Category: Issue Comments

Brookfield Soundvest Funds has announced:

that the annual redemption rights attributable to the Capital Units and the Combined Securities (being one Capital Unit and a $10.00 principal amount of Preferred Securities) of the Brookfield Soundvest Split Trust (TSX:BSD.UN)(TSX:BSD.PR.A) (the “Trust”) are being reinstated. The Trust’s annual redemption rights were suspended in October 2008 as a result of provisions in the Declaration of Trust that are applicable where it is anticipated that, after giving effect to redemptions, the Combined Value (NAV plus the Repayment Price which is the $10.00 principal amount of a Preferred Security plus all accrued and unpaid interest on such $10.00 principal amount of a Preferred Security) determined as of the Redemption Date would fall below 1.4 times the Repayment Price determined as of the Redemption Date (“the 1.4 times coverage ratio”). The Trust has performed strongly over the past several months and it is now anticipated that redemptions may be processed without violating the 1.4 times coverage ratio.

Consequently, the Trust intends to reinstate the suspended redemption rights with a specified redemption date of February 14, 2011. This date provides for the notice period required by CDS and the provisions of the Declaration of Trust relevant to the redemption process that apply. Accordingly, each Unitholder who has requested a redemption by depositing Capital Units or Combined Securities with the Registrar and Transfer Agent at least 15 business days prior to February 14, 2011 and in accordance with their deposit requirements will be entitled to receive redemption proceeds calculated and paid in accordance with the Declaration of Trust no later than 15 business days after February 14, 2011.

When Capital Units alone are surrendered for redemption, an equal number of Preferred Securities must be acquired for cancellation, either in the market or, in limited circumstances, pursuant to the Call Right as defined in the Trust Indenture. If the average cost of acquiring Preferred Securities for cancellation exceeds their $10.00 face value plus accrued and unpaid interest thereon, the amount the Capital Unit holder will be entitled to receive will be reduced. If any Capital Unit holder chooses to tender just Capital Units, then he or she will take the risk that their redemption proceeds will be reduced by an uncertain amount. Anyone planning to surrender Capital Units alone is encouraged to read the Trust Indenture and the Amended and Restated Declaration of Trust that are available at www.SEDAR.com and to consult with their financial adviser.

Notwithstanding any other provision in the Declaration of Trust, redemption of Trust Units and Combined Securities may be suspended or payment of redemption proceeds postponed, even if units have been tendered for redemption, if, after giving effect to the redemptions, the 1.4 times coverage ratio cannot be maintained. The Trust will continue to closely monitor its NAV and will make a further announcement in the event that such a suspension or postponement is required.

Cash distributions cannot be paid on the Capital Units of the Trust if, immediately after giving effect to the proposed distribution, the Combined Value determined as of the declaration date will be less than 1.4 times the Repayment Price determined as of the declaration date. The Trust will continue to monitor its net asset value to determine when it will be able to make future distributions on its Capital Units and will issue a news release if such distributions are declared.

Brookfield Soundvest Funds give investors access to tax-advantaged distributions while focusing on capital preservation and long-term total return. The manager and investment advisor and portfolio manager for the Funds is Brookfield Soundvest Capital Management Ltd. (the “Manager”), an established investment advisor, providing investment management services to trusts, foundations, corporations and high net worth individuals.

The manager’s incompetence is such that this press release, dated 2011-1-5, is not yet available on the fund’s press release page.

