Category: Issue Comments

Brompton Group has announced that the warrants to purchase Whole Units containing LBS.PR.A are in the money, with a NAV of 19.29 as of March 21 (assuming all warrants are exercised) vs. an exercise price of 18.87.

This is an improvement from the March 17 value of 19.06.

Brompton points out that:

Warrants which are not exercised or sold will expire on March 24, 2011. Investors should contact their investment advisor to exercise or sell their warrants.

LBS.PR.A was last mentioned on PrefBlog when the warrant offering was finalized. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

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

I can’t help but think that the S&P TSX 60 is not a particularly good index for the fund (why not the S&P/TSX Canadian Dividend Aristocrats?) but despite reservations:

As a result of the Company being limited to a specific universe of stocks and that a covered call writing program is implemented to generate additional income, the investment profile of the Company is quite unique and any comparisons with any other external market indices may not be appropriate.

… the company made the choice so we’ll go with it … while remembering to check every year that it hasn’t been changed!

Figures of interest are:

MER: 1.19% of the whole unit value, excluding one time initial offering expenses. These boosted the whole-unit MER to 2.08%, but bypassed the income statement, being taken as a direct hit to shareholders’ equity. I suggest that the best way to handle this is to amortize the extra 0.89% over the remaining four years of the fund, and call the “analytical MER” 1.41%.

Average Net Assets: We need this to calculate portfolio yield; unfortunately the number of units changesd, which makes it more approximate. The Total Assets of the fund at year end was $269.4-million, compared to $219.6-million a year prior, so call it an average of $244.5-million. Total Preferred Share Distribution was $6.068-million, at $0.525/share implies an average of 11.56-million units, at an average NAV of ((19.21 + 16.83) / 2 = 18.02, so call it $208-million. That’s a big difference, but:

During March 2010, the Company issued 2,400,000 Class A and Preferred shares at a unit price of $21 for total net proceeds after the payment of agents fees of $48.4 million.

. March is about 1/3 of the way through the fiscal year, so the figure derived by preferred share distributions is probably more accurate, so let’s call the Average Net Assets $220-million.

Underlying Portfolio Yield: Dividends received of $9.08-million divided by average net assets of $220-million is 4.13%.

Income Coverage: Dividends of 9.08-million less expenses before issuance fees of 3.01-million is 6.07-million, to cover preferred dividends of 6.84-million is 89%

U.S. Financial 15 Split Corp. has released its Annual Report to November 30, 2010.

An unusual feature of this fund is that it missed quite a few dividends on its preferred shares during the crisis – since these dividends are cumulative, they have been recorded as a liability on the company’s books. Hence:

The Company has 3,081,476 Preferred shares outstanding as at November 30, 2010 with a principal repayment target of $10 per Preferred share for a total of $30,814,760 due on the termination date, December 1, 2012. As at November 30, 2010, the Company has Net Assets equivalent to $5.54 per Preferred share for a total of $17,080,883. This represents a deficiency as at November 30, 2010 of $4.46 per Preferred share for a total deficiency of $13,733,927. An amount of $0.5624 per Preferred share in accrued cumulative dividends representing dividends not paid in previous years as at November 30, 2010 is also available to holders of Preferred shares on the termination date.

Thus, when calculating Market and Asset Coverage for the preferred shares, one must add the cumulated dividends to the published NAV – being very careful to check whether the company has made up any of the arrears since their year-end! There was one such payement in April, 2010, but none since.

Additionally, one may expect that the dividend yield of the underlying portfolio will increase significantly in the near future, as the Fed reduced restrictions on banks on March 18.

Figures of interest are:

MER: 1.50% of the whole unit value.

