Category: Issue Comments

OK, you need a programme for this. Can’t tell your players without a programme!

Brookfield Asset Management (BAM) wholly owns Brookfield Renewable Power Inc.

Brookfield Renewable Power Inc. is the Manager of, and owns 42% of the units in, Brookfield Renewable Power Fund.

Brookfield Renewable Power Preferred Equity (BRF) is a wholly owned subsidiary of Brookfield Renewable Power Fund.

In a press release today:

Brookfield Renewable Power Fund (the “Fund”) and Brookfield Renewable Power Inc. (“BRPI”) today announced a bought-deal secondary offering, with a syndicate of underwriters led by CIBC and Scotia Capital Inc., through which BRPI, the selling unitholder, has agreed to sell 7,000,000 of its Fund units at an offering price of $21.85 per unit. The Underwriters have been granted an over-allotment option to purchase up to an additional 1,000,000 units at the offering price, under the same terms, exercisable for a period of 30 days from closing of the Offering.

BRPI and its affiliates currently own 45,190,838 Fund units or approximately 41.5% of the Fund’s units on a fully-exchanged basis. Upon the completion of the offering, but before giving effect to the over-allotment option, it is anticipated that BRPI will own 38,190,838 Fund units directly and indirectly, representing approximately 35.1% of the Fund’s units on a fully-exchanged basis, and remain its largest unitholder.

The proceeds from the offering will provide BRPI with additional liquidity.

The Fund will continue to be administered and managed by BRPI and remain Brookfield Asset Management Inc.’s exclusive vehicle for Canadian contracted operating and construction-ready hydro and wind power generation facilities.

DBRS comments:

The transaction does also not impact the ratings of the Fund (BBB (high), Stable trend, STA-2 (high)) nor those of the Fund’s affiliate Brookfield Renewable Power Preferred Equity Inc. (Pfd-3 (high), Stable trend) as BRP will remain the Fund’s Manager. As the transaction is a secondary offering, no sale proceeds will flow to the Fund.

This is reminiscent of the BPO Asset Shuffle of the summer.

It is of additional interest to learn:

DBRS has assigned a rating of BBB (high) with a Stable trend to the prospective issue by Brookfield Renewable Power Inc. (BRP) of $450 million of 5.14% Series 7 medium term notes due October 13, 2020 (the Notes).

The Notes are being offered pursuant to BRP’s Short Form Base Shelf Prospectus dated September 9, 2010, a Prospectus Supplement dated October 6, 2010, and a pricing supplement dated October 7, 2010. The Notes will rank equally with all other unsecured indebtedness of BRP. Proceeds from the offering will be used to refinance existing indebtedness, including BRP’s $400 million of 8.75% Series 5 notes, and for general corporate purposes. The offering is expected to close on October 13, 2010.

So “Inc” is raising another $50-million in debt, in addition to monetizing $150-million-odd in “Fund”. I wonder what will happen to the money?

Brookfield Renewable Power Preferred Equity has one series of preferreds outstanding, BRF.PR.A, a FixedReset relegated to Scraps on credit concerns.

Brookfield Asset Management has many preferred shares outstanding: BAM.PR.B & BAM.PR.K (floater); BAM.PR.E (Ratchet); BAM.PR.G (FixedFloater); BAM.PR.H, BAM.PR.I, BAM.PR.J & BAM.PR.O (Operating Retractible); BAM.PR.M & BAM.PR.N (PerpetualDiscount); and BAM.PR.P & BAM.PR.R (FixedReset)

BCE Inc. has announced:

As of December 1, 2010, the Series R Preferred Shares will, should they remain outstanding, 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 based on a fixed rate equal to the product of: (a) the yield to maturity compounded semi-annually (the “Government of Canada Yield”), computed on November 10, 2010 by two investment dealers appointed by BCE Inc., that would be carried by Government of Canada bonds with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage Rate” determined by BCE Inc. is 207%. The annual dividend rate applicable to the Series R Preferred Shares will be published on November 11, 2010 in the national edition of the Globe and Mail, the Montreal Gazette and La Presse and will be posted on the BCE Inc. website at www.bce.ca.

