Category: Issue Comments

Brascan Soundvest Rising Distribution Split Trust has released via SEDAR the materials for the Extraordinary Meeting of Capital Unitholders previously reported on PrefBlog.

Sadly, it appears that no material change in the management of the fund can be expected – it is merely a name change and ownership shuffle. It appears that Kevin Charlebois, who has presided over the appallingly poor performance of the trust since inception, will continue his endeavors.

Two elements of the reorganization not previously reported are:

(b) removing the fixed termination date for the Fund, which is currently set at March 31, 2015;

(c) permitting the Manager, in its sole discretion, to wind-up the Fund should the net asset value (“NAV”) of the Fund fall below $15 million, subject to compliance with the trust indenture between the Fund and CIBC Mellon Trust Company dated March 16, 2005 governing the 6% Preferred Securities (the “Trust Indenture”);

The second of those items is of great interest since:

The Fund was launched in 2005 with a mandate to deliver a stable stream of monthly distributions and to maximize long-term total return. As of March 12, 2010, the Fund had 5,662,643 Units and 5,662,643 Preferred Securities outstanding, and its total NAV was $17,211,757 or $3.04 per Unit. The Fund’s Units closed at $2.36 on the TSX on March 12, 2010.

While the manager’s abuse of discretion in suspending the annual retraction does not provide a lot of hope that they will exercise their discretion to shut down the fund in the event of continued poor performance, the availability of that discretion must be considered a Good Thing.

I’m not entirely sure that this is the first time it’s happened, because I don’t keep track of such things … but at the very least, it’s one of the first times this has happened!

RY.PR.R is a 6.25%+450 FixedReset, announced 2009-1-21. It is callable 2014-2-24 at par and was most recently mentioned in the volume highlights for 2010-3-22.

It traded 5,593 shares today in a range of 28.24-43 before closing at 28.31-40, 20×35.

HIMIPref™ reports that the yield to a call 2014-3-26 at par is now 2.93% (pre-tax, bond-equivalent); recall that a slight inaccuracy in HIMIPref™ conventions means that the calculated call date is maturityNoticePeriod days after the actual call date.

That’s a pretty low yield! The reset to +450bp makes it almost certain to be called at the first opportunity, but one of the words that can hurt in the investment game is “almost”!

I have uploaded two charts for your edification and amusement:

• Bid YTW
• Bid Price

RY.PR.R was last mentioned on PrefBlog (other than in routine reports) when it was added to TXPR in July 2009. It is tracked by HIMIPref™ and is a member of the FixedReset index.

Hard on the heels of the DFN.PR.A enlargement, Financial 15 Split Corp. has announced:

it has filed a short form prospectus in each of the provinces of Canada with respect to an additional offering of Preferred Shares and Class A Shares. The offering will be available through a group of underwriters, co-led by RBC Capital Markets and CIBC World Markets. The Company will file an amended and restated prospectus shortly outlining the offering prices set forth below.

The Preferred Shares will be offered at a price of $10.00 per share to yield 5.25% based on current distribution policy. The closing price of the Preferred Shares on March 25, 2010 on the TMX was $10.41.

The Class A Shares will be offered at a price of $9.75 per share to yield 15.5% based on current distribution policy. The closing price of the Class A Shares on March 25, 2010 on the TMX was $10.40.

The proceeds from the re-opening of Financial 15, net of expenses and Agents’ fees, will be used by Financial 15 to invest in an actively managed portfolio of 15 financial services companies made up of 10 Canadian and 5 U.S. issuers

The Net Asset Value Per Unit was 17.84 on March 15.

FTN.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS.

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

Lifeco Split Corporation has announced:

that it is considering the merits of a possible extension of the term of the Capital Shares and the Preferred Shares beyond their scheduled redemption date of July 31, 2010. Lifeco has retained Scotia Capital Inc. to assist in this regard. There is no guarantee that after such review an extension will be proposed or if proposed will be approved by shareholders.

Lifeco is a mutual fund corporation created to hold a portfolio of common shares of selected publicly listed Canadian life insurance companies. Lifeco will generate a fixed quarterly dividend for the Preferred shareholders and provide the Capital shareholders with a leveraged investment, the value of which is linked to changes in the market price of the portfolio shares.

Capital Shares and Preferred Shares of Lifeco are listed for trading on The Toronto Stock Exchange
under the symbols LSC and LSC.PR.C respectively.

Asset coverage is 1.7+:1 according to the company; total asset value is about $32-million.

LSC.PR.C is not tracked by HIMIPref™. LSC.PR.C was last mentioned on PrefBlog when the capital unit dividend was suspended (it has since been reinstated).

Thomson Reuters has announced:

the offering of US$500 million of 5.85% notes due 2040. The offering is expected to close on March 30, 2010, subject to customary closing conditions. Thomson Reuters plans to use the net proceeds from this offering and available cash to repurchase all of its US$700 million principal amount of 6.20% notes due 2012, as previously announced earlier today.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, RBS Securities Inc. and UBS Securities LLC are the joint book-running managers for the offering.