Average Net Assets: We need this to calculate portfolio yield; unfortunately the number of units changesd, which makes it more approximate. Additionally, the presence of the cumulated dividends makes the calculation more difficult. The Total Assets of the fund at year end was $19.0-million, compared to $24.0-million a year prior, so call it an average of $21.5-million. Total Preferred Share Distribution was $1.46-million, at $0.40/unit (four skipped distributions and one make-up distribution) implies an average of 3.65-million units, at an average NAV of ((5.54+0.56) + (6.50 + 0.56 – 0.125)) / 2 = 6.52, so call it $23.8-million. This is good agreement (considering all the adjustments!), call the average NAV $22-million.

Underlying Portfolio Yield: Dividends and interest received of $120,277 net of withholding divided by average net assets of 22-million is 0.55%.

Income Coverage: Dividends of 120,277 less expenses 290,947 is (170,670), to cover preferred dividends 3,081,476 shares at $0.525 dividend entitlement is less than negative 10.5%.

Premium Income Corporation has released its Annual Report to October 31, 2010.

Figures of interest are:

MER: 1.10% of the whole unit value, excluding the special resolution expense (incurred when extending term). With this expense, MER for 2010 was 1.44% – for analytical purposes, I suggest it’s best to amortize this and call the MER 1.17%.

Average Net Assets: We need this to calculate portfolio yield; unfortunately the number of units changesd, which makes it more approximate. The Net Asset Value at year end was $292.34-million, compared to $279.70 a year prior, so call it an average of $286.02-million. Total Preferred Share Distribution was $12.31-million, at $0.86/unit implies an average of $14.31-million units, at an average NAV of (20.56 + 19.15) / 2 = 19.86, so call it $284-million. This is good agreement, call the average NAV $285-million.

Underlying Portfolio Yield: Dividends and interest received of $12.4-million divided by average net assets of 285-million is 4.35%.

Income Coverage: Dividends & Interest of $12.4-million less expenses before resolution costs of $3.5-million is $8.9-million, to cover preferred dividends of $12.3-million is 72%.

Husky Energy has announced:

that it has completed its recently announced public offering of 10,000,000 Cumulative Rate Reset First Preferred Shares, Series 1 (the “Series 1 Shares”). The underwriting group led by CIBC, RBC Capital Markets and BMO Capital Markets (collectively the “Underwriters”) exercised their 2,000,000 Series 1 Shares over-allotment option in full, and accordingly, a total of 12,000,000 Series 1 Shares have been issued at a price of $25.00 per share for aggregate gross proceeds of $300 million.

The net proceeds from this offering will be used for repayment of existing indebtedness, capital expenditures, corporate and asset acquisitions and for general corporate purposes.

The Series 1 Shares were offered by way of prospectus supplement under the short form base shelf prospectus of Husky Energy dated November 26, 2010.

Holders of the Series 1 Shares are entitled to receive a cumulative quarterly fixed dividend yielding 4.45% annually for the initial period ending March 31, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 1.73%. Holders of Series 1 Shares will have the right, at their option, to convert their shares into Cumulative Rate Reset First Preferred Shares, Series 2 (the “Series 2 Shares”), subject to certain conditions, on March 31, 2016 and on March 31 every five years thereafter. Holders of the Series 2 Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 1.73%.

The Series 1 Shares are listed on the Toronto Stock Exchange under the ticker symbol HSE.PR. [sic]

HSE.PR.A is a FixedReset, 4.45%+173, announced March 10. The issue traded 540,247 shares today in a range of 24.70-95.

Vital statistics are:

HSE.PR.A is tracked by HIMIPref™ and assigned to the FixedReset subindex.

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

Figures of interest are:

MER: 1.03% of the whole unit value

Average Net Assets: We need this to calculate portfolio yield. No change in Number of Units Outstanding, so just calculate as 5,688,250 [Units] * average NAVPU of (15.30 + 14.60) / 2 = 14.95 so $85-million.

Underlying Portfolio Yield: Dividends received (net of withholding) of 2,489,225 divided by average net assets of 85-million is 2.93%.

Income Coverage: Net Investment Income of 1,625,891 divided by Preferred Share Distributions of 2,986,331 is 54%.

Financial 15 Split Inc. has released its Annual Report to November 30, 2010.