These shares are interconvertible to and from BCE.PR.Q, a ratchet rate issue which does not currently exist:

Beginning on October 18, 2010 and ending on November 17, 2010, holders of Series R Preferred Shares will have the right to choose one of the following options with regards to their shares:
1. To retain any or all of their Series R Preferred Shares and continue to receive a fixed quarterly dividend; or
2. To convert, on a one-for-one basis, any or all of their Series R Preferred Shares into BCE Inc. Cumulative Redeemable First Preferred Shares, Series Q (the “Series Q Preferred Shares”) and receive a floating monthly dividend.

Those trying to decide which way to jump may be interested in the Pairs Equivalency Calculator I published earlier this year. I will post again once the final rate is known.

BCE.PR.R, et al., were last mentioned on PrefBlog when BCE bought CTV. BCE.PR.R is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Premium Income Corporation has announced:

that its shareholders have approved a reorganization (“Reorganization”) to extend the term of the Fund for an additional seven years.

In connection with the Reorganization, holders of Class A Shares will continue to receive ongoing leveraged exposure to a high-quality portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank, as well as attractive quarterly cash distributions. Currently, the Fund is paying quarterly Class A distributions at a rate of $0.60 per year. The Fund intends to continue to pay distributions at this rate until the net asset value (“NAV”) per Unit (a “Unit” being considered to consist of one Class A Share and one Preferred Share) reaches $22.50. At such time, quarterly Class A distributions paid by the Fund will vary and will be calculated as approximately 8.0% per annum of the NAV of a Class A Share.

Holders of Preferred Shares are expected to continue to benefit from fixed cumulative preferential quarterly cash dividends in the amount of $0.215625 per Preferred Share ($0.8625 per year) representing a yield of 5.75% per annum on the original issue price of $15.00.

As part of the Reorganization, the Fund will also make other changes including changing its authorized share capital by adding new classes of shares issuable in series, changing the monthly retraction prices for the Class A Shares and the Preferred Shares so that they are calculated by reference to market price in addition to NAV and changing the dates by which notice of monthly retractions needs to be provided and by which the retraction amount will be paid. The Fund will also allow for the calculation of a diluted NAV in the event the Fund should ever issue warrants or rights to acquire additional Class A Shares or Preferred Shares.

The Fund believes that the Reorganization will allow shareholders to maintain their investment in the Fund on a basis that will better enable it to meet its investment objectives for both classes of shares. Shareholders will be given a special retraction right to retract their Class A Shares or Preferred Shares at NAV on November 1, 2010. The redemption date of the shares will automatically be extended for successive seven-year terms after November 1, 2017, the Board of Directors will be authorized to set the dividend rate on the Preferred Shares for any such extension of term and shareholders will be able to retract their Class A Shares or Preferred Shares at NAV prior to any such extension.

When I reported the proposal in PIC.PR.A Proposes Term Extension I decried the poor credit quality of the shares and suggested that holders might wish to redeem if the proposal went through.

PIC.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Allbanc Split Corp II has announced:

that its Board of Directors has approved a proposal to reorganize the Company. The reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of February 28, 2011 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on February 28, 2011.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of a new class of preferred shares in order to provide continuing leverage for the Capital Shares.

A special meeting of holders of the Capital Shares will be held on December 7, 2010 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on October 28, 2010 in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks.

