High Income Preferred Shares Corporation has announced:
it has endorsed a proposal (the “Proposal”) for consideration by shareholders to redeem early all of the outstanding Series 1 shares and Series 2 shares of the Corporation in advance of the Corporation’s stated termination date of June 29, 2012. The Proposal will be voted on at a special meeting of shareholders to be held on or about February 25, 2010.
Subject to the approval by the holders of the Series 1 shares (TSX:HPF.pr.a) and the Series 2 shares (TSX:HPF.pr.b) and of the Corporation, it is proposed that the articles of the Corporation be amended to permit the redemption of all of the Series 1 shares and the Series 2 shares on the terms set forth below. Subject to the approval of such shareholders and any applicable securities regulatory authorities, it is expected that such redemptions will occur during the first quarter of 2010.
The independent members of the Corporation’s board of directors engaged Cormark Securities Inc. (“Cormark”) as financial advisor to prepare a fairness opinion in connection with the proposed early redemption of the Series 1 shares and the Series 2 shares. Cormark has rendered an opinion, subject to the assumptions and limitations described therein, that the amount to be paid to the holders of the Series 1 shares and the Series 2 shares upon the redemption thereof is fair, from a financial point of view, to such shareholders.
“We believe the early redemption Proposal represents a highly attractive option for shareholders to realize on the Net Asset Value of their investment plus cumulative, accrued distributions, rather than waiting until the stated termination date in 2012 or selling shares in the market given the discounted trading price and relative illiquidity,” said Ravi Sood, President of Lawrence Asset Management (“LAMI”), the Manager of HI PREFS.
Proposed Redemption of the Series 1 Shares
It is proposed that the Series 1 shares will be redeemed for $27.80 per Series 1 share, being the original investment amount of $25.00 plus (i) $2.4375, being the full amount of the cumulative distributions that have been accruing on such shares since distributions were suspended in March 2008 and (ii) $0.3656, being the full amount of the monthly distributions that will continue to accrue on such shares until the effective date of the redemption of such shares. The proposed redemption price of $27.80 per Series 1 share represents a premium of approximately 11.4% to the last trading price of the Series 1 shares on the Toronto Stock Exchange (which occurred on November 26, 2009).
Proposed Redemption of the Series 2 Shares
It is also proposed that the Series 2 shares will be redeemed for $16.46 per Series 2 share, being the original investment amount of $14.70 plus (i) $1.7763, being the full amount of the cumulative distributions that have been accruing on such shares since distributions were suspended in March 2008 and (ii) $0.2664, being the full amount of monthly distributions that will continue to accrue on such shares until the effective date of such redemption, less $0.28 per Series 2 share (the “Per Share Cost Amount”). The Per Share Cost Amount represents an amount per Series 2 share equal, in the aggregate, to one-half of the expected costs of effecting the proposed amendments to permit the early redemptions and to wind up the Corporation. The proposed redemption price of $16.46 per Series 2 share represents a premium of approximately 43.1% to the last trading price of the Series 2 shares on the Toronto Stock Exchange (which occurred on December 2, 2009).
Proposed Redemption of the Equity Shares
The Equity Shares, which do not trade on any stock exchange and are held entirely by Lawrence Asset Management Inc. (the “Manager”), will receive the residual proceeds of the Corporation’s portfolio (including the accrued management fees) after payment of all remaining accruals and after payment of the remaining portion of the costs of effecting the proposed amendments to allow the early share redemptions and to wind up the Corporation. There are no distributions accrued on the Equity Shares. The Equity Shareholder is in favour of the proposal to amend the articles to allow for the early wind-up of the Corporation.
Full details of the proposed amendments to the terms of the Series 1 shares and the Series 2 shares, and the proposed early redemption thereof, will be set out in an information circular that will be provided to shareholders in advance of the proposed special meeting of shareholders.
Wow. This has always been a difficult to understand structured investment, perhaps most notable for having all the (very highly levered) equity shares held by the Manager and stating that its profits on redemption of the preferreds exceeded closing equity in 2009. Unusual features of the annual retraction have been discussed previously. The proposal that the preferred shareholders pay half the cost of winding up the corporation represents one last kick at the can by the manager.
HPF.PR.A and HPF.PR.B were last mentioned on PrefBlog when their ratings were confirmed by DBRS. HPF.PR.A and HPF.PR.B are tracked by HIMIPref™, but are relegated to the Scraps index on volume and credit concerns respectively.