Category: Issue Comments

Northland Power has announced (some time ago, actually):

that the conversion of Northland Power Income Fund (the “Fund”) from an income trust to a corporation became effective on January 1, 2011.

As a result, Northland is now the Canadian public corporation which will continue to carry on the business of the Fund. The Fund’s trust units have been converted into common shares of Northland on a one-for-one basis and will trade under the TSX symbol NPI. The Series 1 Preferred Shares of Northland Power Preferred Equity Inc. have been converted into Series 1 Preferred Shares of Northland on a one-for-one basis and will trade under the TSX symbol NPI.PR. The two series of convertible debentures of the Fund have become convertible debentures of Northland and will continue to trade under the TSX symbols of NPI.DB and NPI.DB.A.

As an income trust, Northland and its Unit holders benefited under Canadian income tax law from advantages available to income trusts. Canadian legislation phased out those advantages at December 31, 2010.

In 2009, the Fund merged with its manager, Northland Power Inc. In addition to internalized management, this merger brought the manager’s development expertise and a robust pipeline of thermal, solar, wind and hydro development projects.

NPP.PR.A was last mentioned on PrefBlog when it settled in July, 2010. NPI.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

RioCan Real Estate Investment Trust has announced:

that it has successfully completed the issuance of 4 million Cumulative Rate Reset Preferred Trust Units, Series A (the “Series A Units”) at a price of $25 per unit for aggregate gross proceeds of $100 million. The underwriters have also been granted an over-allotment option, exercisable in whole or in part within 30 days following closing which, if fully exercised, would result in the issuance of an additional 1 million Series A Units issued at a price of $25 per unit for additional gross proceeds of $25 million. The underwriting syndicate for the offering was co-led by RBC Capital Markets, Macquarie Capital Markets Canada Ltd. and Scotia Capital.

The offering was made under RioCan’s amended and restated base shelf prospectus dated December 21, 2010. The terms of the offering are described in a prospectus supplement dated January 19, 2011, which was filed with Canadian securities regulators.

“The completion of this offering adds a new form of capital for RioCan that, used judiciously, enhances our ability to remain competitive in Canada and the United States for acquisitions,” said Edward Sonshine, Q.C. President and CEO of RioCan. “We view the use of Preferred Units as a complementary addition to RioCan’s capital structure. One that provides investors with a competitive yield and one that enhances RioCan’s financial flexibility and improves RioCan’s already strong balance sheet.”

This is a FixedReset, 5.25%+262 announced January 17 but the taxes are peculiar.

Taxation of Preferred Unitholders

A Preferred Unitholder is required to include in computing his or her income for tax purposes in each year the amount of income and net taxable capital gains, if any, paid or payable, or deemed to be paid or payable, to the Preferred Unitholder in the year by the Trust to the extent that the Trust deducts such amount in computing its income for tax purposes. The Trust’s income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders.

The amount of the non-taxable portion of any net realized capital gains of the Trust that is paid or payable to a Preferred Unitholder in a taxation year will not be included in computing the Preferred Unitholder’s income for the year. The Preferred Unitholder will not be required to reduce the adjusted cost base of the Preferred Unitholder’s Series A or Series B Units by such an amount.

Any other amount in excess of the income for tax purposes of the Trust that is paid or payable to a Preferred Unitholder in that year generally will not be included in the Preferred Unitholder’s income for the year. However, where such an amount is paid or payable to a Preferred Unitholder, the Preferred Unitholder will be required to reduce the adjusted cost base of the Preferred Unitholder’s Series A or Series B Units, as the case may be, by that amount. To the extent that the adjusted cost base of a Series A or Series B Unit would otherwise be a negative amount, the negative amount will be deemed to be a capital gain and the adjusted cost base of the Series A or Series B Unit to the Preferred Unitholder will then be nil. The taxation of capital gains is described below (see ‘‘Capital Gains and Capital Losses’’).

The company cannot be bothered to give a breakdown of their prior distributions by taxation status on their “Distribution Info” page, or in their 2009 Annual Report but, as previously reported there is a credible estimate:

BMO analyst Karine MacIndoe ran the numbers and found that RioCan has a historical five-year tax-deferral average of about 50 per cent. Applying that figure over a five-year horizon in the future, the pref units’ 5.25 per cent yield equates to a 4.82 per cent dividend yield on an after-tax return basis.

If we assume marginal rates for an Ontario investor with $150,000 income of 46.41% income, 23.20% capital gains and 26.57% eligible dividends, then, when holding $100 pv of this issue:

$5.25 distribution received.
$2.625 income, keep 53.59% = $1.407
$2.625 CG on disposition, assume immediate disposition, keep 76.80% = $2.016
Total kept after tax = $3.423

Equivalent to pre-tax eligible dividends of $4.662, or 4.66% of the $100 notional par value. Note that the dividend-equivalent yield will increase according to your estimate of the period of tax deferral until the units have sold, and increase according to your estimate of the time value of money in the interim.

REI.PR.A traded 389,944 shares today in a range of 25.05-65 before closing at 25.52-55, 4×8.