It will be noted that the press release’s first paragraph contains what is basically a lie. According to the prospectus (emphasis added):

The Trust may suspend the redemption of Capital Units and the repayment of Preferred Securities or postpone repayment of redemption proceeds: (i) during any period when the Investment Advisor advises the Manager that normal trading is suspended on a market where more than 50% of the securities in the Portfolio (in terms of dollar value) trade and, if those securities are not traded on any other exchange that represents a reasonably practical alternative for the Trust; (ii) with the permission of the securities regulatory authorities (if required), for any period not exceeding 120 days during which the Manager determines that conditions exist which render impractical the sale of assets of the Trust or which impair the ability of the Trustee to determine the value of the assets of the Trust, (iii) if, after giving effect to redemptions, the Combined Value would be less than 1.4 times the Repayment Price, or (iv) if the Trust would be insolvent or otherwise unable to pay its liabilities as they become due after giving effect to such redemptions (and repayment, if applicable). The suspension shall apply to all requests for redemption or repayment received prior to the suspension date but for which payment has not been made, as well as to all requests received while the suspension is in effect. All Unitholders or Securityholders making such requests will be advised by the Manager of the suspension and that the redemption or repayment will be effected at a price determined following the resumption of redemptions and repayments. All such Unitholders and Securityholders will have, and will be advised that they have, the right to withdraw their requests for redemption or repayment if such requests were submitted prior to a suspension and payment has not been made, or if such requests were submitted during a period of suspension. Redemptions and repayments will resume in any event on the first day on which the condition giving rise to the suspension has ceased to exist, provided that no other circumstances under which a suspension is authorized then exists. To the extent it is not inconsistent with rules and regulations promulgated by any government body having jurisdiction over the Trust, any declaration of suspension made by the Manager will be conclusive.

See that word? “May”? The Manager has discretion.

The combined unit NAV as of December 31 is $14.41. Asset coverage has indeed recovered to within shouting distance of my usual comfort zone and the 6% coupon (as interest) is indeed nice and fat …. but I have lost confidence in this manager and my comfort zone for Asset Coverage is now more than usual. Suspending the retraction right was abusive to shareholders, and underperformance against the benchmark since inception has been egregious.

Therefore, I recommend retraction.

BSD.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-4(low) by DBRS. BSD.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Thanks to Assiduous Reader cal for bringing this to my attention.

Update, 2011-1-11: The Material Change Report filed on SEDAR dated 2011-1-5 is a little more honest in its wording (emphasis added):

The Amended and Restated Declaration of Trust dated April 30, 2010 (the “Declaration of Trust”) for Brascan Soundvest Split Trust permits the temporary suspension of the redemption of Capital Units and Combined Securities (being one Capital Unit and a $10.00 principal amount of Preferred Securities) if, after giving effect to the redemptions, the Combined Value would be less than 1.4 times the Repayment Price….As a result, the Declaration of Trust permits the suspension of redemptions when the net asset value per Capital Unit is less than approximately $4.00

These are total returns, with dividends presumed to have been reinvested at the bid price on the ex-date. The list has been restricted to issues in the HIMIPref™ indices.

First Asset CanBanc Split Corp. has announced:

acceptance by the Toronto Stock Exchange (the “TSX”) of the Corporation’s Notice of Intention to make a Normal Course Issuer Bid (the “NCIB”) to permit the Corporation to acquire its Preferred Shares and Class A Shares (collectively, the “Securities”).

Pursuant to the NCIB, the Corporation proposes to purchase through the facilities of the TSX, from time to time, if it is considered advisable, up to 65,998 Preferred Shares and up to 65,998 Class A Shares of the Corporation, representing approximately 10% of the public float which is the same number as the Corporation’s issued and outstanding Securities, being 659,982 Preferred Shares and 659,982 Class A Shares as of the date hereof. The Corporation will not purchase in any given 30-day period, in the aggregate, more than 13,199 Preferred Shares and 13,199 Class A Shares, being 2% of the issued and outstanding Securities as of the date hereof. Purchases of Securities under the NCIB may commence on January 5, 2011. The Board of Directors of First Asset Investment Management Inc., the manager of the Corporation, believes that such purchases are in the best interests of the Corporation and are a desirable use of the Corporation’s funds. All purchases will be made through the facilities of the TSX in accordance with its rules and policies. All Securities purchased by the Corporation pursuant to the NCIB will be cancelled. The NCIB will expire on January 4, 2012.

