Category: Issue Comments

Manulife Investments has announced:

that an accrued quarterly cash distribution in the amount of $0.08798 per Preferred Share of the Corporation will be included in the final redemption amount to be paid on or about June 6, 2011 to Preferred shareholders of record as of May 31, 2011. Such distribution will consist of $0.00443 of eligible Canadian dividends and $0.08355 return of capital and has been prorated to reflect the previously announced termination of the Corporation effective May 31, 2011. Class A shareholders are not entitled to this accrued cash distribution. It is not expected that the Corporation will declare any special capital gain dividends prior to the final redemption payment. As previously announced, at a special meeting held on April 4, 2011 the Corporation’s shareholders voted to terminate the Corporation effective May 31, 2011, in accordance with its constating documents. Shareholders need not take any action to receive the final redemption proceeds on termination of the Corporation. In advance of the termination of the Corporation, the Preferred Shares and the Class A Shares will be delisted from the Toronto Stock Exchange as at the close of trading on May 31, 2011.

The NAV of ASC.PR.A was 10.375 on 2011-5-6 – given the horrible credit quality of the preferreds, only a really, really stupid preferred shareholder would have voted in favour of the plan.

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.

The plan, approved by the directors, was a really abusive piece of work.

Dividend Growth Split Corp. has released its Annual Report to December 31, 2010.

I think a dividend-tilting index would have been a more appropriate benchmark for this fund than the Composite, but we’ll let that go.

Figures of interest are:

MER: 1.22% of the whole unit value

Average Net Assets: The fund more than doubled in size during 2010, making this calculation a little tricky; the value is required in order to calculate portfolio yield. The Net Asset Value at year end was $79.0-million, compared to $36.1-million a year prior, so call it an average of $57.6-million. Total Preferred Share Distribution was $1.60-million, at $0.525/unit implies an average of 3.05-million units, at an average NAV of (18.17 + 17.99) / 2 = 18.08, so call it $55.1-million. This is good agreement, call the average NAV $56-million.

Underlying Portfolio Yield: Dividends and interest received of $2.24-million divided by average net assets of 56-million is 4.0%.

Income Coverage: Dividends, Securities Lending Income & Interest of $2.24-million less expenses of $1.55-million is $0.7-million, to cover preferred dividends of $1.6-million is 44%.

BAM Split Corp. has not posted its 2010 Annual Report on its website, so investors must go to SEDAR to get it; it was filed on 2010-12-17.

The performance reporting is rather boring, since only the various preferred share issues (BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E) are listed; the returns for the capital units are not reported, nor is the return of the underlying portfolio – which is entirely BAM.A plus or minus a bit of cash drag anyway. The performance table will therefore not be reproduced here.

Figures of interest are:

MER: (excluding dividends on preferred shares, issue costs and Class A Preferred Share redemption premium) 0.0%. You don’t see that number very often! A more precise calculation from the Income Statement shows that the expenses totalled $333,000, or about 2bp on assets.

The expenses are wel itemized, however, and are a delight for voyeurs. I found the Listing Fees of $72,000 and Rating Fees of $20,000 to be most interesting.

Average Net Assets: There’s no point calculating this, since Portfolio Yield can be estimated directly from BAM.A

Underlying Portfolio Yield: Given the fund’s portfolio composition and investment policy, deviations from the raw yield on BAM.A will not be material. This is currently 1.60%

Income Coverage: Dividends & Interest of $28.8-million less expenses (before amortization of issue costs) of $0.3-million is $28.5-million, to cover preferred dividends of $19.9-million is 143%.

Dividend Growth Split Corp has announced:

that the board of directors has approved a private placement of 468,480 preferred shares at $10.30. The private placement is being made in order to maintain an equal number of outstanding preferred shares and class A shares of Dividend Growth Split Corp. following its merger with Brompton Equity Split Corp.

The closing of the private placement, as well as the merger, is expected to take place on May 18, 2011, subject to regulatory approvals. As a result of the private placement, there will be no requirement for Brompton Equity Split Corp. to redeem any of its class A shares, as more fully described in the joint management information circular of Brompton Equity Split Corp. and Dividend Growth Split Corp. dated March 11, 2011.

Based on the April 28, 2011 net asset values, the class A share exchange ratio for the merger is 1.493584 Dividend Growth Split Corp. class A shares for each Brompton Equity Split Corp. class A share. After giving effect to the private placement and the merger, Dividend Growth Split Corp. will have 6,374,149 class A shares and preferred shares outstanding.

I find it rather odd that the private placement was necessary: the implication is that a large number of preferred shareholders retracted at $10 rather than selling into the market at a higher price.