DBRS rates it A(low).

USD 30-Year Swaps are now at 4.45%, implying that the issue could be swapped into 3-month USD LIBOR +140bp. This in turn implies (to me!) that TRI.PR.B, paying 70% of Prime and quoted today at 23.75-95 (95% of par; hence paying about 74% of Prime as a dividend (so call it pre-tax interest equivalent = prime, close enough for government work).

Therefore TRI.PR.B pays the pre-tax equivalent of Prime, which is equal to about the overnight rate +200bp … so you’re getting a yield increment for the prefs of about +60bp, which is way, way less than you get for nominals … although, mind you, there is a LOT of basis risk in this calculation.

So I say TRI.PR.B is expensive.

Dividend 15 Split Corp. announced on March 3:

that it has filed a short form prospectus in each of the provinces of Canada with respect to an additional offering of Preferred Shares and Class A Shares. The offering will be co-led by RBC Capital Markets and CIBC World Markets. The Company will file an amended and restated prospectus shortly outlining the offering prices set forth below.

The Preferred Shares will be offered at a price of $10.00 per share to yield 5.25% based on current distribution policy. The closing price of the preferred shares on March 2, 2010 on the TMX was $10.40.

The Class A shares will be offered at a price of $11.00 per share to yield 10.91% based on current distribution
policy. The closing price of the preferred shares on March 2, 2010 on the TMX was $11.99.

It announced on March 10 that it:

filed a final prospectus for its secondary offering of 2,400,000 Preferred Shares and 2,400,000 Class A Shares of the Company for aggregate gross proceeds of $50,400,000, bringing the Company’s net assets to approximately $273 million.

Finally, it announced on March 16 that it:

completed its secondary offering of 2,400,000 Preferred Shares and 2,400,000 Class A Shares of the Company for aggregate gross proceeds of $50,400,000, bringing the Company’s net assets to approximately $273 million.

DFN.PR.A was last mentioned on PrefBlog when it was reviewed by Larry MacDonald.

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

The recent slide in PerpetualDiscounts has been particularly hard on insurers – and particularly the lower coupon issues in a continuation of the trend discussed in MAPF: February Performance.

In fact, implied volatility has gone negative:

Click for Big

Click for Big

Both graphs have been prepared using the Straight Perpetual Implied Volatility Calculator and, for purposes of the theoretical curve, setting the implied volatility to 15% / 3 Years.

Brookfield Investment Management (Canada) Inc. has announced:

a proposal to make amendments to the declaration of trust of its fund Brascan SoundVest Rising Distribution Split Trust (TSX:BSD.UN) (the “Fund”), as well as to change the Fund’s manager, and to rename the Fund “Brookfield Soundvest Split Trust”.

The proposal, which requires approval by the capital unitholders of the Fund, would result in a change to the existing investment strategy. It is proposed that the Fund’s investment mandate be expanded to allow investment in a broader set of primarily high yielding equity securities. The investment objectives will remain the same: for holders of preferred securities, to provide fixed quarterly interest payments and repay the original subscription price at maturity; and for holders of capital units, to provide a regular stream of monthly distributions and to maximize long-term total return.

The Manager believes that expanding the investment flexibility of the Fund will permit it to invest in a broader range of securities to off-set the reduction in the number of income trust investments resulting from the Canadian Federal Government’s decision announced on October 31, 2006 to change the way that income trusts are to be taxed, effective January 1, 2011.

Costs of making these changes including the preparation of materials for and the holding of unitholder meetings will be borne by the Manager. If the extraordinary resolutions are approved, then the Fund will bear any costs associated with repositioning its investment portfolio to reflect the amended investment strategies and restrictions.

The Manager has called a meeting of Fund capital unitholders for 10:00 a.m. on April 20, 2010 to consider the extraordinary resolutions being proposed. It is expected that materials for this meeting, which will provide further details on the proposals, will be available no later than three weeks prior to the date of the meeting and will be delivered to investors who hold capital units in the Fund as of the official record date, which is March 12, 2010.

Subject to capital unitholder and regulatory approval, review by the Funds’ independent review committee, and other closing conditions, the changes are expected to be completed by April 30, 2010.

This trust has been most notable for its appalling performance since inception, although the abusive suspension of retraction rights and lackadaisical Normal Course Issuer Bid run a close second and third.

BSD.PR.A was last mentioned on PrefBlog when the semi-annual financials were published. BSD.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

BPO Properties Limited has announced:

that BPP will be shortly mailing its information circular to shareholders containing some modifications to the previously announced proposal to create Canada’s pre-eminent office real estate investment trust (REIT), to be named Brookfield Office Properties Canada. After consultation with a number of interested parties, including the independent committee of the board of directors and its financial advisor, Brookfield Office Properties Canada has agreed to pay $100 million of the purchase price for Brookfield Properties’ interest in Brookfield Place in cash instead of solely through the assumption of debt and units in the new REIT, as originally announced. The remainder of the purchase price will be paid by the assumption of debt and units valued at approximately $20.90 per unit. In light of this change, Brookfield Office Properties Canada will not pay the previously announced special distribution to unitholders on closing of the transaction.

