Category: Issue Comments

Brompton Equity Split Corp. (“BE”) and Dividend Growth Split Corp. (“DGS”) have announced they:

will be holding shareholder meetings on April 8, 2011 to consider and vote upon special resolutions to merge BE and DGS by way of amalgamation (the “merger”). If the merger is approved, the merged entity will be named Dividend Growth Split Corp. and it will have the same investment objectives, strategies and restrictions as DGS as well as substantially the same preferred share and class A share attributes.

DGS invests on an equally weighted basis in a portfolio of 20 large capitalization Canadian equities that have among the highest dividend growth rates on the TSX. As both the BE and DGS portfolios are primarily invested in common shares of major Canadian issuers, under the merger BE will be able to smoothly transition its assets into a larger continuing fund with the ability to grow in size with lower administrative costs and increased trading liquidity for shareholders.
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Shareholders of BE will also be provided with an opportunity to redeem their shares on April 28, 2011 which is earlier than the scheduled final redemption date of BE of May 31, 2011, provided that BE shareholders tender their shares for redemption by April 15, 2011 and the merger is approved by BE and DGS shareholders.
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Details regarding the proposed merger will be contained in the joint management information circular which is expected to be mailed to BE and DGS shareholders on or before March 18, 2011. The circular will also be available on www.sedar.com and posted at www.bromptonfunds.com. In addition to the approval of the BE and DGS shareholders, the merger is subject to applicable regulatory approvals. Under the merger proposal, each issued and outstanding preferred share of BE will become one preferred share of DGS. Each issued and outstanding class A share of BE will become the number of class A shares of DGS determined by dividing the net asset value per class A share of BE by the net asset value per class A share of DGS, each calculated on April 28, 2011. In order to maintain the same number of class A and preferred shares outstanding, class A shares or preferred shares may be redeemed by BE on a pro-rata basis prior to the merger as outlined in the joint management information circular.

BE.PR.A is not tracked by HIMIPref™ and this is its first mention on PrefBlog. DGS.PR.A is tracked by HIMIPref™ and was last mentioned on PrefBlog when it got bigger last December.

Readers will note that not only is the term extension entirely reasonable (DGS.PR.A has Asset Coverage of 1.9-:1), but that BE.PR.A holders who don’t like the idea are being offered the opportunity to redeem. This should not be noteworthy, but is in light of Manulife’s recent abusive behaviour.

It is not clear to me whether approval of the merger is required from all four sets of shareholders voting separately. I am endeavoring to find out.

Update: Brompton Group has confirmed that each of the four classes of shareholder involved will vote separately; each class has veto power over the deal.

Update, 2011-3-28: As noted in the comments section, I have read the information circular and recommend that preferred shareholders vote in favour of the merger.

Manulife Financial has announced:

that it has completed its offering of 8 million Non-cumulative Rate Reset Class 1 Shares Series 3 (the “Series 3 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $200 million.

The offering was underwritten by a syndicate of investment dealers led by Scotia Capital Inc. and RBC Dominion Securities Inc. The Series 3 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.F.

The Series 3 Preferred Shares were issued under a prospectus supplement dated March 7, 2011 to Manulife’s short form base shelf prospectus dated September 3, 2010.

The 4.20%+141 FixedReset was announced March 7.

The issue traded 203,885 shares in a range of 24.80-97 before closing at 24.93-97, 15×3.

Vital statistics are:

This issue will be tracked by HIMIPref™ has been added to the FixedResets index. A hardMaturity at par dated 2022-1-31 has been added to the call schedule indicated by the prospectus to reflect an anticipated call due to the issues lack of a NVCC clause and OSFI’s refusal to grandfather such issues.

The Bank of Montreal has announced:

that it has completed its offering of 11.6 million Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 25 (the “Preferred Shares”) at a price of $25.00 per share. The gross proceeds of the offering were $290 million after the exercise in part of the underwriters’ option. The offering, which was previously announced on March 2nd, was underwritten on a bought deal basis by a syndicate led by BMO Capital Markets. The Preferred Shares commence trading on the Toronto Stock Exchange today under the symbol BMO.PR.Q.