On December 30, 2009, the Corporation announced that it was making a Normal Course Issuer Bid, which commenced January 5, 2010, to purchase up to 122,735 Preferred Shares and up to 122,735 Class A Shares through the facilities of the TSX. Under the bid, which expires on January 4, 2011, an aggregate of 7,600 Class A Shares were repurchased at an average price of $20.16 per Class A Share including commissions. No Preferred Shares were repurchased.

This is an interesting issue, since the NAV was 38.09 as of November 30 while the capital units were last quoted at 23.10-39, 3×20, and the preferred shares at 12.76-08, 5×20. The securities are trading at a huge discount to NAV!

These numbers are even more dramatic than the ones last discussed on PrefBlog, in the post Why is CBU.PR.A priced so high?.

The annual retraction date is in January and it will be most interesting to see what happens. Given the discount from NAV, it is clear that the retraction feature is valuable. On the other hand, exercising the whole unit retraction feature necessarily involves “selling” the preferred share at its $10 book value rather than the $13-odd market price … and a $13.00 indicates a yield to maturity 2016-1-15 of 0.43%.

One might therefore wish to purchase the capital units in the low $23 area, which is well below their intrinsic value of $28-ish and hold them as a speculation … but then of course one has to start worrying about the effect of MER, etc. Still, MER considerations don’t usually inhibit players from holding the capital units of other vehicles!

CBU.PR.A is not tracked by HIMIPref™.

Desjardins has announced:

that it has entered into a support agreement with Western Financial Group (TSX:WES), the largest insurance and financial services retailer in Western Canada with 121 offices in British Columbia, Alberta, Saskatchewan and Manitoba, pursuant to which it will acquire all of the issued and outstanding common shares of Western Financial at a price of $4.15 per common share in cash (the ‘’Offer’’) for a total transaction value of $443 million.
…
Holders of convertible preferred shares and convertible unsecured debentures of Western Financial may participate in the Offer by converting such securities into common shares of Western Financial Group and tendering such shares to the Offer. By exercising the relevant conversion rights and participating in the Offer, holders of the following securities would receive the following premiums over par values: Series 2 preferred shares ‐ 15%; Series 5 preferred shares ‐ 48%; and convertible unsecured debentures ‐ 38%.

Great. Now I’m going to get all kinds of questions about convertible preferreds.

Series 5 is WES.PR.C which was issued in September 2009. The prospectus (available on SEDAR) states:

The Preferred Shares are convertible into our common shares (“Common Shares”) at the option of the holder at any time, or if called for redemption, on the business day immediately preceding the date fixed for redemption, at a conversion price of $2.81 per Common Share (the “Conversion Price”), being a rate of 35.5872 Common Shares per Preferred Share, subject to adjustment. See “Details of the Offering – Conversion”.

A nice windfall indeed!

WES.PR.D is Series 2, which closed in December 2009. According to the 2009 Annual Report:

Series 2 Preferred shares issued by the Company are convertible at the holder’s option at any time into common shares at a fixed conversion price of $3.60 per share. These shares are redeemable by the Company only after the third anniversary and up to the fifth anniversary if the common shares are trading at or greater than 135% of the $3.60 conversion price. These shares have been recorded as equity. Dividends paid and accrued are recorded against retained earnings.

Unfortunately, WES.PR.A is Series 3:

Series 3 Preferred shares issued by the Company are convertible at the holder’s option at any time into common shares at a fixed conversion price of $7.25 per share. These shares are redeemable by the Company only after the third anniversary and up to the fifth anniversary if the common shares are trading at or greater than 135% of the $7.25 conversion price. These shares have been recorded as equity. Dividends paid and accrued are recorded against retained earnings.

… and WES.PR.B is Series 4:

Series 4 Preferred shares issued by the Company are convertible at the holder’s option at any time into common shares at a fixed conversion price of $6.90 per share. These shares are redeemable by the Company only after the third anniversary and up to the fifth anniversary if the common shares are trading at or greater than 135% of the $6.90 conversion price. These shares have been recorded as equity. Dividends paid and accrued are recorded against retained earnings.

