May 24, 2011 at 11:00 a.m. (EST)
Featuring Brian McChesney, President and CEO of the Administrator
Dial-in Numbers: 416-340-2217 or 1-866-696-5910
Passcode: 6138843#

A replay of the conference call will be available at 905-694-9451 or 1-800-408-3053, passcode 1365315#.
Each warrant entitles the holder to purchase one Unit, each Unit consisting of one Class A Capital Share and one Class B Preferred Share, for a subscription price of $62.78 per Unit. The warrants are listed on the Toronto Stock Exchange under the ticker symbol ABK.WT.

Holders of Class B Preferred Shares are entitled to receive quarterly fixed cumulative dividends equal to $0.3344 per Class B Preferred Share. The Company’s Capital Share dividend policy is to pay holders of Class A Capital Shares quarterly dividends in an amount equal to the dividends received on the underlying portfolio securities minus the dividends payable on the Class B Preferred Shares and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the dividend, would be greater than the original issue price of the Class B Preferred Shares.

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

The NAV as of May 12 was 66.86, sufficient for Asset Coverage of 2.5-:1, and making the warrants significantly in-the-money. The warrants issue was reported on PrefBlog.

ABK.PR.B was last mentioned on PrefBlog when there was a partial call for redemption in February. AKB.PR.B is not tracked by HIMIPref™ but if the warrant issue goes well – and there is every reason to believe it should – it will be added.

Allbanc Split Corp. II has announced:

the Company has issued one half warrant for every Capital Share to holders of Capital Shares of the Company of record as at the close of business on May 16, 2011.

Each whole warrant will entitle the holder to purchase one Unit, each Unit consisting of two Capital Shares and one Preferred Share, for a subscription price of $50.12 per Unit. Commencing May 17, 2011, warrants may be exercised at any time on or before 5:00 p.m. (Toronto time) on November 30, 2011. The warrants are listed on The Toronto Stock Exchange under the ticker symbol ALB.WT.

Holders of Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $0.2316 per Preferred Share. The Company’s Capital Share dividend policy is to pay a quarterly dividend on the Capital Shares equal to the dividends received by the Company on the underlying portfolio securities minus the dividends payable on the Preferred Shares and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the dividend, would be greater than the original issue price of the Preferred Shares.

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

ALB.PR.B was last mentioned on PrefBlog when it was issued in February. ALB.PR.B is tracked by HIMIPref™ and comprises part of the SplitShare subindex.