ALB.PR.A was last mentioned on PrefBlog when the company announced it was considering reorganizing. ALB.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Faircourt Asset Management has announced:

the completion of the merger of Faircourt Income & Growth Split Trust (“FIG”) into Faircourt Split Trust, as the continuing fund (“FCS”), effective September 30, 2010 (the “Merger”). The Merger was approved by unitholders and preferred securityholders of each of FIG and FCS at special meetings of the preferred securityholders and unitholders held on September 13, 2010, September 20, 2010 and September 27, 2010. FCS will continue trading on the Toronto Stock Exchange (“TSX”) under the symbols “FCS.UN” for the units and “FCS.PR.B” for the new preferred securities.
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In addition, in connection with the Merger, the preferred securities of FIG were exchanged on a one-for-one basis for 6.25% preferred securities of FCS. Again, as preferred securities are recorded on a book-based system, no action is required by holders of the preferred securities to be recognized as a preferred securityholder of FCS.

By effecting the Merger on a taxable basis for both the unitholders and the holders of preferred securities rather than on a tax-deferred rollover basis, the Merger will also enable FCS to preserve its realized capital losses from the current taxation year and loss carry forwards from prior taxation years and to avoid realizing its unrealized losses.

DBRS has announced that it:

has today assigned a rating of Pfd-3 (low) to the 6.25% Preferred Securities issued by Faircourt Split Trust (FCS). DBRS has also discontinued the Pfd-3 rating of FCS’s 5.75% Preferred Securities and the Pfd-4 (high) rating of the Preferred Securities issued by Faircourt Income & Growth Split Trust (FIG).

Faircourt Asset Management Inc. (Faircourt) was the manager of both FIG and FCS. The ratings of FIG and FCS were placed Under Review with Developing Implications on August 19, 2010, after Faircourt announced that shareholder meetings would be held for both funds to vote on a proposal to merge FIG into FCS (the Continuing Trust). In meetings held from September 13 to 27, 2010 (adjournments were caused by a lack of quorum), the preferred securityholders and unitholders of FIG and FCS approved the merger.
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The FIG preferred securityholders approved an extraordinary resolution authorizing the exchange of their existing securities for the new series of 6.25% Preferred Securities issued by FCS.
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Holders of the 6.25% Preferred Securities have benefited from an effective upgrade in credit quality, resulting mainly from an increase in downside protection following the merger into the Continuing Trust.
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The Pfd-3 (low) rating of the 6.25% Preferred Securities is primarily based on the downside protection available (32% as of October 5, 2010) and the diversification of the Continuing Trust’s investment portfolio. The main constraints to the rating are the following:

(1) The downside protection provided to holders of the 6.25% Preferred Securities is dependent on the value of the securities in the investment portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in dividend coverage or downside protection from time to time.

(3) Reliance on the manager to generate a high yield on the investment portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

The 6.25% Preferred Securities are scheduled to mature on December 31, 2014.

FIG.PR.A was last mentioned on PrefBlog when the merger and exchange was approved. FCS.PR.B is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Fairfax Financial Holdings has announced that it:

has completed its previously announced public offering of Preferred Shares, Series I (the “Series I Shares”) in Canada. As a result of the underwriters’ exercising in full their option to purchase an additional 2,000,000 Series I Shares, Fairfax has issued 12,000,000 Series I Shares for gross proceeds of $300 million. Net proceeds of the issue, after commissions and expenses, are approximately $291 million.

Fairfax intends to use the net proceeds of the offering to augment its cash position, to increase short term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations from time to time, and for general corporate purposes.

The Series I Shares were sold through a syndicate of Canadian underwriters led by BMO Capital Markets, CIBC World Markets Inc., RBC Dominion Securities Inc. and Scotia Capital Inc., and that also included TD Securities Inc., National Bank Financial Inc., Cormark Securities Inc., GMP Securities L.P., Canaccord Genuity Corp., Desjardins Securities Inc. and HSBC Securities (Canada) Inc.

$300-million? That means the greenshoe was fully exercised. FFH.PR.I is a FixedReset 5.00%+285, announced September 27.

FFH.PR.I traded 516,783 shares in a range of 24.85-97 before closing at 24.91-93, 5×33.

