Category: Issue Comments

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.

Brompton Group has announced:

the closing of warrant offerings for four of its funds under
management.

LBS / LBS.PR.A sold 3.3-million units for gross proceeds of $63.0-million.

LBS.PR.A was last mentioned on PrefBlog when I noted that the warrants were in the money. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

C.A. BANCORP CANADIAN REALTY FINANCE CORPORATION has released an Information Circular:

You are invited to the Special Meeting of holders of Class A shares and Preferred shares, Series 1 (collectively, the “Shareholders”) of C.A. Bancorp Canadian Realty Finance Corporation (the “Corporation”) to be held at the offices of the Corporation, The Simpson Tower, 401 Bay Street, Suite 1600, Toronto, Ontario, M5H 2Y4 on April 25, 2011 at 2:00 P.M. (the “Meeting”). The purpose of the Meeting is to provide Shareholders with the opportunity to consider and pass a special resolution to approve the following proposed transaction:

• (a) the acquisition of all of the issued and outstanding shares of C.A. Bancorp Ltd. (the “Manager”) by Green Tree Capital Management Corp. (“Green Tree”) (the “Change of Control”);
• (b) an amendment to the commitment agreement dated January 31, 2008 between C.A. Bancorp Inc. (the “Parent”) and the Corporation (the “Commitment Agreement”) to permit the Commitment Agreement’s assignment from the Parent to Green Tree and the release of the Parent from any further obligations; and
• (c) an amendment to the management agreement dated July 6, 2009 between the Manager and the Corporation (the “Management Agreement”) 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.

Approval of the proposed transaction will result in the transfer of control of the Manager from the Parent to Green Tree, an Ontario corporation established for the sole purpose of entering the proposed transaction.

If successful, portfolio management will be contracted to Quantus:

Jamie Spreng formed Quantus Investment Corp. (formerly Spreng Asset Management Inc.) in April 2010. The firm became registered as a portfolio manager and investment fund manager in July 2010. Its offices are located at 36 Toronto Street, Suite 1150 in Toronto, Ontario. The firm subsequently added the registration category of exempt market dealer at the end of 2010. Mr. Spreng acts as Chief Executive Officer, Chief Compliance Officer, Chief Operating Officer, and Ultimate Designated Person for Quantus Investment Corporation. For Quantus, the investment objective is to maximize risk-adjusted returns. The Quantus Funds only charge a performance fee, there is no management fee. Mr. Spreng’s objective is to generate steady, consistent returns for clients pursuant to various hedge fund products.

Super. So the mortgages will be run by a hedge fund specialist with zero track record.

I mocked this issue at its genesis, due largely to the huge leverage. The leverage problem was addressed with a warrants issue and Asset Coverage is now a much more respectable 1.8-:1 based on the December 2010 Financials. So far so good.

But look at the assets! 36.4-milion in mortgages, 18.4-million in cash and 6.4-million in publicly traded securities, including preferred shares and junk bonds! The circular explains:

the uncertainty relating to the ownership of the Manager has depressed the number and quality of new lending opportunities for the Corporation, resulting in the Board’s decision to suspend quarterly distributions on the Class A Shares;

The preferreds have a rather unusual NAV Test:

Pursuant to the Commitment Agreement dated January 31, 2008 between the Parent and the Corporation, the Parent has agreed that, for so long as there are Preferred Shares of the Corporation outstanding, if the Adjusted Net Tangible Asset Value2 is less than 111% of the Original Preferred Share Issue Price3 as at the end of such quarter, the Parent will subscribe for, or arrange for subscriptions for, additional Class A Shares in an amount at least equal to the deficiency, within 10 business days following the end of the quarter (or if a deficiency or increased deficiency is discovered, including as a result of an audit or a review of the financial statements of the Corporation by its auditors, within 10 business days of confirming the amount of such deficiency). If the Parent defaults in its obligation then:

