Category: Issue Comments

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.

The Canadian Imperial Bank of Commerce has announced:

its intention to redeem all of its issued and outstanding Non-cumulative Class A Preferred Shares, Series 19 and all of its issued and outstanding Non-cumulative Class A Preferred Shares Series 23, for cash. The redemptions will occur on October 31, 2010. The redemption price is $25.45 per Series 19 share and $25.00 per Series 23 share.

The final quarterly dividend of $0.309375 per Series 19 share and $0.331250 dividend per Series 23 share for the period from August 1, 2010 to October 31, 2010 will be paid in the usual manner on October 28, 2010 to holders of record on September 28, 2010.

Beneficial holders who are not directly the registered holder of these shares should contact the financial institution, broker or other intermediary through which they hold their shares to confirm how they will receive their redemption proceeds. Formal notices and instructions for the redemption of Series 19 shares and Series 23 shares will be forwarded to registered shareholders.

Series 19 is CM.PR.R, which was listed 1998-03-26 and closed at 26.05-24 on September 27, is an OperatingRetractible with the option schedule:

Retraction 2013-04-30 INFINITE DATE 26.040000
Redemption 2008-04-30 2009-04-29 25.750000
Redemption 2009-04-30 2010-04-29 25.600000
Redemption 2010-04-30 2011-04-29 25.450000
Redemption 2011-04-30 2012-04-29 25.300000
Redemption 2012-04-30 2013-04-29 25.150000
Redemption 2013-04-30 2999-12-29 25.000000

The YTW Scenario as of last night’s close was for an immediate call at 25.45 to yield -27.01% … and that’s what happened. Investors were presumably counting on it to last until its softMaturity 2013-4-29 to yield 3.29%. This issue was relegated to the Scraps index on volume concerns.

Series 23 is CM.PR.A, which was listed 2001-02-06 and closed at 25.10-29 on September 27, is an OperatingRetractible with the option schedule:

Redemption 2007-10-31 2008-10-30 25.750000
Redemption 2008-10-31 2009-10-30 25.500000
Redemption 2009-10-31 2010-10-30 25.250000
Redemption 2010-10-31 INFINITE DATE 25.000000
Retraction 2011-07-31 INFINITE DATE 26.040000

The YTW scenario as of the close last night was for a call 2010-11-30 at 25.25 to yield 0.20% … pretty close! Investors were presumably counting on it to last until its softMaturity 2011-7-30 to yield 4.25%.

DBRS comments that it:

has reviewed the announcement by Canadian Imperial Bank of Commerce (CIBC or the Bank) to redeem all of the outstanding Non-Cumulative Class A Preferred Shares, Series 19 and Series 23. The redemption has no rating implications for CIBC at this time.

DBRS believes this transaction will reduce the Bank’s Tier 1 capital ratio by approximately 50 basis points (bps), which still leaves the ratio at the top end of its Canadian peer group range. At the end of Q3 2010, CIBC’s Tier 1 capital ratio was 14.2%. No impact is expected on the tangible common equity to risk-weighted assets ratio, which was 9.0% at the end of Q3 2010, as DBRS already excludes preferred shares from this calculation.

Given changes in Basel capital requirements and international accounting standards, the redemption of these two series of preferred shares is not unexpected.

After these redemptions, there will be only eight members left in the OperatingRetractible index. It will be interesting to see what happens to TD.PR.M and TD.PR.N tomorrow!

Faircourt Asset Management has announced:

The adjourned special meeting of unitholders of Faircourt Income & Growth Split Trust (“FIG”) which was originally held on September 13, 2010 but was adjourned for lack of quorum, was held today at which the unitholders of FIG approved the merger (the “Merger”) of FIG into and Faircourt Split Trust (“FCS”), as the continuing fund, as described in the joint management information circular dated August 13, 2010 (the “Circular”). The Merger is expected to occur on or about September 30, 2010.