DGS.PR.A was last mentioned on PrefBlog when the merger and term extension were approved. DGS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

DBRS has revised the trend on the Pfd-3 rating of RON.PR.A from stable to negative:

DBRS has today changed the trend on the BBB Senior Unsecured Debt rating and Pfd-3 Preferred Shares rating of RONA inc. (RONA or the Company) to Negative from Stable. The rating action reflects DBRS’s concern that weak operating performance and a challenging consumer environment may result in RONA’s credit risk profile to deteriorate to a level that is no longer consistent with the current rating categories.

CA Bancorp Canadian Realty Finance Corporation has announced:

that the Class A and Series 1 Preferred Shareholders of the Corporation, each voting separately as a class, voted today to approve a special resolution to effect the following proposed transaction (the “Transaction”):

• •the acquisition of all of the issued and outstanding shares of C.A. Bancorp Ltd., the manager of the Corporation, (the “Manager”) by Green Tree Capital Management Corp. (“Green Tree”);
• •an amendment to the commitment agreement (the “Commitment Agreement”) dated January 31, 2008 between the Corporation and C.A. Bancorp Inc., the parent corporation of the Manager, (the “Parent”) to permit the assignment by the Parent of the Commitment Agreement to Green Tree and the release of the Parent from any further obligations under the Commitment Agreement; and
• •an amendment to the management agreement between the Manager and the Corporation to provide that the Manager is not entitled to payment of a termination fee where the management agreement is terminated by the Corporation in the context of a material breach or default.

The Transaction is expected to be completed on or about May 11, 2011.

I had recommended a “No” vote Ah, well, we’ll just have to see what happens.

RF.PR.A is not tracked by HIMIPref™.

As noted in the post RF.PR.A Special Meeting Adjourned, the special meeting to decide on the reorganization of C.A. BANCORP CANADIAN REALTY FINANCE CORPORATION was adjourned from the original date of April 25, 2011 until tomorrow, May 5, 2011 at 4:00 p.m. EST, due to lack of quorum.

Now, Barry Critchley reports:

Pref shareholders are concerned with the credit risk they are being asked to assume if Green Tree acquires the management contract. In short, despite what C.A. Bancorp says about Green Tree’s “experienced team” and “enhanced infrastructure,” no one knows how successful the new team will be.

Can they run the commercial mortgage business well enough to generate enough income to continue to pay out on the prefs? Currently, pref shareholders receive fixed quarterly distributions of $0.4219 per share or 6.75% per annum. At the end of 2010, the fair value of the prefs was $31.1 million, or $21.18 per share.

But there’s more to it than that! There’s an external party opposed to the reorganization that has been scooping up shares in the present manager, CABancorp:

One investor, New York-based CDJ Global Catalyst, which owns 15.1% of C.A. Bancorp, said last week it disagrees with the realization strategy and indicated in a release it has had discussions and exchanged correspondence with C.A. Bancorp’s directors. CDJ, which also indicated it may “initiate proposals and/or transactions with a view to enhancing and protecting shareholder value,” couldn’t be reached for comment. It has been a steady buyer of C.A. Bancorp shares with its most recent purchase (251,400 shares) being bought at an average price of $2.16 a share. Book value is $2.53.

CDJ has been diligently writing press releases; the most recent, released April 27, is titled CDJ Announces Acquisition of Shares of C.A. Bancorp Inc.:

CDJ Global Catalyst LLC (“CDJ”) announced that from March 10, 2011 until April 26, 2011, CDJ acquired, for one or more of its managed client accounts in respect of which it exercises sole discretion, an aggregate of 251,400 common shares of C.A. Bancorp Inc. (TSX:BKP) (“CAB”) representing approximately 2% of the total issued common shares of CAB. The common shares were purchased for an average price of $2.16.

Combined with the shares held by client accounts in respect of which CDJ exercises sole discretion, CDJ now has control over 1,856,651 common shares, representing approximately 15.1% of the total issued and outstanding common shares of CAB.
…
CDJ intends from time to time to seek to continue to have discussions with representatives of CAB and its investee, C.A. Bancorp Canadian Realty Finance Corporation, (the “Subsidiary”).

CDJ strongly disagrees with CAB’s proposed Realization Strategy (as such term is defined in CAB’s public record), including the proposed sale of its interest in C.A. Bancorp Canadian Realty Finance Corp.

As a result, CDJ may, either alone or with others, consider and/or initiate proposals and/or transactions with a view to enhancing and protecting shareholder value, including the value of its investment to date. Such alternative proposals and/or transactions may include CDJ, either alone or with others, (i) seeking to influence decisions of CAB’s management and directors including, without limitation, by seeking representation by membership or through observer status on the board of directors or otherwise; (ii) seeking to add nominees designated by the Offeror to CAB’s board of directors, which could include expanding the size of the board of directors and/or removing individuals from CAB’s board of directors; and (iii) acquiring some or all of the outstanding securities of CAB or the Subsidiary. Such alternative proposals and/or transactions may also include CDJ supporting others in an alternative proposal and/or transaction.

