Category: Issue Comments

Dominion Bond Rating Service has announced that it:

has today discontinued its rating on the Class A Shares issued by Mulvihill Pro-AMS RSP Split Share Corp. at the request of Mulvihill Capital Management Inc. (the Promoter).

The fund’s 1H09 Financials noted:

No distributions were made to Class A and Class B shareholders.
…
In October 2008, the Managed Portfolio funded additional amounts for the Class A Share Forward Agreement to a future value of $10.00 per Class A Share. The Managed Portfolio was reduced significantly in size with this funding. The Class A Shares have residual risk now, since the decrease in the size of the Managed Portfolio may mean that the Class A Shareholders will be expected to cover expenses of the Fund in future years. As a result, the expected redemption value of the Class A Shares to be received in December of 2013 is less than $10.00 per Class A Share.

SPL.A was last mentioned on PrefBlog when it was downgraded to D by DBRS. SPL.A is tracked by HIMIPref™ but is relegated to the Scraps subindex on credit concerns.

Pacific & Western Credit Corp. has announced:

that it completed another private placement closing of 250,000 of its Class “B” Preferred Shares on January 25, 2010. Net proceeds from this closing are $5.9 million, and net aggregate proceeds from this closing together with the December 30, 2009 private placement closing are $10.7 million. Proceeds will be used for working capital purposes in PWC and to provide additional regulatory capital to PWC’s wholly-owned subsidiary, Pacific & Western Bank of Canada (the Bank), to provide for the Bank’s growth.

Pacific & Western Credit Corp.’s Class “B” Preferred Shares trade on the TSX under the symbol PWC.PR.B.

This follows the December 31 announcement:

that it completed the closing of a private placement of 204,500 Class “B” Preferred Shares on December 30, 2009. Net proceeds from this closing are $4.8 million, and will be used for working capital purposes in Pacific & Western Credit Corp.

Pacific & Western Credit Corp.’s Class “B” Preferred Shares trade on the TSX under the symbol PWC.PR.B.

This issue will be a nightmare at some time in the future, because there was no prospectus – it was created via conversion of the Class ‘A’ Preferred Shares:

The holders of Class “B” Preferred Shares are entitled to receive, and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation, fixed subordinated cumulative dividends at the rate of $2.25 per share per annum. Such dividends will be paid quarterly on the last day of March, June, September and December in each year. Out of the total dividend of $2.25 per annum, per Class “B” Preferred Share, $0.84 will be paid by the Corporation in cash with the remaining dividends to be paid by the Corporation in cash or common shares of the Corporation, at the Corporation’s sole discretion. Any such common shares would be issued at the current market price, as defined below.

The Class “B” Preferred Shares will be non-voting and will be subordinate to the Shares with respect to the payment of dividends and the distribution of assets on dissolution, liquidation or winding-up. The Class “B” Preferred Shares will have preferential rights over the common shares with respect to the payment of dividends and the distribution of assets on dissolution, liquidation or winding-up. The Class “B” Preferred Shares will be convertible, at any time, into common shares of the Corporation on the basis of five (5) common shares for each Class “B” Preferred Share. Upon conversion, all accrued and unpaid dividends, calculated to but excluding the date fixed for conversion, shall be payable by the Corporation in cash/common shares, in the manner described above with respect to dividends.

The Class “B” Preferred Shares will be redeemable by the Corporation, at its discretion, on or after June 30, 2014, but will be redeemed by the Corporation by no later than June 30, 2019, in each case for $25.00 per Class “B” Preferred Share (the “Redemption Price”). Any Redemption Price would be paid by the Corporation in cash, and any accrued but unpaid dividends on the Class “B” Preferred Shares that are redeemed shall be payable by the Corporation in cash/common shares, in the manner described above with respect to dividends.

When calculating the “current market price” for any common shares issuable as dividends on the Class “B” Preferred Shares, the current market price will be the volume weighted average trading price of the common shares, calculated by dividing the total value by the total volume of common shares traded for the five trading days immediately preceding the seven trading days prior to a designated record, conversion or redemption date, as applicable.

The original tranche was created via several conversions:

approximately $33.2 million of new Class “B” Preferred Shares of PWC will be issued today as a result of conversions of approximately 828,000 Class “A” Preferred Shares, $3.3 million of Series A Notes and $27.4 million of Series C Notes. In addition, approximately $6.8 million of Series C Notes of PWC will be issued today as a result of the conversion of approximately $5.6 million of Series A Notes.

PWC.PR.B is not tracked by HIMIPref™.

Fortis Inc. has announced:

that it has closed its public offering (the “Offering”) of Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series H (the “Series H First Preference Shares”) underwritten by a syndicate of underwriters led by TD Securities Inc., Scotia Capital Inc., RBC Dominion Securities Inc. and CIBC World Markets Inc. Fortis issued 10,000,000 Series H First Preference Shares at a price of $25.00 per share for gross proceeds to the Corporation of $250,000,000.