The Merger is, in part, a response to expected changes in the taxation of income funds. As a result of these changes, there are now an insufficient number of “income funds” for FIG to continue to meet its investment restrictions. Concurrent with the Merger, the investment mandate of FCS, as the continuing trust, will be expanded to remedy this situation and FCS will be able to invest in a broader range of securities and adjust its portfolio in the future as and when required to respond to market movements, as described in the Circular.

The prior stage in this process was the approval by FIG.PR.A holders; today’s approval was by holders of FIG.UN.

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

The Wall Street Journal reports:

Pipeline operator Enbridge Inc. (ENB) raised a total of C$300 million from two bond issues, according to a person familiar with the matter.

Enbridge raised C$200 million from an issue of 10-year bonds maturing in February 2021. The offering was priced at 138 basis points over the revelant benchmark curve, or at the low-end of the guidance, for a yield of 4.266%. The bonds carry a coupon of 4.26%.

The Calgary-based company raised another C$100 million from an issue of 30-year bonds maturing in September 2040. The bonds were priced at 170 basis points over the government of Canada 5% 2037 benchmark, or in line with guidance, for a yield of 3.420%. The bonds carry a coupon of 5.12%.

Additonally, DBRS notes:

DBRS has today assigned a rating of “A” with a Stable trend to Enbridge Inc.’s $200 million 4.26% unsecured medium-term notes (Notes) issue maturing February 1, 2021 and its $100 million 5.12% Notes issue maturing September 28, 2040. The issues are expected to settle on September 28, 2010.

The Notes rank equally with all of Enbridge Inc.’s other senior unsecured indebtedness. Net proceeds from the issue will be used for general corporate purposes, which may include repayment of outstanding indebtedness and financing capital expenditures and investments of Enbridge Inc.

This is interestng in light of ENB.PR.A, a straight perpetual issued in December 1998 with a coupon of 5.5%, now quoted at 25.35-43 for a current yield of 5.42% and a YTW of -7.12% based on an immediate call at par.

If we say that the Seniority Spread should be 220bp for an Enbridge straight (a little tighter than the 245bp reported September 22 to account for its scarcity value as a non-financial) and tack on another 25bp for option effects on a par issue, we come up with a projected new issue for ENB at 5.12% + 225bp + 25bp = 7.62% interest equivalent or 5.44% as dividend … which means that, insofar as you can trust the 225bp and 25bp wild guesses estimates, ENB.PR.A is fairly priced relative to their bonds.

Whether Enbridge is happy about the 225 Seniority Spread is, of course, another question entirely.

BNS Split Corp II has announced:

that it has completed its public offering of 1,238,954 Class B Preferred Shares, Series 1 (“Series 1 Preferred Shares”), raising approximately $23.4 million. The Series 1 Preferred Shares were offered to the public by a syndicate of agents led by Scotia Capital Inc. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 1,105,950 of its Class A Capital Shares.

The Series 1 Preferred Shares were offered in order to maintain the leveraged “split share” structure of the Company following the successful reorganization of the Company approved at a special meeting of holders of Class A Capital Shares on July 5, 2010, which among other things, extended the redemption date of the Class A Capital Shares for an additional five year term. At the close of business on September 22, 2010 there will be 2,477,908 Class A Capital Shares and 1,238,954 Series 1 Preferred Shares issued and outstanding.

The refunding was reported on PrefBlog in the post BSC.PR.A Refunding Approved. BSC.PR.B will not be tracked by HIMIPref™ – too small! The company has published the prospectus for the issue.

Update, 2010-9-23: DBRS Rates BNS Split Corp. II Class B Preferred Shares, Series 1 Pfd-2 (low):

As of September 14, 2010, the downside protection available to the holders of the Class B Preferred Shares was 62%. Based on the current dividend yield on the Portfolio, the initial Class B Preferred Share dividend coverage ratio is approximately 1.9 times.

The Pfd-2 (low) rating of the Class B Preferred Shares is primarily based on the downside protection and dividend coverage available, as well as on the credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

1) The downside protection provided to holders of the Class B 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 Bank of Nova Scotia (BNS) may result in significant reductions in downside protection from time to time.