CDJ may, from time to time and at any time, acquire additional common shares of CAB and/or its Subsidiary and/or other equity securities of the Company or the Subsidiary (collectively, the “Securities”) in the open market or otherwise and reserves the right to dispose of any and all of its Securities in the open market or otherwise, at any time and from time to time, and to engage in hedging or similar transactions with respect to the Securities.

At the present time, CDJ does not intend to acquire 20% or more of any class of Securities of the Company or the Subsidiary.

I continue to recommend that preferred shareholders vote “No” to the change in manager.

Dominion Bond Rating Service has announced that it:

has today updated the ratings of preferred shares issued by three split share companies and trusts (the Issuers): Energy Split Corporation, SNP Split Corp. and Utility Split Trust. The preferred shares of Energy Split Corporation have been upgraded to Pfd-3 from Pfd-3 (low), and the preferred shares/securities of SNP Split Corp. and Utility Split Trust have been confirmed at Pfd-3 (high) and Pfd-2 (low), respectively.

Each of the Issuers has invested in a portfolio of securities funded by the issuance of two classes of shares – dividend-yielding preferred shares (or securities) and capital shares (or units). The main form of credit enhancement available to preferred shares is a buffer of downside protection. Downside protection corresponds to the percentage decline in market value of a portfolio that must be experienced before the preferred shares would be in a loss position. The amount of downside protection available to preferred shares will fluctuate over time based on changes in the market value of the portfolio.

Today’s rating actions reflect generally upward trends in the net asset value (NAV) of the respective portfolios over the past year. In its surveillance of split share funds, DBRS reviews historical trends in downside protection and assigns greater weighting to more recent Issuer NAVs. Each of the Issuers has a scheduled termination date in 2011.

Energy Split Corporation is ES.PR.B, last mentioned on PrefBlog when it was upgraded to Pfd-3(low) by DBRS. ES.PR.B is not tracked by HIMIPref™, but it will be considered for inclusion in the database if they go for a term extension.

Doug Alexander of Bloomberg reports:

Canadian Imperial Bank of Commerce plans to spend any extra capital to redeem C$3.16 billion ($3.32 billion) in preferred shares that won’t count as regulatory capital under new banking rules, Chief Executive Officer Gerald McCaughey said.

“We do have an excess of Tier 1 capital today and in the future,” McCaughey, 55, said in an interview today. “A first step in terms of our usage of excess resources will be to reduce instruments that we have that are ineffective in the new environment.”

Canada’s fifth-biggest bank had a so-called Tier 1 capital ratio of 14.3 percent as of Jan. 31, second only to National Bank of Canada. The Toronto-based bank sold more than C$2.4 billion in preferred shares and other notes since August 2008 to shore up its balance sheet during the financial crisis.
…
“We will be looking at our non-common Tier 1 instruments in the near future,” McCaughey said in Winnipeg, Manitoba, after the bank’s annual meeting. “That allows us to deploy a certain amount of excess resources in a fashion that does help earnings per share.”

Share buybacks aren’t a priority for the Toronto-based bank, McCaughey said.

“We do not expect in the near term to be deploying that capital in activities such as buybacks,” he said.

This is fascinating. On the surface, it sounds as if they don’t intend any issuance of non-common Tier 1 at all – but I find that very hard to believe.

National Bank has announced:

the expiry of the Bank’s offers to purchase (the “Offers”) all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 21 (the “Preferred Shares Series 21”), all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 24 (the “Preferred Shares Series 24”), and all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 26 (the “Preferred Shares Series 26”, and together with the Preferred Shares Series 21 and the Preferred Shares Series 24, the “Preferred Shares”).

The Bank announced that all of the Preferred Shares validly deposited under the Offers and not withdrawn as of April 26, 2011 have been taken up and accepted for payment by the Bank. As a result, the Bank has taken up a total of 4,639,139 Preferred Shares Series 21, 4,374,120 Preferred Shares Series 24 and 4,075,165 Preferred Shares Series 26 under the Offers for an aggregate consideration of $361,208,775.14.

The Preferred Shares taken up under the Offers represent approximately (i) 57.63% of the outstanding Preferred Shares Series 21, (ii) 64.33% of the outstanding Preferred Shares Series 24, and (iii) 70.26% of the outstanding Preferred Shares Series 26.

The extension of the offer was reported on PrefBlog on April 12.

Series 21 is NA.PR.N; series 24 is NA.PR.O; and series 26 is NA.PR.P.