Category: Issue Comments

Allbanc Split Corp. has announced:

that it has called 74,760 Preferred Shares for cash redemption on March 10, 2010 (in accordance with the Company’s Articles) representing approximately 6.579% of the outstanding Preferred Shares as a result of the special annual retraction of 74,760 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 March 9, 2010 will have approximately 6.579% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $26.75 per share.

In addition, holders of a further 146,700 Capital Shares and 146,700 Preferred Shares have deposited such shares concurrently for retraction on March 10, 2010. As a result, a total of 221,460 Capital Shares and 221,460 Preferred Shares, or approximately 17.260% 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 March 10, 2010.

Payment of the amount due to holders of Preferred Shares will be made by the Company on March 10, 2010. From and after March 10, 2010 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

ABK.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-2(low) by DBRS. ABK.PR.B is not tracked by HIMIPref™.

General Growth Properties, Inc. has announced:

that it has reached an agreement in principle with Brookfield Asset Management Inc., one of the world’s largest real estate investors and asset managers, to invest in a proposed recapitalization of GGP at a plan value of $15.00 per share and provide par plus accrued interest to unsecured creditors. The $2.625 billion proposed equity commitment from Brookfield is not subject to due diligence or any financing condition and is expected to create a floor value for the purpose of raising additional equity for the company. The plan is subject to definitive documentation, approval of the Bankruptcy Court and higher and better offers pursuant to a bidding process to be approved by the Bankruptcy Court.

The complete term sheet for the proposed plan with Brookfield is available on GGP’s website at www.ggp.com/company/Default.aspx?id=97.

The proposed plan is designed to maximize value for all GGP stakeholders and enable a restructured GGP to emerge from bankruptcy on a standalone basis with a diverse portfolio of high-quality income-producing assets, strong cash flow and a solid balance sheet capitalized principally with long-term non-recourse debt.

Under the terms of the proposed plan:

• GGP’s existing shareholders will receive one share of new GGP common stock with an initial value of $10.00 per share, plus one share of General Growth Opportunities (“GGO”) with an initial value of $5.00 per share, for total consideration of $15.00 per share (see description of GGO below under “Terms of the Brookfield Investment and Proposed Recapitalization”)
• Unsecured creditors will receive par plus accrued interest
• Brookfield will invest $2.5 billion at $10.00 per share for new GGP common stock and up to $125 million at $5.00 per share for GGO common stock

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Under the terms of the proposal, Brookfield will invest $2.5 billion in cash in GGP in exchange for GGP common stock, thereby providing sufficient liquidity to fund GGP’s bankruptcy emergence needs. Brookfield will own approximately 30 percent of GGP and have the right to nominate three directors. This cornerstone investment will provide the flexibility for GGP to pursue additional capital-raising alternatives up to a total of $5.8 billion, including the issuance of new equity, asset sales and limited new debt issuance. Brookfield has agreed to assist GGP in raising the balance of this capital using its relationships with global institutional capital sources. As part of the restructuring, GGP intends to distribute to GGP shareholders shares in GGO, a new company that will own certain non-core assets, such as all of the company’s master planned communities and landmark developments like South Street Seaport and others. A shareholder must be invested in GGP prior to the recapitalization in order to receive a dividend of GGO. These assets produce little or no current income but have the potential for significant long-term value. GGO plans to raise $250 million through a rights offering at $5.00 per share, with Brookfield backstopping $125 million of such offering.
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As consideration for acting as “stalking horse” in the company’s process to raise capital, Brookfield will be granted seven-year warrants to purchase 60 million shares of existing GGP common stock at an exercise price of $15.00 per share. The warrants are intended to provide compensation to Brookfield for its financial commitment. Brookfield will not receive any other consideration or bid protection, including any break-up fee, expense reimbursement, commitment fee, underwriting discount or any other fees.

In my view, GGP deserved to go bankrupt, by the way. The website is in the “Techno-weenies go wild!” style, with little evidence of adult supervision. I guess the executives are all “big picture” guys.

The Globe & Mail reports:

Until the warrants are approved by a U.S. bankruptcy court, Brookfield has struck an unusual side deal with General Growth shareholder and noted US shareholder activist Bill Ackman. Until a bankruptcy court judge approves General Growth’s warrant offer with Brookfield, Mr. Ackman’s company Pershing Square Capital Management has agreed to provide interim protection. If Brookfield’s offer fails or is bested by another bidder, Pershing has agreed to pay Brookfield 25 per cent of its profits on any offer that exceeds $12.75 for each General Growth share.