3) The concentration of the entire Portfolio in the common shares of BNS.

Faircourt Asset Management has announced:

The adjourned special meetings of preferred securityholders of Faircourt Income & Growth Split Trust (“FIG”) and Faircourt Split Trust (“FCS”), which were originally held on September 13, 2010 but were adjourned for lack of quorum, were held today at which the preferred securityholders of FIG approved the merger of FIG into FCS (the “Merger”) and the exchange of preferred securities of FIG for a new class of preferred securities of FCS (the “Exchange”), and the preferred securityholders of FCS approved various amendments to the FCS declaration of trust and FCS trust indenture (the “FCS Proposals”), as described in the joint management information circular dated August 13, 2010 (the “Circular”). The Merger Proposal remains subject to approval by the unitholders of FIG.

The Merger and FCS Proposals are a response to expected changes in the taxation of income funds. As a result of these changes, there are now an insufficient number of “income funds” for FIG and FCS to continue to meet its investment restrictions. Consequently, upon implementation of the FCS Proposals, the investment mandate of FCS, as the continuing trust, will be expanded to remedy this situation and FCS will be able to invest in a broader range of securities and adjust its portfolio in the future as and when required to respond to market movements.

The Merger will also be considered by unitholders of FIG the funds at the adjourned special meeting of such unitholders to be held on September 27, 2010, and implementation of the Merger and the FCS Proposals are conditional on the approval of the unitholders of FIG at such meeting, all as described in the Circular.

FIG.PR.A was last mentioned on PrefBlog when the first attempt to approve the merger did not get quorum. FIG.PR.A is tracked by HIMIPref™ but is relegated to the Scraps Index on credit concerns.

NewGrowth 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 September 17, 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 $41.57 per Unit. Commencing September 20, 2010, warrants may be exercised at any time on or before 5:00 p.m. (Toronto time) on March 31, 2011. The warrants are listed on the Toronto Stock Exchange under the ticker symbol NEW.WT.

Holders of the Preferred Shares are entitled to receive quarterly fixed cumulative dividends equal to $0.2055 per Preferred Share. The Company’s Capital Share dividend policy is to pay holders of Capital Shares quarterly dividends in an amount equal to the revenue received by the Company 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.

NewGrowth Corp. is a mutual fund corporation whose investment portfolio consists of publicly-listed securities of selected Canadian chartered banks, telecommunication, pipeline and utility issuers. The Capital Shares and Preferred Shares of NewGrowth Corp. are both listed for trading on The Toronto Stock Exchange under the symbols NEW.A and NEW.PR.C respectively.

The warrants will be outstanding for more than six months!

NEW.PR.C was last mentioned on PrefBlog when it started trading 2009-6-26. There are only 2.2-million of the $13.70 preferreds outstanding, so the issue won’t be tracked by HIMIPref™ any time soon.

DBRS has announced that it:

has today announced that it will discontinue its public rating on the First Preference Shares, Series 1 of E-L Financial Corporation Limited (E-L) on October 20, 2010 (30 days from today).

DBRS notes that this action is unrelated to E-L’s credit profile.

ELF has two issues of preferreds outstanding, both PerpetualDiscounts: ELF.PR.F & ELF.PR.G. The issues have been rated Pfd-2(low) by DBRS for a long time, contrasted with S&P’s ratings of P-2(high)/BBB+.

I don’t see any other news – and remember, ELF is probably the largest public company in Canada, if not North America, that doesn’t have a website – so it’s hard to guess what this might mean. It could be a signal that a new issue is on its way and ELF didn’t feel like cutting more cheques to DBRS.