The Preferred Shares were issued to the public at a price of $25.00 per Preferred Share and holders will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period ending August 25, 2016, as and when declared by the board of directors of the Bank, payable in the amount of $0.24375 per Preferred Share, to yield 3.90 per cent annually.

Thereafter, the dividend rate will reset every five years to be equal to the 5-Year Government of Canada Bond Yield plus 1.15 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares into an equal number of Non-Cumulative Floating Rate Class B Preferred Shares Series 26 on August 25, 2016 and on August 25 of every fifth year thereafter. Holders of the Preferred Shares Series 26 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the board of directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill yield plus 1.15 per cent.

The FixedReset 3.90%+115 was announced March 2.

The issue traded 388,199 shares in a tight range of 24.80-86 before closing at 24.80-86, 10×25.

Vital statistics are:

This issue will be tracked by HIMIPref™ has been added to the FixedResets index. A hardMaturity at par dated 2022-1-31 has been added to the call schedule indicated by the prospectus to reflect an anticipated call due to the issues lack of a NVCC clause and OSFI’s refusal to grandfather such issues.

Bell Alliant has announced:

that Bell Aliant Preferred Equity Inc. has filed a final prospectus with securities regulators in each of the provinces and territories of Canada for its previously announced offering of 10,000,000 Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) at a price of $25.00 per share for gross proceeds of $250 million. The offering is now scheduled to close on or about March 15, 2011, subject to certain conditions. The syndicate of underwriters, led by BMO Capital Markets and Scotia Capital Inc., has been granted an over-allotment option, exercisable up to 30 days after closing, to purchase an additional 1,500,000 Series A Preferred Shares at the offering price.

There’s not much detail in that, but it looks like a box-ticking foul up. On SEDAR, under “Bell Aliant Preferred Equity Inc. Mar 7 2011 Material incorporated by reference not previously filed – English” is the Material Change Report noting the initial press release regarding the issue.

The issue is a 4.85%+209 FixedReset announced February 22.

Mulvihill Asset Management’s MCM Split Share Corp. has announced:

that it will voluntarily dissolve and distribute to shareholders the proceeds to be received from the liquidation of the assets, less all liabilities and all expenses to be incurred in connection with the dissolution and winding up of the Fund. This dissolution is in advance of the scheduled termination date of February 1, 2013. The Fund expects that proceeds from the liquidation will be payable to holders of the Priority Equity Shares on or about March 31, 2011.

In late 2007, the Fund adopted a strategy (the “Priority Equity Portfolio Protection Plan”) to assist the Fund with payment of the original issue price of the priority equity shares (the “Priority Equity Shares”) on the redemption date originally scheduled for February 1, 2013. Given the steep market sell-off in November 2008, the Fund was required to implement the Priority Equity Portfolio Protection Plan and raised its cash levels to ensure compliance with the plan. Since that time, the Fund has been invested in cash and cash equivalents with no equity exposure. For the year ended January 31, 2011, the Fund’s total return was negative 1.3%. Distributions amounting to $0.83 per Priority Equity Share were paid during the year ended January 31, 2011, contributing to an overall decline in the net asset value (“NAV”) of the Fund from $14.24 per Unit (each notional Unit consisting of one Priority Equity Share and one Class A Share) as at January 31, 2010 to $13.23 as at January 31, 2011. The Fund believes that holders of the Priority Equity Shares may be better off reinvesting the proceeds from the voluntary dissolution than by remaining invested in the Fund as a result of the returns available on the Fund’s existing investments.