Brookfield released acceptable 4Q09 Results on February 19, while stating that they were seriously looking for acquisitions.

Anyway, this has important implications for BAM’s credit rating. Where’s all this money going to come from? When DBRS confirmed their ratings in December, they stated:

Overall, DBRS remains concerned about Brookfield’s aggressive expansion program in these difficult market conditions, while some of its portfolios have come under pressure. Examples include (i) the $1 billion in capital allocated to a $5 billion Brookfield-managed consortium that will make large, opportunistic purchases of distressed real estate with good long-term prospects and (ii) the $1.1 billion restructuring of Babcock & Brown Infrastructure, in which the Company invested approximately $400 million. With these plans, the consolidated balance sheet (book value) is expected to well exceed the current $60 billion level (with 64% leverage).

Brookfield counters that the diversity of the investments, the use of investing partners, and non-recourse debt mitigates the risks to the Company at the corporate level. In fact, Brookfield’s share of assets on its deconsolidated balance sheet amounts to about $12 billion (with 27% leverage). In DBRS’s view, the Company’s mitigating arguments on how it scales investments are valid up to a point. However, there are limits after which the credit risks of growth exceed the growth of the consolidated balance sheet. Two byproducts of this strategy are the growing interest costs that have first claim on the related cash flow at the operating level and the growing refinancing risk for non-recourse borrowings (subsidiary and property-specific). Going forward, it is reasonable to consider that a large expansion program could very well have credit implications for Brookfield at the corporate level. In short, large transactions have the potential to negatively affect the Company’s credit ratings at the outset.

Stay tuned!

Update: DBRS comments:

Brookfield and the Consortium intend to hold the proposed investment rather than Brookfield Properties, which invests primarily in office properties. As noted in an earlier report, DBRS recognizes Brookfield’s strategy to make opportunistic investments in distressed assets, so long as it does not stress its balance sheet or liquidity. This investment appears to fit with the criteria Brookfield has set out previously.

Hence, DBRS views this plan as neutral to Brookfield’s ratings providing: (i) it enlists other co-investors to support and fund the plan, (ii) the cost of the investment remains at these levels, (iii) the remaining debt and any new debt at GGP is non-recourse to Brookfield and (iv) it maintains sufficient liquidity at the corporate level while completing the plan. At the end of Q3 2009, Brookfield had over $600 million in cash and financial assets on hand, as well as bank lines at the corporate level, plus access to ongoing cash flow and other forms of liquidity within the group.

Update, 2010-4-1: DBRS has concluded that the binding agreement subsequently negotiated is also neutral to credit.

Great-West Lifeco has announced:

that it intends to redeem all 7,938,500 of its outstanding 4.70% Non-Cumulative First Preferred Shares, Series D (the “Series D Shares”) on March 31, 2010. The redemption price will be $25.25 for each Series D Share plus an amount equal to all declared and unpaid dividends, net of any tax required to be withheld by the Company. A notice of redemption of the Series D Shares will be sent in accordance with the rights, privileges, restrictions and conditions attached to the Series D Shares.

GWO.PR.E was last mentioned on PrefBlog in the post GWO.PR.E / GWO.PR.X Issuer Bid Update, which in turn has been mentioned every time somebody asks me about buy-backs (for instance, Repurchase of Preferred Shares by Issuer and Potential for Buy-backs and Unscheduled Exchanges).

There’s another issue gone from the rapidly dwindling HIMIPref™ OperatingRetractible index!

Moody’s Investors Service has announced that it has:

downgraded its ratings on certain Canadian bank hybrid securities, in line with its revised Guidelines for Rating Bank Hybrids and Subordinated Debt published in November 2009. Moody’s downgraded the Canadian banks’ non-cumulative perpetual preferred securities and Innovative Tier 1 and Tier 2A Instruments, with the exception of the Bank of Montreal’s (BMO’s), for which the downgrade occurred in a previous rating action. This concludes the review for possible downgrade that began on November 19, 2009. All other ratings and outlooks for the Canadian banks and their subsidiaries remain unchanged.
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Prior to the global financial crisis, Moody’s had incorporated into its ratings an assumption that support provided by national governments and central banks to shore up a troubled bank would, to some extent, benefit the holders of bank subordinated capital as well as the senior creditors. The systemic support for these instruments has not been forthcoming in many cases. The revised methodology largely removes previous assumptions of systemic support, resulting in today’s rating action. In addition, the revised methodology generally widens the notching on a bank hybrid’s rating that is based on the instrument’s features.
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The starting point in Moody’s revised approach to rating hybrid securities is the Adjusted Baseline Credit Assessment (Adjusted BCA). The Adjusted BCA reflects the bank’s standalone credit strength, including parental and/or cooperative support, if applicable. The Adjusted BCA excludes systemic support. Moody’s rating action removes systemic support from Canadian bank hybrids and, where applicable, adds an additional rating notch for those instruments with non-cumulative coupon payments.
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RBC’s non-cumulative, perpetual preferred shares were downgraded to A2 from Aa2. These securities have a preferred claim in liquidation and their coupon payments are non-cumulative. Two notches of the downgrade reflect the removal of systemic support, while Moody’s added an additional notch to the downgrade to reflect the non-cumulative coupon payments. Thus, per Moody’s revised methodology for bank hybrids, the rating for these securities is three notches lower than the Adjusted BCA.
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TD’s non-cumulative, perpetual preferred shares were downgraded to A2 from Aa2. Please see the RBC section (non-cumulative preferred shares) for the rationale.
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Scotiabank’s non-cumulative, perpetual preferred shares were downgraded to A3 from Aa3. Please see the RBC section for the rationale.
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NBC’s non-cumulative, perpetual preferred shares were downgraded to Baa1 from A1. Please see the RBC section (non-cumulative preferred shares) for the rationale.
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CIBC’s non-cumulative, perpetual preferred shares were downgraded to Baa1 from A1. Please see the RBC section (non-cumulative preferred shares) for the rationale.
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Of note, Moody’s downgraded the long-term ratings of the Bank of Montreal (BMO) and all its subsidiaries on January 22, 2010. As part of this action, Moody’s completed the review for downgrade of BMO’s hybrid capital instruments. 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 reflected the downgrade of BMO’s unsupported/stand-alone BFSR. The next three notches of the downgrade were a consequence of implementing Moody’s revised methodology for rating bank hybrid securities.

Please visit www.moodys.com to access the following documents for additional information:

Moody’s Special Comment: Canadian Bank Subordinated Capital Ratings — June 2009

Moody’s Guidelines for Rating Bank Hybrid Securities and Subordinated Debt — November 17, 2009

Frequently Asked Questions: Moody’s Guidelines for Rating Bank Hybrid Securities and Subordinated Debt — November 17, 2009

By way of comparison, Moody’s does not rate MFC, rates SLF preferreds at Baa2 and does not rate GWO, IAG or ELF.

Related posts on PrefBlog are Moody’s Downgrades BMO Prefs 4 Notches to Baa1 and Moody’s May Massacre Hybrid Ratings.

Financial 15 Split II Corp. has announced:

its regular monthly distribution of $0.04375 for each Preferred share ($0.525 annually). Distributions are payable March 10, 2010 to shareholders on record as at February 26, 2010. There will not be a distribution paid to Financial 15 II Class A Shares for February 26, 2010 as per the Prospectus which states no regular monthly dividends or other distributions will be paid on the Class A Shares in any month as long as the net asset value per unit is equal to or less than $15.00. The net asset value as of February 12, 2010 was $14.78.

The capital unit dividend was also suspended from November 2008 to July 2009, inclusive.

FFN.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3(low) by DBRS. FFN.PR.A is tracked by HIMIPref™, but is relegate to the Scraps index on credit concerns.

I don’t usually highly rating agency confirmations, but this press release, DBRS Confirms Ratings on Industrial Alliance at “A”, Pfd-2 (high) was sufficiently meaty to warrant wider exposure.

DBRS has today confirmed its ratings on Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company) and its related entities. All ratings have a Stable trend. The ratings reflect the Company’s consistently profitable operations and its sustainable and expanding market presence in the Canadian life insurance and wealth management industries, where it serves the financial planning and protection needs of individuals and groups. The Company’s market position is complemented by a conservative risk culture which has limited IAG’s earnings exposure to equity and credit market volatility through the recent credit/economic crisis.

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. The Company’s regulatory capital ratio, at 208% at the end of 2009, is currently above the top end of the Company’s targeted range of 175% to 200% and will rise further to 226%, pro forma the recent preferred and common share issues. The recent share issues have substantially improved IAG’s financial flexibility should it be required to augment its required capital or to fund another in a long line of acquisitions.