The issue is a FixedReset, 4.25%+125 145, announced January 11.

The issue had a strong first day, trading 573,694 shares in a range of 24.95-20 before closing at 25.06-15, 100×1.

Vital Statistics are:

FTS.PR.H is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.
The net proceeds of the Offering will be used to repay borrowings under the Corporation’s committed credit facility and to inject additional equity into a regulated subsidiary.

The Series H First Preference Shares will commence trading on the Toronto Stock Exchange on January 26, 2010 under the symbol FTS.PR.H.

Moody’s Investors Service has announced it has:

downgraded the long-term ratings of the Bank of Montreal (BMO) and its subsidiaries. BMO’s deposit rating dropped to Aa2 from Aa1 and its bank financial strength rating (BFSR) fell to B- from B.
…
Moody’s Senior Vice President, Peter Routledge, said “the downgrade of BMO reflects our view that the bank’s wholesale investment bank exposes the bank to greater earnings volatility than previously incorporated in its ratings and the fact that BMO allocates substantial capital to this business…”
…
The 2007-08 credit crisis exposed vulnerabilities in the wholesale investment banking business model and intensified Moody’s view of the riskiness of this business. Such vulnerabilities include risk management weaknesses, high leverage, confidence-sensitivity, excessive concentrations, and opacity of risk.
…
Moody’s downgraded BMO’s preferred stock securities (which include non-cumulative preferred shares and other hybrid capital instruments) four notches to Baa1 from Aa3. The first notch reflects the downgrade of BMO’s unsupported/stand-alone BFSR. The next three notches are a consequence of implementing Moody’s revised methodology for rating bank hybrid securities which reflects the changing role of hybrids as loss absorbing capital instruments. Published in June 2009, Moody’s special comment titled “Canadian Bank Subordinated Capital Ratings” summarized the potential ratings impact of implementing this revised methodology.

There have been rumours of something like this, as I posted on Moody’s May Massacre Hybrid Ratings.

The loss absorption potential for preferreds is a matter of great pith and moment; the current system is ad hoc, but there are strong indications that the process will be formalized with Contingent Capital rules.

BMO has the following preferred share issues currently outstanding: BMO.PR.H, BMO.PR.J, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.N, BMO.PR.O and BMO.PR.P.

Groupe Aeroplan has announced:

that it has closed its previously announced bought deal public offering of 6,000,000 cumulative rate reset preferred shares, Series 1 (the “Series 1 Preferred Shares”) for gross proceeds of C$150 million, purchased by a syndicate of underwriters led by CIBC, RBC Dominion Securities Inc. and TD Securities Inc., acting as co-Bookrunners.

Groupe Aeroplan Inc. has also granted the underwriters an option to purchase up to an additional 900,000 Series 1 Preferred Shares to cover over-allotments, exercisable in whole or in part at any time up to 30 days following closing of the offering. If the over-allotment option is exercised in full, the aggregate gross proceeds to Groupe Aeroplan Inc. will be C$172.5 million.

The net proceeds of the issue will be used by Groupe Aeroplan Inc. to repay indebtedness, and for general corporate purposes.

This is the FixedReset 6.50%+375 issue announced January 12.

The issue traded 279,498 shares on the TMX in a range of 24.86-22 before closing at 25.09-10, 4×9.

Vital statistics are:

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

Brookfield Properties announced a FixedReset 6.15%+307 issue on January 11.

It will not have escaped notice that the initial fixed-rate period on this issue is six and a half years, just as was the slightly earlier BAM.PR.R new issue. In distinction to other commenters, I feel that the longer term has a lot more to do with the reset rate than the initial rate lock-in period … by extending term the reset can be set against the longer term Canadas rather than the five-year (or five-and-a-half year, as most of the banks did).

This is becoming a much more important consideration now that the chances that this and future issues will indeed be perpetual are increasing.

There’s no necessity for this: the banks have to calculate their reset in such a way or else OSFI will determine that a step-up exists and possibly disallow the issue as Tier 1 Capital. OSFI’s rules do not apply to BPO or BAM – they could set the reset to negative 20bp if they felt like it and thought it would sell – but presumably the dealers are trying to maintain the integrity of the FixedReset structure.

One way or the other, BPO.PR.N traded 333,903 shares on the TMX in a range of 24.90-09 before closing at 24.95-01, 25×30. Vital Statistics are:

BPO.PR.N is tracked by HIMIPref™ but is relegated to the Scraps subindex on credit concerns.

Assiduous Reader prefhound asks:

Any idea what is going on with POW.PR.C? It has gone up about $1 in the past two days. Is there some possibility of a call at $25.50?