Vital statistics are:

FFH.PR.I is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Allbanc Split Corp. has announced:

that the Company has issued one warrant for each Capital Share held by holders of Capital Shares of the Company of record as at the close of business on October 1, 2010.

Each warrant will entitle the holder to purchase one Unit, each Unit consisting of one Capital Share and one Preferred Share, for a subscription price of $62.78 per Unit. Commencing October 4, 2010, warrants may be exercised at any time on or before 5:00 p.m. (Toronto time) on June 6, 2011. The warrants are listed on the Toronto Stock Exchange under the ticker symbol ABK.WT.

Holders of Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $0.3344 per Preferred Share. The Company’s Capital Share dividend policy is to pay a quarterly dividend on the Capital Shares equal to the dividends received on the underlying portfolio securities minus the dividends payable on the Preferred Shares and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the dividend, would be greater than the original issue price of the Preferred Shares.

ABK.PR.B was last mentioned on PrefBlog when there was a partial call for redemption in February 2010. ABK.PR.B is not tracked by HIMIPref™.

DBRS has announced that it:

has today placed the BBB (high) Senior Unsecured Debt & Medium-Term Notes rating of Capital Power Income L.P. (the Partnership or CPILP) and the Pfd-3 Cumulative Preferred Shares rating of CPI Preferred Equity Ltd. Under Review with Negative Implications. The rating action follows the joint announcement by CPILP and Capital Power Corporation (CPC) that CPILP will initiate a process to review its strategic alternatives. CPC’s subsidiary, Capital Power L.P. (CPLP, rated BBB with a Stable trend) is the 30% indirect owner and manager of CPILP.

The decision is the result of strategic review processes, undertaken by each of a Special Committee of CPILP Independent Directors and CPC, to explore alternatives for maximizing value for both CPILP unitholders and CPC shareholders. CPC has advised the Special Committee that it will support the review of strategic alternatives and that if the process results in a determination to proceed with a sale of the Partnership, CPC (and, therefore, CPLP) does not intend to participate as a prospective buyer. The process is anticipated to take place over the next several months.

Although the announcement of a strategic review process most typically results in an Under Review with Developing Implications action, DBRS has placed CPILP’s ratings Under Review with Negative Implications to reflect both the strategic review announcement and the Negative trends on CPILP’s ratings prior to today’s rating action. DBRS continues to monitor the Partnership’s financial performance and the final decision of the North Carolina arbitration on the power purchase agreements (PPAs). Clarification on these items during the Under Review with Negative Implications period, if viewed as positive for CPILP’s credit quality, could result in a change of the Under Review status from Negative to Developing.

CZP.PR.A is a ticker change from the original EPP.PR.A. This issue had a rough underwriting, and is a Straight Perpetual with a 4.85% coupon.

CZP.PR.B, originally EPP.PR.B, had a more successful underwriting and is a FixedReset, 7.00%+418. It was removed from TXPR in July 2010.

Both issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today upgraded the ratings of Fortis Inc. (Fortis or the Company) to A (low) and Pfd-2 (low) from BBB (high) and Pfd-3 (high), respectively. The trends have been changed to Stable from Positive.

The upgrade is driven by the Company’s low business risk profile (benefiting from its ownership of a diversified basket of utility businesses, which provide over 90% of consolidated EBITDA), its reasonable credit metrics (which have improved modestly over the years), the significant reduction in external debt at subsidiary Terasen Inc., and the Company’s demonstrated ability to acquire and integrate stable utility businesses financed on a conservative basis.
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At the time of our last review in June 2010, when the trends were changed to Positive, DBRS stated that it would consider an upgrade of Fortis’s ratings if the Company continued to exhibit strong financial and operating performance and as long as its operating subsidiaries would not suffer any material negative regulatory action in the near future or pursue any mergers and acquisitions activity financed on an aggressive basis.