• (a) under the articles of the Corporation:
• (i) steps shall be initiated to redeem the Preferred Shares, the funding of which would occur pro rata as funds become available to fund such redemptions;
• (ii) the Preferred Shares become voting;
• (iii) the Class A Shares and Class J Shares become non-voting;
• (iv) the Board of Directors shall call a meeting of shareholders to elect a new Board of Directors, a majority of whom must be independent of the Parent and its affiliates; and
• (v) the Board of Directors shall appoint a qualified firm or individual to supervise an orderly liquidation of the Corporation;

and from the prospectus:

No distributions will be paid on 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 Corporation the Adjusted Net Tangible Asset Value of the Corporation is less than 111% of the Original Preferred Share Issue Price. See ‘‘Description of Share Capital — Description of Class A Shares’’.

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.

BCE has mailed BCE.PR.H Conversion Notice:

Holders of BCE Inc. Series AH Preferred Shares have the right to convert all or part of their shares, effective on May 1, 2011, on a one-for-one basis into Cumulative Redeemable First Preferred Shares, Series AG of BCE Inc. (the “Series AG Preferred Shares”).
…
Registered holders electing to convert all or part of their Series AH Preferred Shares into Series AG Preferred Shares must complete and sign the conversion panel on the back of their Series AH Preferred Share certificate and deliver it, at the latest by 5:00 p.m. (Eastern time) on April 21, 2011, to one of the following addresses…

BCE.PR.H is the ratchet-rate preferred:

As of May 1, 2011, the Series AH Preferred Shares will pay a monthly floating dividend based on a dividend rate that will fluctuate over time between 50% and 100% of the Prime rate (“Prime”) for each month computed in accordance with the articles of BCE Inc. Accordingly, from May 1, 2011, the holders of Series AH Preferred Shares will continue to be entitled to receive floating adjustable cash dividends, as and when declared by the Board of Directors of BCE Inc., to be paid on the twelfth day of each month, commencing with the month of June 2011. The dividend rate will be adjusted upwards or downwards on a monthly basis by an Adjustment Factor (as described below) whenever the Calculated Trading Price, being the market price of the Series AH Preferred Shares computed in accordance with the articles of BCE Inc., is $24.875 or less or $25.125 or more, respectively.

Last night’s close was 23.00-24; it has been paying 100% of Prime for quite some time now.

There is also a conversion notice for BCE.PR.G:

Holders of BCE Inc. Series AG Preferred Shares have the right to convert all or part of their shares, effective on May 1, 2011, on a one-for-one basis into Cumulative Redeemable First Preferred Shares, Series AH of BCE Inc. (the “Series AH Preferred Shares”).
…
Registered holders electing to convert all or part of their Series AG Preferred Shares into Series AH Preferred Shares must complete and sign the conversion panel on the back of their Series AG Preferred Share certificate and deliver it, at the latest by 5:00 p.m. (Eastern time) on April 21, 2011, to one of the following addresses…
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As of May 1, 2011, the Series AG Preferred Shares, should they remain outstanding, 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 determined by BCE Inc. on April 6, 2011 but which shall not be less than 80% of the five-year Government of Canada Yield (as defined in BCE Inc.’s articles) compounded semi-annually and computed on April 6, 2011 by two investment dealers appointed by BCE Inc.. The annual dividend rate applicable to the Series AG Preferred Shares will be published on April 8, 2011 in the national edition of The Globe and Mail, the Montreal Gazette and La Presse and will be posted on BCE Inc.’s website at www.bce.ca.

BCE.PR.G closed last night at 23.13-28. It currently pays 4.35% of par.

It’s too early to tell yet which of the two issues will be better as of May 1, but I’ll keep you posted!