If POW.PR.C, what about PWF.PR.I (currently callable at $25.75; $25.50 in April)? Is there a holding company vs sub difference here?

Both of these are nicely under the call price (unlike GWO.PR.X recently called while above the call price).

This is very strange. If we look at the POW PerpetualDiscount issues outstanding:

The yields don’t show a pattern – there should normally be an increase in yields with proximity to par to counterbalance negative convexity. POW.PR.A is somewhat less liquid than the others, but not by so much as to warrant more than a beep or two in yield.

Today’s trading is kind of interesting. Between 12:29 and and 13:09 there were ten trades on the TSX with total volume of 7,500 shares, starting with the low price of 25.38 and ending with the high price of 25.45, all with RBC as the buyer.

Then Nesbitt went nuts. Nesbitt was on the buy side for thirty-eight of the last forty trades of the day, taking the price up to 25.53 before it closed with a quote of 25.16-50. All of these trades were retail size – the biggest single transaction was 400 shares and Nesbitt bought a total of 11,600 shares on the day at an average price of $25.446 (data from PC Quote Canada Inc.).

Trading on Pure was relatively inoccuous, trading 5,100 shares with an afternoon high of 25.53 (100 shares, bought by Nesbitt) before closing at the aren’t-you-glad-there-are-market-makers-on-the-TSX quote of 25.30-27.99, 5×20.

To me, it looks like some retail broker has had a brilliant idea and executed it. But you’ll have to ask him what the idea was!

Update, 2010-1-20: New commenter to_be_frank reminds me that POW.PR.C was recently added to TXPR and suggests:

For the same reason, W.PR.J and ENB.PR.A have recently declined by a substantial amount, because those issues were removed from the index. These positions take time to unwind in a relatively illiquid market.

I have examined this hypothesis in the post TXPR Rebalaning Effect on Market.

BCE Inc. has announced:

that 592,772 of its 14,085,782 Cumulative Redeemable First Preferred Shares, Series AF (series AF preferred shares) have been tendered for conversion, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series AE (series AE preferred shares). In addition, 1,084,090 of its 1,914,218 series AE preferred shares have been tendered for conversion, on a one-for-one basis, into series AF preferred shares. Consequently, on February 1, 2010, BCE will have 1,422,900 series AE preferred shares and 14,577,100 series AF preferred shares issued and outstanding. The series AE preferred shares and the series AF preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.E and BCE.PR.F respectively.

The series AE preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on February 1, 2010, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series AE preferred shares in the preceding month) and the Designated Percentage for the preceding month. The series AF preferred shares will pay on a quarterly basis, for the five-year period beginning on February 1, 2010, as and when declared by the Board of Directors of BCE, a fixed dividend based on an annual dividend rate of 4.541%.

This is a logical result (I recommended BCE.PR.F as the better of the pair), but is nevertheless unfortunate. The decline in BCE.PR.E outstanding will reduce its liquidity from already low levels and make swaps between them even harder to execute.

BCE.PR.F is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. BCE.PR.E is not tracked by HIMIPref™.

BAM.PR.R, the new FixedReset 5.40%+230 announced January 5 closed today and was able to close well above par on heavy volume. The issue traded 614,165 shares in a range of 24.95-30 before closing at 25.26-30, 8×61.

Vital statistics are:

BAM.PR.R is tracked by HIMIPref™. It has been added to the FixedResets subindex.

BCE Inc. has announced (in an ad in the Globe and Mail, which I can’t find on either the Globe‘s website or BCE’s) that:

The “Selected Percentage Rate” determined by BCE Inc. is 168%. The “Government of Canada Yield” is 2.703%. Accordingly, the annual dividend rate applicable to the Series AF Preferred Shares for the five-year period beginning on February 1, 2010 will be 4.541%

This implies that the annual dividend will change to $1.13525, a slight increase from the current $1.10.

BCE.PR.F is convertible to and from BCE.PR.E for a short time every five years – and the window is about to close. Those who wish to convert should contact their brokers immediately.

I recommend holding the fixed rate issue, BCE.PR.F. While I will agree with most that prime will rise in the near future, I am not so convinced that the average over the next five years will exceed 4.541%. One way of achieving such an average, for instance would be a steady rise in prime to about 6.75% over a five year period, an increase of 450bp, or nearly 25bp each and every quarter. That sounds a little extreme, but then, what do I know?

BCE.PR.F was last discussed on PrefBlog when the conversion notice was published.

BCE.PR.F is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. BCE.PR.E is not tracked by HIMIPref™ (there are less than 2-million outstanding) but I may add it to the list if there’s a rush to convert.

Update, 2010-1-13: Finally! BCE Notice from website.