Category: Issue Comments

Dominion Bond Rating Service has announced:

that Yellow Media’s conversion, as described, is not expected to have any impact on its current R-1 (low), BBB (high), BBB and Pfd-3 (high) credit ratings. DBRS notes that its credit ratings remain supported by: (1) a manageable business risk profile to date, with Yellow Media’s Directories segment (more than 90% of EBITDA) exhibiting stable results, while cyclical pressure remains evident in its Vertical Media segment (less than 10% of EBITDA), and (2) the improvement in its financial risk profile, which has been a direct result of debt reduction efforts afforded by its reduced distribution rate in May 2009.
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Additionally, DBRS notes that since Yellow Media lowered its distribution in 2009, the Company has improved its financial risk profile by reducing leverage to end 2009 with debt-to-EBITDA of roughly 2.57 times, down from 2.91 times at the end of 2008. The Company also announced that it plans to continue deleveraging during this transitional period.
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While reduced leverage helps to support Yellow Media’s financial risk profile, DBRS notes that its ratings are largely based on its business risk profile. While there are significant risks on the horizon as the Company repositions its businesses to adapt to an increasingly digital world, to date DBRS has seen no evidence that this transformation has materially changed the Company’s business risk profile – that is, it retains its leading position as the incumbent directory company across Canada, servicing more than 400,000 local small and medium-sized enterprises.

YPG’s press release is titled Yellow Pages Income Fund Provides Clarity on Path to Conversion to a Corporation

YPG has four preferred share issues outstanding: YPG.PR.A & YPG.PR.B (Operating Retractible) and YPG.PR.C & YPG.PR.D (FixedReset). All are tracked by HIMIPref™ and all are relegated to the Scraps subindex on credit concerns.

Commerce Split Corp. has announced:

that a proposed capital reorganization plan for the Company was approved at the special meeting of Shareholders held earlier today. The Company believes this reorganization has the potential to significantly increase the value attributed to all shareholders.

The reorganization will provide all shareholders with the ability to elect to:

• 1. Maintain the current investment characteristics of their existing shares (a status quo option), through the Original Commerce Split Fund, or
• 2. Have their existing Priority Equity and/or Class A shares reorganized into a new series of shares (the New Commerce Split Fund) that would potentially provide greater distribution and capital growth potential, especially if the common shares of CIBC increase over the remaining 5 year term of the Fund.

Under the New Commerce Split Fund, holders of the existing Priority Equity Shares that elect to transfer into the New Commerce Split Fund will receive the following securities for each Priority Equity share held at the close of business on the record date (to be determined):

One $5.00 Class I Preferred Share – paying fixed cumulative preferential monthly dividends to yield 7.50% per annum on the $5.00 notional issue price and having a repayment objective on December 1, 2014 or such other date as the Company may be terminated (the “Termination Date”) of $5.00;

One $5.00 Class II Preferred Share – paying distributions to yield 7.50% per annum on the $5.00 notional issue price if and when the net asset value per Unit exceeds $12.50 and having a repayment objective on the Termination Date of $5.00;

One-half 2011 Warrant – each full 2011 Warrant can be exercised to purchase one Unit for an exercise price of $10.00 at specified times until February 28, 2011; and

One 2012 Warrant – each 2012 Warrant can be exercised to purchase one Unit for an exercise price of $12.50 at specified times until February 28, 2012.

Holders of the existing Class A Shares would receive a Capital share for each share held and would continue to participate in any net asset value growth over $10.00 per Unit.

It is expected that Class I Preferred Shares, Class II Preferred Shares, Capital Shares, 2011 Warrants and 2012 Warrants will be issued sometime in March 2010 and will commence trading on the TSX at the opening of trading on such date.

The Company will issue shortly a further press release including all key dates related to the election process and capital reorganization.

I had previously recommended against the plan but nobody ever listens to me. Undeterred, I will now recommend that holders of XMF.PR.A elect to receive holdings in the “Original” group. I challenge all comers to show me a scenario of prices of CIBC common (“CM”) which show that the “New” plan is superior to assigning extant holdings to the “bond” part of their portfolios and buying a few CM shares directly.

XCM.PR.A is not tracked by HIMIPref™.

M-Split Corp. has announced:

that a proposed capital reorganization plan for the Company was approved at the special meeting of Shareholders held earlier today. The Company believes this reorganization has the potential to significantly increase the value attributed to all shareholders.

Holders of the existing Priority Equity Shares will receive the following securities for each Priority Equity share held at the close of business on the record date (to be determined):

One $5.00 Class I Preferred Share – paying fixed cumulative preferential monthly dividends to yield 7.50% per annum on the $5.00 notional issue price and having a repayment objective on December 1, 2014 or such other date as the Company may be terminated (the “Termination Date”) of $5.00;

One $5.00 Class II Preferred Share – paying distributions to yield 7.50% per annum on the $5.00 notional issue price if and when the net asset value per Unit exceeds $12.50 and having a repayment objective on the Termination Date of $5.00;

One 2011 Warrant – each 2011 Warrant can be exercised to purchase one Unit for an exercise price of $10.00 at specified times until February 28, 2011; and

One 2012 Warrant – each 2012 Warrant can be exercised to purchase one Unit for an exercise price of $12.50 at specified times until February 28, 2012.

Holders of the existing Class A Shares would receive a Capital share for each share held and would continue to participate in any net asset value growth over $10.00 per Unit.

It is expected that Class I Preferred Shares, Class II Preferred Shares, Capital Shares, 2011 Warrants and 2012 Warrants will be issued sometime in March 2010 and will commence trading on the TSX at the opening of trading on such date.

The Company will issue shortly a further press release including all key dates related to the capital reorganization.

I had previously recommended against the reorganization, but does anybody every listen to me? I believe the preferred shareholders have given up a perfectly good, well secured fixed income investment for more speculative securities; they would have been better off reallocating their holdings to the “bond” part of their portfolio and buying better preferreds … but that isn’t what happened.

XMF.PR.A is not tracked by HIMIPref™.

Fairfax Financial Holdings has announced that it:

has completed its previously announced public offering of Cumulative 5-Year Rate Reset Preferred Shares, Series E in Canada. Fairfax issued 8 million Series E Preferred Shares for net proceeds, after commissions and expenses, of approximately $194 million.

The Series E Preferred Shares were sold through a syndicate of Canadian underwriters led by BMO Capital Markets that included CIBC World Markets, RBC Capital Markets, Scotia Capital, TD Securities, National Bank Financial, GMP Securities, Cormark Securities, Desjardins Securities and HSBC Securities.

The issue suffered through a rather poor first day, trading 117,310 shares in a range of 24.00-50 before closing at 24.10-19, 5×14. I suspect a good chunk is still on the underwriters’ books.

Vital Statistics are:

The FixedReset 4.75%+216 issue was announced January 21. FFH.PR.E is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.

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.

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.
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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.
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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…”
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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.
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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.