Yellow Media has announced:

that it has reached a definitive agreement to sell Trader Corporation (“Trader”) to funds advised by Apax Partners for a purchase price consideration of $745M. Closing of the contemplated transaction is expected to occur in June 2011, subject to regulatory approvals and other customary conditions.
…
The purchase price consideration of $745M, subject to working capital and other adjustments, will be payable in cash at closing. The transaction has fully committed financing, consisting of equity provided by Apax Partners and financing commitments provided by RBC Capital Markets. The proceeds from this divestiture will be largely used to reduce indebtedness and for general corporate purposes.

Concurrent with this announcement, Standard & Poor’s and DBRS confirmed their credit ratings for Yellow Media Inc.

DBRS has announced that it:

has today confirmed the ratings of Yellow Media Inc. (Yellow Media or the Company), including its Medium-Term Notes at BBB (high) and Commercial Paper at R-1 (low), following the announcement that it has reached an agreement with Apax Partners to sell the automotive assets of Trader Corporation (Trader) for a purchase price of approximately $745 million. The agreement includes the sale of Trader’s print and online automotive businesses and its 30% stake in Dealer.com (results were consolidated). The trends are Stable.

The confirmation of Yellow Media’s ratings reflects the following:

(1) An acceleration of the Company’s goal to improve its financial risk profile as DBRS expects cash proceeds of approximately $745 million from the sale of Trader’s automotive businesses (the majority of its Vertical Media segment) to be mainly used to reduce debt.

(2) Its leading position in Directories, the Company’s principal segment, and the significant risks this segment continues to face as it transforms itself from a print-placement organization into an online/digital media and marketing service provider.

I would not ordinarily consider an affirmation to be worthy of comment, but there is a story in today’s Globe by John Heinzl titled Yellow Media’s dividend under the microscope:

Since peaking at more than $17 in 2006, the shares have plunged nearly 70 per cent, closing Thursday at $5.29. Adding to the pain, the directories publisher has chopped its dividend twice as it grappled with the financial crisis, its transition from print to digital media and a recent conversion from an income trust to a corporation.

Now some investors are asking: Is another dividend cut in the cards? The sky-high yield of 12.2 per cent isn’t a comforting sign.
…
The company doesn’t have a lot wiggle room with its credit ratings. Standard & Poor’s rates Yellow Media’s senior unsecured debt at triple-B-minus, which is one notch above speculative status. DBRS rates it triple-B (high), which is three notches above speculative.

Underlining the dangers, S&P has said it would like to see Yellow Media reduce its net debt by $450-million this year and that “downward pressure on the ratings would likely come from a failure to reduce debt levels as noted … as well as a failure to improve adjusted debt leverage as targeted.”

The company has been repurchasing its preferred shares:

Under its normal course issuer bid, Yellow Media Inc. intends to purchase for cancellation up to but not more than 1,174,691 and 720,000 of its outstanding preferred shares, Series 1 and preferred shares, Series 2, respectively, representing 10% of the public float of each series of preferred shares outstanding on June 8, 2010

During 2010, Yellow Media Inc. purchased for cancellation 635,714 preferred shares, Series 1 for a total cash consideration of $15.8 million including brokerage fees at an average price of $24.78 per share and 501,490 preferred shares, Series 2 for a total cash consideration of $10.4 million including brokerage fees at an average price of $20.79 per share. The carrying value of these preferred shares, Series 1 and Series 2 was $15.7 million and $12.3 million, respectively. A gain of $1.8 million was recorded in net earnings in financial charges.

Since June 11, 2009, the total cost of repurchasing preferred shares amounted to $39.9 million, including brokerage fees.

The company has four public issues of preferred shares outstanding:

YLO was last mentioned on PrefBlog when the ticker changed from YPG.

Update: Tom Kiladze of the Globe comments in Yellow Media buys some breathing room:

As for the deal metrics, the assets are getting sold for $745-million, but all together they were acquired for about $1.2-billion, according to Desjardins Securities analyst Maher Yaghi. He also noted that the divested assets generated about $69-million of EBITDA last year. That translates into a 10.8 times multiple for the sale, better than Yellow Media’s current market multiple of 6.7 times.