Manulife Financial Corporation has announced

that it has priced a public offering in the United States of U.S.$1.1 billion aggregate principal amount of two series of its senior notes consisting of U.S.$600 million aggregate principal amount of 3.40% senior notes due 2015 (the “2015 Notes”) and U.S.$500 million aggregate principal amount of 4.90% senior notes due 2020 (the “2020 Notes”). The public offering price of the 2015 Notes is 99.854% and the public offering price of the 2020 Notes is 99.844%. The offering was made pursuant to an effective shelf registration statement.

The Company intends to use the net proceeds from the sale of the notes for general corporate purposes, including investments in its subsidiaries.

Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., Banc of America Securities LLC and Goldman, Sachs & Co. are acting as joint book-running managers for the offering.

At 3.40%, the five-year notes yield 215bp over Treasuries; meanwhile, I see on CBID that the recent CAD 4.079% of 2015 are yielding 4.16%, about 205bp over Canadas.

These yields may be contrasted with the MFC sort-of-short-term preferreds:

To the extent one is fearful that the extension risk will apply (or, to take a more extreme view, that they may actually go bankrupt in the next five years, which will presumably wipe out preferred shareholders while merely hurting the debtholders), there should be a premium on the preferreds; but given that the Bid Yield to Presumed Call will be received as the net amount of dividends and the expected capital loss on call, then those yields may be multiplied by the standard factor of 1.4x to give interest-equivalent yields in the range of 5.62%-6.08% … which seems like an awfully strong inducement.

The debt issue are interesting for another reason … there is some thought that MFC has maxed out on debt:

Manulife Financial Corp.’s US$1.1-billion debt raise (US$600-million in 5-year notes at 3.40% and US$500-million in 10-year notes at 4.90%) would bring its debt (plus preferreds and hybrids) to total capital ratio up to 30% from 27.7%.

That’s probably at the top end of Manulife’s range and above its long-term 25% target, according to BMO Capital Markets analyst Tom MacKinnon. As a result, he believes the company has little room for more debt or preferreds.

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Note, however, that the smaller IAG was confirmed at Pfd-2(high) in February with higher gross leverage:

Capitalization has become more aggressive, in line with that of the industry, with a total debt ratio of 32% at the end of 2009, increasing to 33.2% pro forma a $200 million preferred and common share issue in mid-February. Within the last two years, Canadian life insurance companies have been increasing their financial leverage to better maximize return on equity, while also optimizing regulatory capital in a low interest rate environment. The Company’s adjusted debt ratio, which gives some equity treatment to preferred shares, was 22.6% at year-end, falling to 22% following the February issues, which is within DBRS’s tolerance for the current credit rating. However, the Company’s use of hybrid capital instruments such as preferred shares has increased over the past two years, significantly reducing its fixed-charge coverage ratio, which has fallen from double digits in the pre-2008 period to 6.0 times in 2009, notwithstanding the return to normal profitability.

Innergex Renewable Energy Inc. has announced:

the closing of the previously announced offering of Cumulative Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”). The Corporation issued a total of 3,400,000 Series A Preferred Shares at $25 per share for aggregate gross proceeds of $85 million. The offering was made on a bought deal basis through a syndicate of underwriters led by BMO Capital Markets and TD Securities Inc.

The Series A Preferred Shares commence trading on the Toronto Stock Exchange today under the symbol INE.PR.A.

The Corporation intends to use the net proceeds of the offering to enhance its financial flexibility, to reduce indebtedness and for general corporate purposes.

Innergex Renewable Energy Inc. is a leading developer, owner and operator of run-of-river hydroelectric facilities and wind energy projects in North America. Innergex’s management team has been involved in the renewable power industry since 1990. Innergex owns a portfolio of projects which consists of: i) interests in 17 operating facilities with an aggregate net installed capacity of 326 MW; ii) interests in 7 projects under development with an aggregate net installed capacity of 203 MW for which power purchase agreements have been secured; and iii) prospective projects of more than 2,000 MW (net).

The issue traded 574,215 shares in a range of 24.96-18 before closing at 25.10-13.

Vital statistics are:

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

Update, 2011-03-23: This is a 5.00%+279 FixedReset as previously announced.