None of the WES preferred shares are tracked by HIMIPref™.

Update, 2011-1-21: Takeover bid documents mailed.

Standard & Poor’s has announced:

it affirmed its ‘CCC-‘ unsolicited long-term counterparty credit ratings and negative outlook on Kingsway Financial Services Inc. and its subsidiaries (Kingsway). Subsequently, we withdrew the unsolicited ratings.

“Our ratings on Kingsway Financial Services and its subsidiaries were based on the group’s weak operating performance, liquidity, capital adequacy, competitive position, and financial flexibility,” said Standard & Poor’s credit analyst Pablo Feldman.

Kingsway reduced its outstanding senior unsecured debt rated by Standard & Poor’s and held by third parties to about $36.9 million as of Sept. 30, 2010, from $176.8 million at year-end 2009. Kingsway financed this debt reduction with cash obtained from the sale of some of its subsidiaries and assets. “Because the company now has only a small amount of outstanding rated senior unsecured debt, we are withdrawing our unsolicited ratings,” said Mr. Feldman.

The negative outlook reflected our assessment of the company’s operating performance, liquidity, capital adequacy, competitive position, and financial flexibility as weak. We believe that the company has a high level of financial leverage and that its operating companies face a difficult underwriting environment. We also believe that Kingsway Financial Services is highly dependent upon favorable business, financial, and economic conditions to meet its financial obligations.

One of those financial obligations involves the future health of Kingsway Linked Return of Capital Trust, trading as KSP.UN and sponsored by Scotia Managed Companies:

The Trust was created to provide holders with exposure to a senior note issued by an affiliate of Kingsway Financial Services Inc. Holders of the LROC Preferred Units will receive primarily tax-deferred quarterly distributions of $0.3125 per LROC Preferred Unit representing a yield of 5.00% per annum on the $25.00 per LROC Preferred Unit offering price.

KSP.UN was last mentioned on PrefBlog when DBRS withdrew its rating last year. KSP.UN is not tracked by HIMIPref™.

Standard & Poors has announced:

it raised its long-term corporate credit rating on Montreal-based Transcontinental Inc. to ‘BBB’ from ‘BBB-‘. The outlook is stable.

“The upgrade reflects our expectation of the continued improvement in Transcontinental’s financial risk profile stemming from lower debt levels, increased profitability, and significant financial flexibility due to management’s focus on streamlining the business and cutting costs,” said Standard & Poor’s credit analyst Lori Harris. “These actions have resulted in a material strengthening of credit protection measures, with our expectation that Transcontinental will maintain an adjusted debt to EBITDA in the 2x area in the medium term,” Ms. Harris added.

Highlights are:

• We are raising our long-term corporate credit rating on Montreal-based Transcontinental Inc. to ‘BBB’ from ‘BBB-‘.
• We base the upgrade on Transcontinental’s improved operating performance and credit metrics, as reflected in its fiscal 2010 results.
• The stable outlook is based on our expectation that Transcontinental’s financial policy will be moderate, operating performance will remain good, and the company will manage its credit measures in line with our expectations in the medium term, including maintaining adjusted debt to EBITDA in the 2x area

TCL.PR.D was last mentioned on PrefBlog at the time of issue. TCL.PR.D is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Manulife Asset Management Limited, the manager of AIC Global Financial Split Corp. has announced:

that it intends to extend the termination date of the Corporation which is currently set for May 31, 2011 for another five years, with a new termination date scheduled to be on May 31, 2016.

The proposed extension would provide securityholders the potential to benefit from a more complete market recovery of the Corporation’s Net Asset Value.

A special meeting of holders of the Class A Shares and Preferred Shares of the Corporation will be held to consider and vote upon the extension. Further details of the extension will be outlined in a management information circular to be prepared and delivered to holders of the Class A Shares and Preferred Shares in connection with the special meeting. Such extension would be subject to any required regulatory approvals.