There are the following issues outstanding: FTS.PR.C & FTS.PR.E (OpRet); FTS.PR.F (PerpetualDiscount); and FTS.PR.G & FTS.PR.H (FixedReset). These will be moved (volume permitting) to their appropriate HIMIPref™ rebalancing, as of October 31.

FTS was last mentioned on PrefBlog when DBRS assigned the positive trend.

Details are pretty skimpy, but I’ll do what I can …

In their 2009 Annual Report, GWO disclosed:

The trial of the class proceedings in Ontario regarding the participation of the London Life and Great-West Life participating accounts in the financing of the acquisition of London Insurance Group Inc. (LIG) in 1997 by Great-West Life concluded on January 15, 2010. The Court reserved and a decision is expected later in 2010. Based on information presently known, these proceedings are not expected to have a material adverse effect on the consolidated financial position of the Company.

Now, however, is reported:

A group of disgruntled life insurance policyholders has won a class-action lawsuit against Great-West Life Assurance Co. and London Life Insurance Co., with an Ontario court ruling Friday the companies must pay $455.7 million in one of the largest contested class-action payouts to date in Canada.

The suit originates from parent Great-West Lifeco Inc.’s 1997 takeover of London Insurance Group Inc. for $2.9 billion, outbidding Royal Bank of Canada at the time.

The plaintiffs had claimed in the 45-day trial in London, Ont. that the two insurance companies transferred $220 million from participating accounts with London Life and Great-West Life to help finance about 7.5 per cent of the takeover. The cash was replaced by an accounting instrument called a “prepaid expense asset” (PPEA) — but the cash was never repaid.
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In her ruling dated Oct. 1, Ontario Superior Court Justice Johanne Morissette declared the actions of Great-West and London Life as unlawful and in violation of the Insurance Companies Act.

“By creating the (participating account transactions) the defendants have done indirectly what was prohibited from being done directly,” the ruling said. “The PPEA could be characterized as ‘creative accounting,’ however they are not assets recognized by GAAP (Generally Accepted Accounting Principles).”

As a result, Morissette has ordered the two companies repay the par accounts the $220 million taken, plus $172.7 million in foregone investment income and $63 million of gross-up for taxes. This works out to $372.2 million to the London Life account and $83.5 million to the Great-West Life account.

The company states:

Although the decision confirms in many respects the Companies’ position, there are significant aspects of the decision which the Companies believe are in error. Accordingly, the Companies intend to appeal the decision.

The decision, if sustained on appeal, would require that the Companies pay an amount of $456 million to the participating accounts for distribution ($372 million in respect of London Life and $84 million in respect of Great-West Life). These amounts include both capital and interest items.

Regardless of the ultimate outcome of this case, all of the participating policy contract terms and conditions will continue to be honoured. As well, the decision, if sustained on appeal, is not expected to have a material impact on the capital position of the Companies.

Class action opportunists legal counsel crowed:

The court held that the defendant companies breached s. 462, and other sections of the Insurance Companies Act (“ICA”) which prohibits transfers from the participating accounts of federally incorporated life insurers. The court conducted an analysis of the facts underlying the transaction and concluded at paragraph 105 of the judgment:

“This Court, therefore finds that the $220 million payment involved a transfer of cash in contravention of s. 462 of the ICA”.

The court reviewed the conduct of the companies, their auditors and external advisors and concluded that the accounting for the par account transactions failed to comply with Generally Accepted Accounting Principles (GAAP) contrary to s. 331(4) of the Insurance Companies Act.

It’s rather difficult to tell what the implications might be for the books …. the GWO press release refers to capital and interest portions, which implies that some of the amount is on the books already and therefore won’t be a hit to profit. Additionally, GWO claims that “the decision, if sustained on appeal, is not expected to have a material impact on the capital position of the Companies.”, but, naturally enough, do not specify what the benchmark for materiality might be.

Stay tuned!

The last mention of GWO in the “Issue Comments” category was GWO Warns of Higher Seg-Fund Capital Requirements.