Yellow Media also indicated the Trader Corp. assets were sold for about 10 times EV to EBITDA, equating to $600-million, while the Dealer.com stake was sold for about 15 times, amounting to the remaining $145-million of the total price, Mr. Yaghi noted.

Top 10 Split Trust has announced:

that the Fund will effect a partial redemption of its preferred securities (“Preferred Securities”) in order to maintain an equal number of Preferred Securities and capital units (“Capital Units”) of the Fund outstanding. The partial redemption of Preferred Securities is being made in connection with the recent approval by holders of the Capital Units and the Preferred Securities (collectively, the “Securityholders”) of a proposal to extend the term of the Fund for an additional five-year term until March 31, 2016 and for automatic successive five-year terms thereafter.

Pursuant to the special retraction right granted to Securityholders in connection with the extension of the Fund, 284,227 Preferred Securities and 741,330 Capital Units were surrendered for retraction. In order to maintain an equal number of Preferred Securities and Capital Units, the Fund will redeem an aggregate of 457,103 Preferred Securities on a pro rata basis from all holders of record of Preferred Securities on March 31, 2011 (the “Repayment Date”), representing approximately 19.8% of the issued and outstanding Preferred Securities. Each Preferred Security that is redeemed pursuant to the partial redemption will be redeemed at a price equal to $12.50, being the principal amount per Preferred Security, plus all accrued and unpaid interest thereon (the “Repayment Price”). The Repayment Price will be paid to holders whose Preferred Securities are redeemed by the Fund within 10 business days following the Repayment Date.

I don’t know how I missed the reorg, but I did!

On February 15, the fund announced:

that the Board of Directors of Mulvihill Capital Management Inc. (“MCM”), the manager of the Fund, has approved a proposal, subject to securityholder approval, to extend the term of the Fund for five years beyond its scheduled termination date of March 31, 2011, and for successive five-year terms after March 31, 2016. If the extension is approved, holders of capital units (“Capital Units”) and preferred securities (“Preferred Securities”) of the Fund (“Securityholders”) will be given a special right to redeem their Capital Units or Preferred Securities at net asset value (“NAV”) per Capital Unit or at the repayment price per Preferred Security on March 31, 2011.
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The Fund is also proposing to: (i) provide a special redemption right to enable holders of Capital Units and Preferred Securities to retract their securities on March 31, 2011 on the same terms that would have applied had the Fund retracted or repaid all Capital Units and Preferred Securities in accordance with the existing terms of such securities; (ii) change the monthly retraction prices for the Capital Units such that monthly retraction prices are calculated by reference to market price in addition to NAV and to change the notice period and payment period for the exercise of such rights and the payment of the retraction amount relating thereto; and (iii) consolidate the Capital Units or redeem the Preferred Securities on a pro rata basis, as the case may be, in order to maintain the same number of Capital Units and Preferred Securities outstanding.

The meeting date was then changed to March 21. The reorg was approved:

Top 10 Split Trust (the “Fund”) is pleased to announce that holders of capital units (“Capital Units”) and holders of preferred securities (“Preferred Securities”) of the Fund (collectively, the “Securityholders”) have approved a proposal to extend the term of the Fund for five years beyond its scheduled termination date of March 31, 2011, and for automatic successive five-year terms after March 31, 2016.
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Holders of Preferred Securities have the opportunity to benefit from: (i) fixed quarterly cash interest payments equal to 6.25% per annum on the $12.50 principal amount of a Preferred Security and (ii) an attractive five-year term with automatic successive five-year term extensions after March 31, 2016.

NAV is 17.28 as of March 17 giving Asset Coverage of 1.4-:1. TXT.PR.A was last mentioned on PrefBlog when the rating of Pfd-4(high) was withdrawn by DBRS at the company’s request. TXT.PR.A is not tracked by HIMIPref™.

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%.