Given the existing conservative actuarial reserves and recent favourable experience in terms of interest rate and equity markets, there were no major net reserve adjustments required in 2009 as a result of changing actuarial assumptions or adverse experience. However, because the Company is more focused on the Canadian individual life insurance market than its peers, including its relatively strong market presence in the universal life market, it remains more exposed to the adverse impact of lower interest rates than its more diversified peers. Similarly, the Company retains a larger on-balance-sheet equity exposure to hedge the long-term liabilities under its life insurance products. A severe economic slowdown resulting in prolonged lower interest rates and equity markets would more seriously affect the Company than its peers, all other things being equal. To mitigate some of this risk, the Company remains very conservative in setting its policy reserves, including a recent reduction in the ultimate reinvestment rate assumption to 20 basis points below the Canadian Institute of Actuaries prescribed standard and relatively high reserves against equity market deterioration. In addition, the Company retains a higher proportion of mortality risk than its peers, rather than reinsuring it, since the long-term improvement in mortality ultimately accrues to the Company’s benefit, given its relatively large block of individual insurance.

The Company’s steady diversification of revenues and income across both product lines and geographical markets, combined with a conservative risk culture, has helped it to return to attractive levels of profitability before many of its larger competitors.

IAG has two Straight issues outstanding, IAG.PR.A and IAG.PR.E; and one FixedReset, IAG.PR.C. They are currently marketting a new issue of 5.90% Straights.

ATCO Ltd. has announced:

it will redeem on March 23, 2010 all of its outstanding 5.75% Cumulative Redeemable Preferred Shares, Series 3 at a price of $25.586644 (representing the $25.00 designated capital of each share and a prescribed premium of $0.50 per share plus $0.086644 of accrued and unpaid dividends per share). The total cost of this redemption is $153.5 million.

	Shares	TSX Stock	Redemption Price
Shares	Outstanding	Symbol	Per Share ($)
5.75% Series 3	6,000,000	ACO.PR.A	25.586644

These dividends are eligible dividends for Canadian income tax purposes.

A formal notice and instructions for the redemption of the Series 3 Preferred Shares will be sent to preferred shareholders in accordance with the conditions attached to the Series 3 Preferred Shares.

ACO.PR.A closed last night at 26.20-38, so the risks of holding issues with negative yields-to-worst are illustrated yet again! Of course, one reason they are priced so high appears to be buying by CPD and other indexers in response to the issue’s addition to TXPR in the January rebalancing.

ACO.PR.A was last mentioned on PrefBlog in connection with the calculation of yield-to-issuer-best. It is tracked by HIMIPref™ and is a constituent of the Operating Retractible subindex.

Update: I have uploaded a Chart of the ACO.PR.A / CM.PR.A bid prices from 2009-12-31 to 2010-2-17 (CM.PR.A is the best comparator I can find, although not a very good one). There is a clear bump in the price of ACO.PR.A in the period in which it may be assumed CPD was buying. See the post POW.PR.C: Yes, CPD is the Buyer for another example.

Update, 2010-3-16: S&P announcement of removal from TXPR.

M-Split Corp. has announced:

In connection with the reorganization, the Company’s investment manager, Quadravest Capital Management Inc. (“Quadravest”), will be lowering its annual management fee from 0.55% to 0.45% per annum of the net asset value of the Company. In addition, the discount to net asset value applicable to monthly redemptions of Class I Preferred Shares, Class II Preferred Shares and Capital Shares will be decreased from 4% to 3% and this discount will be paid to Quadravest and not retained by the Company. These measures are intended to lower ongoing expenses of the Company and improve trading prices of the Class I Preferred Shares, Class II Preferred Shares and Capital Shares relative to net asset value for the Company.

Shareholders are being given a special retraction right as a result of the approval of this capital reorganization, which is in addition to the regular monthly retraction at the end of February and the dissent rights which Shareholders had in respect of the special meeting under the Business Corporations Act (Ontario).