Given that the Priority Equity Shares rank ahead of the Class A Shares, the Fund expects that holders of the Priority Equity Shares will receive the entire amount of the liquidation proceeds to be paid to shareholders because they are entitled to the first $15.00 of NAV of the Fund per share in priority to other shareholders. As the amount of such liquidation proceeds will be less than $15.00 per Priority Equity Share, the Fund does not expect to be in a position to make any payment to holders of Class A Shares upon dissolution.

The NAV was $13.23 on February 28, according to Mulvihill. There are just over 1.1-million shares outstanding, according to TMXMoney. The fund had been scheduled to wind up on 2013-2-1 but had problems:

The Fund adopted a strategy (the “Priority Equity Portfolio Protection Plan”) to protect holders of the Priority Equity Shares by assisting the Fund with the payment of the original issue price of $15.00 per share on termination date. With the steep market sell off in November 2008 we had to raise our cash levels to ensure compliance with the above feature. The Fund is now in cash and cash equivalents with no equity exposure. During the fiscal year ended January 31, 2010, the annual total rate of return of the Fund was negative 1.42 percent. Distributions amounting to $0.83 per share to Priority Equity shareholders and $0.01 per share to Class A shareholders were paid during the year, contributing to the overall decline in the net asset value from $15.29 per Unit as at January 31, 2009 to $14.24 per Unit as at January 31, 2010.

This portfolio insurance strategy didn’t work out too well for XCM.PR.A or XMF.PR.A, either … at least as far as the sponsors were concerned.

MUH.PR.A was last mentioned on PrefBlog when they announced they were contemplating a reorg. MUH.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Sixty Split Corp. has announced:

The Board of Directors of Sixty Split Corp. has declared today an ordinary dividend of $0.3563 per Preferred Share payable on March 15, 2011 to holders of record at the close of business on March 14, 2011.

Holders of Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $0.3563 per Preferred Share.

The Capital Shares and Preferred Shares will be redeemed by the Company on March 15, 2011 (the “Redemption Date”) in accordance with the redemption provisions of the shares. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $25.00 and the net asset value per Unit. The Capital Shares will be redeemed at a price per two Capital Shares equal to the amount by which the net asset value per unit exceeds $25.00. The net asset value per unit was $68.86 as at March 1, 2011.

Holders of Capital Shares who requested to receive their redemption payment in portfolio securities and gave notice to this effect and tendered $25.00 for every two Capital Shares by February 14, 2011 will receive their pro rata share of the portfolio securities. The redemption of Capital Shares and Preferred Shares will constitute a taxable disposition of the Company’s shares at the time of the redemption whether the payment is received in the form of cash or portfolio securities.

A further press release will be issued by the Company in connection with the redemption prices on March 14, 2011. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on March 15, 2011.

Sixty Split Corp. is a mutual fund corporation created to hold a portfolio of common shares and income funds of the companies and trusts that make up the S&P/TSX 60 Index. Capital Shares and Preferred Shares of Sixty Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols SXT and SXT.PR.A respectively.

Update, 2011-3-14:Final redemption prices

Dominion Bond Rating Service has announced that it:

has today upgraded the rating of the Class B Preferred Shares (the Preferred Shares) issued by 5Banc Split Inc. (the Company) to Pfd-3 (high) from Pfd-3. In December 2006, the Company issued 14 million Preferred Shares at $10 each and an equal number of Class B Capital Shares (the Capital Shares) at $10 each. The final redemption date for the Preferred Shares and Capital Shares is December 15, 2011.
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The rating of the Preferred Shares was last confirmed on August 10, 2010. Since then, the net asset value (NAV) of the Company has increased by approximately 9%. The current downside protection (as of February 24, 2011) is approximately 49%. The upgrade of the rating of the Preferred Shares is primarily based on the increased downside protection since August 2010 and the fairly short term to final redemption of the Preferred Shares.

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

(3) The Portfolio is entirely concentrated in the Canadian financial services industry.