The impact of the above cash payment is a reduction in the number of units outstanding by approximately five million to 93 million and an increase in expected funds from operations available to unitholders on an annualized basis in 2010 to $1.27 per unit from $1.20 per unit. In addition, Brookfield Office Properties Canada’s monthly distributions commencing on closing of the transaction as modified will increase to $0.07 per unit, or $0.84 per unit on an annualized basis.

On closing of the transaction, Brookfield Properties and its affiliates, which currently hold approximately 89.7% of BPP’s common equity, will hold in aggregate an equity interest in Brookfield Office Properties Canada of approximately 90.6%, including the consideration Brookfield Properties is receiving for the sale of Brookfield Place.

As a result of Brookfield Properties’ ownership of equity interests in the REIT of more than 90%, under applicable Canadian securities laws it would be possible for Brookfield Properties to initiate a privatization of the REIT and certain related party transactions without seeking the approval of the minority unitholders. Recognizing this, Brookfield Properties has agreed that following closing it will not initiate any such privatization or related party transaction without minority approval. This undertaking will terminate in the future if Brookfield Properties and its affiliates hold in aggregate an equity interest in Brookfield Office Properties Canada of 75% or less for a period of 12 months.

The independent committee appointed by the board of directors of BPP to consider the proposed transaction has received an opinion from its financial advisor, Macquarie Capital Markets Canada Ltd., that the transaction as modified is fair, from a financial point of view, to shareholders of BPP other than Brookfield Properties and its affiliates. The board of directors, on the unanimous recommendation of the independent committee, has determined that the proposed transaction as modified is in the best interests of BPP and is unanimously recommending that shareholders vote in favour of the transaction at the meeting.

An information circular describing the modified transaction is anticipated to be mailed shortly, but at least prior to April 1, 2010 and will be available on BPP’s website and at www.sedar.com at that time. The meeting of shareholders to consider the transaction is now expected to take place on April 27, 2010. If shareholders approve the transaction at the meeting, and the requisite court approval is obtained, it is anticipated that the transaction will be completed on or about April 30, 2010.

The plan of arrangement has been discussed on PrefBlog.

BPP has three issues of preferreds outstanding: BPP.PR.G, BPP.PR.J and BPP.PR.M. It is not yet clear whether they will vote as a class on the transaction.

Navina Asset Management Inc. (formerly Lawrence Asset Management Inc.) has announced:

that in accordance with a proposal to amend the articles of the Corporation (the “Articles”) approved at a Special Meeting of Shareholders held on February 25, 2010, HI PREFS will be terminated as of market close on March 12, 2010 (the “Termination Date”) and the Series 1 Shares (TSX:HPF.pr.a) and Series 2 Shares (TSX:HPF.pr.b) will be delisted from the Toronto Stock Exchange.

In accordance with the terms of the amended Articles, HI PREFS will redeem all of the outstanding Series 1 Shares, Series 2 Shares and Equity shares of the Corporation on the Termination Date. Shareholders are not required to take any action to cause their shares to be redeemed. Redemption proceeds calculated in accordance with the Articles will be paid to Computershare on March 12, 2010 for distribution to shareholders.

Each holder of Series 1 Shares will receive an aggregate payment equal to $27.80 for each Series 1 Share held by them, such amount representing (a) the original investment amount of $25.00 paid in respect of each Series 1 Share, plus (b) the amount of all declared but unpaid dividends payable to holders of the Series 1 Shares and any dividends accrued up to the Termination date of March 12, 2010.

Each holder of Series 2 Shares will receive an aggregate payment equal to $16.46 per Series 2 Share, such amount representing (a) the original investment amount of $14.70 paid in respect of each Series 2 Share less $0.28 per share (such amount representing one-half of the costs, on a per share basis, to wind up and terminate the Corporation early), plus (b) the amount of all declared but unpaid dividends payable to holders of the Series 2 Shares and any dividends accrued up to the Termination date of March 12, 2010.

From and after the Termination Date, Shareholders will cease to be entitled to any dividends of HI PREFS and will not be entitled to exercise any of the rights of shareholders of HI PREFS unless payment of the redemption amount in respect of the shares is not duly made by the Corporation. For more information please visit www.lawrenceasset.com.

These issues will not be missed.

HPF.PR.A and HPF.PR.B were last mentioned on PrefBlog when the approval for early wind-up was announced. HPF.PR.A and HPF.PR.B were tracked by HIMIPref™, but were relegated to the Scraps index on credit concerns.