Vital statistics are:

REI.PR.A will be tracked by HIMIPref™ and valued with the assumption that all distributions are taxable as interest. It will be relegated to the Scraps index on credit concerns.

First National has announced:

the closing of its previously announced offering of 4,000,000 Class A Preference Shares, Series 1 (the “Series 1 Shares”) for gross proceeds of $100,000,000 (the “Offering”).

The net proceeds of the Offering will be used to repay current indebtedness as well as for general corporate purposes.

The Series 1 Shares will commence trading on the Toronto Stock Exchange on January 25, 2011 under the symbol FN.PR.A.

The Offering was completed through a syndicate of underwriters led by RBC Capital Markets and Scotia Capital Inc.

This is a FixedReset 4.65%+207 announced on January 17.

The issue traded 4,030 shares today in a range of 24.45-50 before closing at 24.35-50, 9×125.

Vital Statistics are:

FN.PR.A will be tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

SL Split Corp. has announced:

that it has called 1,950 Preferred Shares for cash redemption on January 31, 2011 (in accordance with the Company’s Articles) representing approximately 0.210% of the outstanding Preferred Shares as a result of the special annual retraction of 3,900 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 January 28, 2011 will have approximately 0.210% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.78 per share.

In addition, holders of a further 94,800 Capital Shares and 47,400 Preferred Shares have deposited such shares concurrently for retraction on January 31, 2011. As a result, a total of 98,700 Capital Shares and 49,350 Preferred Shares, or approximately 5.0551% of both classes of shares currently outstanding, will be redeemed.

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 January 31, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on January 31, 2011. From and after January 31, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any rights in respect of such shares except to receive the amount due on redemption.

SLS.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-4 by DBRS. SLS.PR.A is not tracked by HIMIPref™.

Dividend 15 Split Corp. announced on December 21 that it:

completed its secondary offering of 2,500,000 Preferred Shares and 2,500,000 Class A Shares of the Company for aggregate gross proceeds of $55,000,000, bringing the Company’s net assets to approximately $326 million. Shares will continue to trade on the Toronto Stock Exchange under the existing symbols DFN (Class A Shares) and DFN.PR.A (Preferred Shares).

The Preferred Shares were offered at a price of $10.00 per share to yield 5.25% based on current distribution policy. The Class A Shares were offered at a price of $12.00 per share to yield 10.00% based on current distribution policy. RBC Capital Markets and CIBC World Markets were co-lead agents for the offering.

Additionally, they announced on January 7 that they:

issued an additional 157,000 Class A Shares and 157,000 Preferred Shares of the Company for aggregate gross proceeds of $3,454,000. This brings the Company’s net assets to approximately $328 million. The additional shares trade on the Toronto Stock Exchange under the existing symbols DFN (Class A Shares) and DFN.PR.A (Preferred Shares).

DFN.PR.A was last mentioned on PrefBlog when the offering was announced. DFN.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

CIX Split Corp has announced:

that it will redeem all of its outstanding Priority Equity Shares and Class A Shares (the “Shares”) on January 31, 2011 (the “Redemption Date”) as contemplated by the constating documents of the Corporation. The Corporation will request that its Shares be delisted from the Toronto Stock Exchange after the close of trading on January 31, 2011. The redemption proceeds for the Shares will be paid by the Corporation on or about February 7, 2011 through CDS Clearing and Depository Services Inc. It is anticipated that the Priority Equity Shares will be redeemed at $10.00 and that the Class A Shares will be redeemed at their net asset value per share on the Redemption Date.

The Corporation’s Priority Equity Shares and Class A Shares are listed on the Toronto Stock Exchange under the symbols CXC.PR.A and CXC respectively.

CXC.PR.A was last mentioned on PrefBlog in the post CXC.PR.A Holders Give Christmas Present to the Capital Units. CXC.PR.A is not tracked by HIMIPref™.

Update, 2011-2-3: Matured.

Allbanc Split Corp. II has announced:

that the final condition required to extend the term of the Company for an additional five years to February 28, 2016 has been met as holders of 65.2% of Class A Capital Shares have elected to extend. Class A Capital shareholders previously approved the extension of the term of the Company subject to the condition that a minimum of 2,667,000 Class A Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”).

Under the Special Retraction Right, 2,318,164 Class A Capital Shares were tendered to the Company for retraction on February 28, 2011. The holders of the remaining 4,349,412 Class A Capital Shares will continue to enjoy the benefits of a leveraged participation in the capital appreciation of the Company’s portfolio of publicly listed common shares of selected Canadian chartered banks and will defer realization of any capital gains which would otherwise have been realized on the redemption of their Class A Capital Shares.

The Class A Preferred Shares will be redeemed by the Company on February 28, 2011 in accordance with the redemption provisions as detailed in the January 25, 2006 prospectus. 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. In order to maintain the leveraged “split share” structure of the Company, the Company intends to create and issue a new series of Class B Preferred Shares to be called the Series 1 Preferred Shares, which are expected to be issued following this redemption.

Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.A respectively.

ALB.PR.A was last mentioned on PrefBlog when the reorganization proposal was conditionally approved. ALB.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

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™.