This must be the most ridiculous attempt to extend term ever. The NAV as of Dec. 17 is $9.98 – that is, the $10 p.v. preferred shares are actualy underwater right now. I feel quite safe in saying that the only reason they’re quoted at 9.19-27 is due to the imminence of the scheduled redemption date.

The press release does not mention who is going to pay the expenses of the special meeting – I’ll bet a nickel that expenses will be borne by the Split Share Corp., not the manager.

The fund started in 2004, and there is nothing unusual about its terms. As can be surmised from the name of the fund, it simply ran into a train wreck; there’s no shame in that.

There is shame, however, in such a grossly abusive waste of shareholder time and money as to seek a term extension. I can think of no inducement that could possibly be offered to the preferred shareholders that would cause an alert and prudent preferred shareholder to vote in favour of a term extension. As with the reorganization of XCM.PR.A and XMF.PR.A, any value at all that is offered to the Capital Unitholders comes directly out of the preferred shareholders’ pockets.

I am surprised that Manulife is putting its name such a sleazy exercise, simply in an attempt to keep fourteen lousy million dollars under management – assuming there are no retractions on the scheduled wind-up date date. And trust me, if this obscenity somehow passes I’ll be recommending retraction.

Vote no.

ASC.PR.A was last mentioned on PrefBlog when DBRS withdrew its rating at the request of the manager. ASC.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Capital Power Corporation has announced:

that it has closed its previously announced offering of 5,000,000 Cumulative Rate Reset Preference Shares, Series 1 (the “Series 1 Shares”) at a price of $25 per Series 1 Share (the “Offering”) for aggregate gross proceeds of $125 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc. and RBC Capital Markets.

CPX.PR.A is a FixedReset 4.60%+217 announced December 1. The issue traded 262,349 shares in a range of 24.85-95 before closing at 24.88-90, 4×116.

Vital statistics are:

Brompton Group has announced:

that it has filed a preliminary prospectus relating to an offering of warrants to Class A shareholders of the Company. Each Class A shareholder will receive one half of a warrant for each Class A share held on a record date which will be set upon filing of the final prospectus.

One warrant will entitle the holder to purchase a Unit (consist ing of one Class A share and one Preferred share of the Company) upon payment of the subscription price, which will be determined as the lesser of:
(i) $18.87 (which is the sum of (a) the most recently calculated NAV per Unit prior to the date hereof and
(b) the estimated per Unit fees and expenses of the offering), and (ii) the most recently calculated NAV per Unit prior to the date of filing the final prospectus plus the estimated per Unit fees and expenses of the offering. The Company has applied to list the warrants and the Class A shares and Preferred shares issuable on the exercise thereof on the TSX.

Successful completion of the warrants offering will provide the Company with additional capital that can be used to take advantage of attractive investment opportunities and it is also expected to increase the trading liquidity of the Class A shares and Preferred shares and reduce the ongoing management expense ratio of the Company.

There is no word yet regarding the exercise date of the warrants, but with the last one the warrants were outstanding for about a month.

LBS.PR.A was last mentioned on PrefBlog at the time of their warrant offering five months ago, which was something of a fizzle. LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Energy Split Corp. II has announced:

that the redemption prices for all outstanding Capital Yield Shares and ROC Preferred Shares to be paid on December 16, 2010 are as follows:

Redemption Price per ROC Preferred Share: $13.74

Redemption Price per Capital Yield Share: $9.86

The Capital Yield Shares and ROC Preferred Shares are listed for trading on The Toronto Stock Exchange under the symbols EN and EN.PR.A, respectively. The Capital Yield Shares and ROC Preferred Shares will be de-listed from the Toronto Stock Exchange as at the close of trading on December 16, 2010.

EN.PR.A was last mentioned on PrefBlog last December when there was a tiny partial redemption. EN.PR.A has been tracked by HIMIPref™, but relegated to the Scraps index on volume concerns – there were less than 1-million shares outstanding.