FBS.PR.B was last mentioned on PrefBlog when there was a partial redemption call in December 2009. FBS.PR.B is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Assiduous Reader Cal alerted me in the comments to the prior post on the ASC term extension proposal that the company, AIC Global Financial Split Corp., which is now flying the banner of Manulife Investments has – finally – posted the Management Information Circular on SEDAR.

The plan is extraordinarily abusive and the directors

• Paul Lorentz
• Sheila Hart
• Jennifer Mercanti
• Warren Law

should be extremely ashamed of themselves.

There is, as projected in the comments to the notification of intent, no “sweetener” to the NAV that might convince a rational preferred shareholder to vote in favour. The current asset coverage is 1.1-:1, a very low figure that means a lot of immediate downside risk is being borne by the preferred shareholders.

Readers will remember the recent proposal to extend term for PIC.PR.A which was eventually approved. I didn’t think much of that plan either, given the distribution policy and the low level of asset coverage (which was nevertheless higher than is currently the case with ASC.PR.A), but the promoter, Mulvihill, acted with all the integrity one might wish: they provided that in the case of the term extension proceeding, there would be a special retraction right, effective on the date of the original maturity, whereby shareholders could bail out if they didn’t like the prospects going forward. This resulted in a large retraction, which wound up improving the credit quality of the preferred shares significantly. This was well done: bravo Mulvihill!

There is no such privilege being offered to holders of ASC.PR.A.

Instead, security holders are treated to a page and a half of unfamiliar gobbledygook regarding their Rights of Dissent:

Pursuant to the provisions of Section 185 of the Business Corporations Act (Ontario) (“OBCA”), Securityholders are entitled to dissent and be paid the fair value of their shares if they object to the Special Resolution and the Special Resolution becomes effective.
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In order to dissent, a Securityholder must send a written objection (an “Objection Notice”) to the Special Resolution to the Corporation at Proxy Tabulation, P.O. Box 2800 Stn LCD Malton, Mississauga, Ontario L5T 2T7 on or before the date of the Special Meeting.
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Within 10 days following the date of the Special Meeting, the Corporation will deliver to each Securityholder who has filed an Objection Notice in respect of the Special Resolution, at the address specified for such purpose in such Securityholder’s Objection Notice, a notice stating that the Special Resolution has been adopted (the “Corporation Notice”).
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Within 20 days after receipt by a Securityholder of the Corporation Notice or, if no Corporation Notice is received by the dissenting Securityholder, within 20 days after such Securityholder learns that the Special Resolution has been adopted, the dissenting Securityholder is required to send a written notice to the Corporation, at the address set forth in the preceding paragraph, containing the Securityholder’s name and address, the number of shares held in respect of which such Securityholder dissents and a demand for payment of the fair value of such shares (the “Demand for Payment”). Within 30 days thereafter, the Securityholder must send the share certificates representing such shares to the Corporation. Such share certificates will be endorsed by the Corporation with a notice that the holder is a dissenting Securityholder and will be returned to the dissenting Securityholder. A Securityholder who fails to forward share certificates within the time required loses any right to make a claim for payment of the fair value of such Securityholder’s shares.
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Not later than seven days after the later of the day on which the action approved by the Special Resolution becomes effective and the date the Corporation receives the Demand for Payment, the Corporation will send to each dissenting Securityholder a written offer (the “Offer to Pay”) to pay for the shares which are the subject of the Objection Notice in an amount considered by the Board of Directors of the Corporation to be the fair value of such shares as of the close of business on the day before the day on which the action approved by the Special Resolution becomes effective accompanied by a statement showing how the fair value was determined.
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If the Corporation fails to make the Offer to Pay or a dissenting Securityholder fails to accept the Offer to Pay within the time limit prescribed therfor, the Corporation may apply under the OBCA to a court to fix a fair value for the shares within 50 days after the day on which the action approved Special Resolution becomes effective or within such further period as the court may allow.
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Provided that the Special Resolution becomes effective, a Securityholder who complies with each of the steps required to dissent effectively is entitled to be paid the fair value of the shares in respect of which such Securityholder has dissented. Such fair value as determined by the court may be more than, less than or equal to the consideration to be received under the Offer to Pay.