Figures of interest are:

MER: 1.16% of thw whole unit value, excluding one time initial offering expenses. These were taken as a direct hit to Shareholders’ Equity and bypassed the Income Statement.

Average Net Assets: We need this to calculate portfolio yield. MER of 1.16% Total Expenses of 1,648,741 implies $142-million net assets. Preferred Share distributions of 4,511,294 @ 0.525 / share implies 8.6-million shares out on average. Average Unit Value (beginning & end of year) = (15.95 + 17.39) / 2 = 16.67. Therefore 8.6-million @ 16.67 = 143.4-million average net assets. Good agreement between these two methods! Call it 143-million average.

Underlying Portfolio Yield: Dividends received (net of withholding) of 3,940,069 divided by average net assets of 143-million is 2.76%

Income Coverage: Net Investment Income of 2,291,328 divided by Preferred Share Distributions of 4,511,294 is 51%.

DBRS has announced that it:

has today upgraded the rating of the Preferred Shares issued by NB Split Corp. (the Company) to Pfd-3 (high) from Pfd-3. In February 2007, the Company raised approximately $100 million by issuing Preferred Shares (1,436,369 shares at $32.72 each) and Capital Shares (2,872,738 shares at $18.45 each). The final redemption date for both the Preferred Shares and the Capital Shares is February 15, 2012 (the Termination Date).

The net proceeds from the offering were used to purchase a portfolio of common shares (the Portfolio) of the National Bank of Canada (NB). Dividends received on the Portfolio are used to pay a fixed cumulative quarterly dividend of $0.3886 per Preferred Share to yield 4.75% per annum. Based on the current dividend yield on the NB common shares, the Preferred Share dividend coverage is approximately 1.2 times. As a result, the Preferred Share dividends are currently funded entirely from dividends received on the Portfolio.

The rating of the Preferred Shares was last confirmed on August 10, 2010. Since then, the net asset value of the Company has increased by approximately 25%. The current downside protection (as of March 14, 2011) is approximately 57%. The upgrade of the rating of the Preferred Shares is primarily based on the increase in downside protection since August 2010.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) The Portfolio is entirely concentrated in the common shares of NB.

(3) Volatility of price and changes in the dividend policies of NB may result in significant reductions in downside protection from time to time.

There were just over 800,000 NBF.PR.A outstanding on 2010-6-30 according to the interim financial statements, with a book value of about $26.5-million.

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

Dominion Bond Rating Service has announced that it:

has today downgraded the rating on the Medium-Term Notes & Unsecured Debentures of Enbridge Pipelines Inc. (EPI) to “A” from A (high) and the rating on the Medium-Term Notes & Unsecured Debentures of Enbridge Inc. (ENB) to A (low) from “A.” Both trends are Stable. These rating actions follow the announcement of the new Competitive Tolling Settlement (CTS), which would introduce volume and operational risks to EPI’s Enbridge System (Canadian Mainline), as described below. As a critical component of ENB’s operations (Canadian Mainline accounted for approximately one-third of ENB’s DBRS-adjusted earnings in 2010), the rating action on the long-term debt of EPI (100% owned by ENB) has resulted in a similar rating action on the long-term debt of ENB. The previous ratings did not allow for a fundamental change in volume sensitivity. While the final terms of the CTS must be approved by the National Energy Board (NEB), DBRS does not expect the full throughput protection of the current tolling methodology to be reinstated.

Concurrently, DBRS has confirmed the Commercial Paper (CP) ratings of EPI and ENB at R-1 (low) and ENB’s Cumulative Redeemable Preferred Shares (Preferred Shares) rating at Pfd-2 (low), all with Stable trends. The confirmation of ENB’s Preferred Shares reflects DBRS’s belief that the existing rating is already conservative relative to the long-term debt rating and that DBRS views it as unlikely that intermediate-ranking instruments will be issued in the future.

Enbridge has one preferred share issue outstanding, ENB.PR.A. This issue, a Straight Perpetual, is tracked by HIMIPref™.