Shareholders who do not wish to remain invested in the Company under its reorganized share structure will have until 5:00 p.m. (Toronto time) on February 26, 2010 to provide the Company with notice through their CDS participant that they wish to have their Priority Equity Shares or Class A Shares redeemed pursuant to this special retraction right. On such a special retraction, each holder of a Priority Equity Share will receive the lesser of (i) 96% of the net asset value per Unit of the Company at the retraction date, and (ii) $7.63 per Priority Equity Share (representing the volume weighted average trading price (“VWAP”) of the Priority Equity Shares on the Toronto Stock Exchange (“TSX”) for the 20 trading days ending on February 2, 2010); while holders of Class A Shares will receive the lesser of (i) 4% of the net asset value per Unit of the Company at the retraction date, and (ii) $0.46 per Class A Share (representing the VWAP of the Class A Shares on the TSX for the 20 trading days ending on February 2, 2010). Shareholders interested in exercising such retraction right should contact the CDS Participant through which they hold the Shares for further information and instructions as to how to exercise this right. Shareholders should note that the requirements of any particular CDS Participant may vary, and that Shareholders may need to inform their CDS Participant of any intention to exercise this retraction right in advance of the February 26 deadline.

If more Class A Shares are tendered for retraction under the special retraction right than Priority Equity Shares, the outstanding Priority Equity Shares will be consolidated so that following the retraction pursuant to this special retraction right there would be an equal number of Priority Equity Shares and Class A Shares outstanding. Similarly, if more Priority Equity Shares are tendered for retraction than Class A Shares, the outstanding Class A Shares will be consolidated so that again there would be an equal number of Priority Equity Shares and Class A Shares outstanding following implementation of the special retraction. The Company may implement this consolidation by adjusting the number of Class I Preferred Shares, Class II Preferred Shares, 2011 Warrants and 2012 Warrants to be issued to holders of Priority Equity Shares (in the event a consolidation of Priority Equity Shares is required) or by adjusting the number of Capital Shares to be issued to holders of Class A Shares (in the event a consolidation of Capital Shares is required).

The Company has the discretion not to proceed with this capital reorganization, notwithstanding it has been approved by Shareholders. The Company expects that it will exercise its discretion in this regard only if the number of Priority Equity Shares or Class A Shares being retracted pursuant to the special retraction right is such that the number of Shareholders remaining, or the number of Class I Preferred Shares, Class II Preferred Shares and Capital Shares to be issued and outstanding following implementation of the capital reorganization, is insufficient to meet the listing requirements of the TSX in respect of the Class I Preferred Shares, Class II Preferred Shares and Capital Shares.

The NAVPU as of January 29 is 8.50 net of accrued dividends for the preferred shareholders according to the company, so the ability to retract at 7.63 is no great shakes. It is a total disgrace that the capital unitholders are being allowed to retract at over thirty cents; this displays the spinelessness of preferred shareholders who voted for this plan.

XMF.PR.A was last mentioned on PrefBlog when the reorganization was approved. XMF.PR.A is not tracked by HIMIPref™.

Commerce Split Corp. has announced:

In order to elect one of the two investment options, Shareholders must ensure that they make their election through their CDS Participant, in accordance with such participant’s election process and timing, so that the election is received by Computershare Investor Services Inc. no later than 5:00 p.m. (Toronto Time) on February 26, 2010 (the “Notice Deadline”).

Shareholder should note that the requirements of any particular CDS Participant may vary, and that Shareholders may need to inform their CDS Participant of any intention to elect in advance of the February 26 deadline.

If an Election Notice is not received from a Shareholder by the Notice Deadline, the Shareholder will be deemed to have elected to transfer to into the New Commerce Split Fund. Shareholders are advised to contact their financial advisers if they need assistance in making an investment decision in respect of this election.

Assiduous Readers will remember I recommended against the Reorg but that it passed anyway. Bloodied but unbowed, I now recommend that holders of XCM.PR.A elect to receive units in the “Original Commerce Split Fund”, since I don’t really see any financial advantage on a portfolio perspective that would justify the recapitalization of the company with preferred share-holder money without the extant capital unitholders being wiped out.

XCM.PR.A is not tracked by HIMIPref™.

Allbanc Split Corp. II has announced:

that it has called 441,030 Preferred Shares for cash redemption on February 26, 2010 (in accordance with the Company’s Articles) representing approximately 11.683% of the outstanding Preferred Shares as a result of the special annual retraction of 882,060 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 February 25, 2010 will have approximately 11.683% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.00 per share.

In addition, holders of a further 911,822 Capital Shares and 455,911 Preferred Shares have deposited such shares concurrently for retraction on February 26, 2010. As a result, a total of 1,793,882 Capital Shares and 896,941 Preferred Shares, or approximately 21.201% 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 February 26, 2010.

Payment of the amount due to holders of Preferred Shares will be made by the Company on February 26, 2010. From and after February 26, 2010 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

ALB.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3(high) by DBRS. ALB.PR.A is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.