The foregoing is a summary only of the rights of dissenting Securityholders. Any Securityholder desiring to exercise a right to dissent should seek legal advice since failure to comply strictly with the provisions of Section 185 of the OBCA may prejudice that right.

Look at all the backing-and-forthing! Dissenters have to send at least three official notices to the compay: first the Objection Notice, then the Demand for Payment, then – if you’re lucky – the acceptance of the Offer to Pay. Ridiculous!

The repeated references to share certificates are a disgraceful attempt to confuse shareholders such as my good friend Cal: there aren’t any:

As a result of the Corporation issuing shares in book-entry form only, CDS is the sole registered Securityholder of each of the shares.

The only good thing one can say about this is that at least the corporation is not adding injury to insult by paying the expenses itself:

All external costs incurred by the Corporation in connection with the Extension will be borne by the Manager. Such external costs are estimated to be $50,000.

On the other hand:

Management fees in the amount of $127,438 were paid by the Corporation to the Manager during the year ended December 31, 2010.

Of course, we’re not told what the “internal” costs might be, so don’t break out the champagne and party hats just yet!

I’ll probably catch some flak due to my characterization of the plan as “abusive”. After all, some might say, since the Manager is paying the $50,000 ticket, all that’s happening is the preferred shareholders are being asked to vote. A no vote on the resolution will halt the plan at no cost to them, either directly or in the form of reduced Asset coverage (unless, of course, there are significant “internal” costs not disclosed in the Circular).

To which I say: piffle. Most preferred shareholders are not financial professionals and most of their advisors – being stockbrokers – aren’t much good. Those who take the view that this process is perfectly fair are in the same moral position as those who convince grandma to pay $20,000 for new aluminum siding.

A term extension will come with very high risk to preferred shareholders. Hymas Investment Management Inc. strongly recommends that preferred shareholders:

• Vote NO!
• Exercise rights of dissent

Specific details of who must do what by what date in order to dissent will – probably – vary from broker to broker. Preferred shareholders should contact their brokers well before the meeting (“to be held on Monday, April 4, 2011 at 10:00 a.m.”) to ensure their rights of dissent are not inadverdently lost. Note that:

If you are a holder of Class A Shares or Preferred Shares … you should submit a voting instruction form … well in advance of the 5:00 p.m. (Toronto time) deadline on April 1, 2011 for deposit of proxies.

Specific dates will vary from broker to broker, but will generally be at least a day or two in advance of Friday April 1.

Update, 2011-3-1: Note that the prospectus (available on SEDAR, dated May 18, 2004, allows for:

Annual Concurrent Retraction. A holder of a Preferred Share may concurrently retract an equal number of Preferred Shares and an equal number of Class A Shares on the Retraction Date in May of each year, commencing on the Retraction Date in May in 2005, at a retraction price equal to the NAV per Unit on that date. To be retracted in this manner, the Preferred Shares and Class A Shares must both be surrendered for retraction at least five Business Days prior to the Retraction Date in May for the applicable year. Payment of the proceeds of retraction will be made on or before the eighth Business Day following the Retraction Date in May for the applicable year.

However, the Capital Units are currently quoted at 1.45-50, well above their intrinsic value; additionally, preferred shareholders will have to incur commission expenses and take exposure to Whole Units in order to take advantage of this provision. The preferreds are now at 9.45-89.

Allbanc Split Corp has announced:

that it has called 244,293 Preferred Shares for cash redemption on March 10, 2011 (in accordance with the Company’s Articles) representing approximately 23.003% of the outstanding Preferred Shares as a result of the special annual retraction of 244,293 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 March 9, 2011 will have approximately 23.003% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $26.75 per share.

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 March 10, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on March 10, 2011. From and after March 10, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

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