Category: Issue Comments

Big 8 Split Corp. has announced:

that it has filed a final prospectus in respect of a public offering of up to 2,743,877 Class C Preferred Shares, Series 1 at a price of $12.00 per preferred share and up to 2,103,674 additional Class A Capital Shares at a price of $20.00 per share (collectively, the “Shares”). The Shares are being offered to the public on a best efforts basis by a syndicate of agents led by TD Securities Inc. and Scotia Capital Inc., and including BMO Capital Markets, National Bank Financial Inc., Canaccord Capital Corporation, GMP Securities L.P., HSBC Securities (Canada) Inc., Raymond James Ltd., Blackmont Capital Inc., Desjardins Securities Inc., Dundee Securities Corporation, Manulife Securities Incorporated and Wellington West Capital Markets Inc. The offering is expected to close on December 15, 2009.

This issue involves the relevering of Big 8 and an almost certain downgrade for BIG.PR.B.

Neither BIG.PR.B nor BIG.PR.C are tracked by HIMIPref™.

Brookfield Properties has announced:

that the Toronto Stock Exchange accepted a notice filed by Brookfield Properties of its intention to make a normal course issuer bid for its class AAA preference shares, series F (“Series F Shares”), series G (“Series G Shares”), series H (“Series H Shares”), series I (“Series I Shares”), series J (“Series J Shares”) and series K (“Series K Shares”). Brookfield Properties stated that at times its class AAA preference shares trade in price ranges that do not fully reflect their value. As a result, from time to time, acquiring class AAA preference shares will represent an attractive and a desirable use of available funds.
The notice provides that Brookfield Properties may, during the twelve month period commencing December 11, 2009 and ending December 10, 2010, purchase on the Toronto Stock Exchange up to 400,000 Series F Shares, 220,000 Series G Shares, 400,000 Series H Shares, 400,000 Series I Shares, 400,000 Series J Shares and 300,000 Series K Shares, each representing approximately 5% of the issued and outstanding of the relevant series of class AAA preference shares. At December 3, 2009, there were 8,000,000 Series F Shares, 4,400,000 Series G Shares, 8,000,000 Series H Shares, 8,000,000 Series I Shares, 8,000,000 Series J Shares and 6,000,000 Series K Shares issued and outstanding. Under the normal course issuer bid, Brookfield Properties may purchase up to 2,652 Series F Shares, 1,000 Series G Shares, 2,614 Series H Shares, 4,439 Series I Shares, 2,026 Series J Shares, and 1,550 Series K Shares on the Toronto Stock Exchange during any trading day, each of which represents 25% of the average daily trading volume on the Toronto Stock Exchange for the most recently completed six calendar months prior to the Toronto Stock Exchange’s acceptance of the notice of the normal course issuer bid. This limitation does not apply to purchases made pursuant to block purchase exemptions.

The price to be paid for the class AAA preference shares under the normal course issuer bid will be the market price at the time of purchase. The actual number of class AAA preference shares to be purchased and the timing of such purchases will be determined by Brookfield Properties, and all class AAA preference shares will be purchased on the open market or such other means as approved by the Toronto Stock Exchange. All class AAA preference shares purchased by Brookfield Properties under this bid will be promptly cancelled.

The average daily trading volumes of the class AAA preference shares on the Toronto Stock Exchange during the six months ended November, 2009 was 10,606 with respect to the Series F Shares, 3,636 with respect to the Series G Shares, 10,454 with respect to the Series H Shares, 17,755 with respect to the Series I Shares, 8,103 with respect to the Series J Shares, and 6,199 with respect to the Series K Shares.

There is no mention of a preferred share NCIB in the 2008 Annual Report (although there is a significant common share NCIB), so this announcement is not something I would normally report. In this case, however, I was specifically asked about it by Assiduous Reader MP and there are some other things that give credence to the idea … like, f’rinstance, relative yields:

BPO.PR.L, the FixedReset, has been insanely expensive since its opening date, yielding less, with a lower chance of 5-year maturity, than the retractible.

Even that might not have been enough for me to take this bid seriously … but there is also the recent YPG FixedReset 6.90%+426 issue to consider. This, the second YPG FixedReset, has just been announced and YPG.PR.B, retractible 2017-6-30 and the target of a real issuer bid continues to trade with a double digit yield. Such is the allure of FixedResets!

A FixedReset issue, being perpetual, will appear in the equity section of the balance sheet (retractibles are considered liabilities for balance sheet purposes) improving credit ratios; additionally, credit rating agencies will assign a greater equity equivalency factor to perpetuals. In terms of lowering the cost of bond issues, refinancing retractibles with FixedResets makes all kinds of sense.

No predictions! But it will be interesting to see how this turns out.

Investors’ Group has announced:

the successful completion and closing of an offering of 5.90% Non-Cumulative First Preferred Shares, Series B (the “Series B Shares”), priced at $25.00 per share to raise gross proceeds of $150 million.

The issue was bought by an underwriting group co-led by BMO Capital Markets and by RBC Capital Markets.

The Series B Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “IGM.PR.B”. Proceeds from the issue will be used to supplement IGM Financial’s financial resources and for general corporate purposes.

Vital statistics are:

It still looks expensive to me! The issue was announced on November 30.

IGM.PR.B will be tracked by HIMIPref™. It has been assigned to the PerpetualDiscount index.

ROC Pref Corp. III has released the Management Information Circular for the meeting regarding its potential dissolution. It includes some cheery statements:

The Credit Linked Note has been structured so that it is unaffected by the first net losses on the CLN Portfolio up to 3.84% of the initial value of the CLN Portfolio (representing defaults by eight Reference Companies in a CLN Portfolio comprised of 125 Reference Companies). The net loss on a Reference Company that defaults is calculated as the percentage exposure in the CLN Portfolio to such Reference Company multiplied by 60.0% (based on a 40.0% fixed recovery rate).

Since the Credit Linked Note was issued there have been 8.5 defaults in the CLN Portfolio. These companies include Dana Corporation, Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc., Washington Mutual, Tribune Company, Idearc Inc., Lear Corporation and CIT Group Inc. Idearc Inc. was a spin-off from Verizon Communications Inc. and therefore was represented in the CLN Portfolio at a one-half weight and constituted a half default.

The fixed recovery rate sounded like a good idea at the time – and, I understand, was preferred by the ratings agencies – but hurt a lot with Fannie and Freddie. CIT Group recovery, too, will be well in excess of the benchmark.

But to my mind, the most interesting part is:

The issuer of the Credit Linked Note, TD Bank, has agreed to repurchase the Credit Linked Note prior to maturity at a price equal to the value of the Credit Linked Note on December 18, 2009 plus an amount equal to $1.00 multiplied by the number of Preferred Shares then outstanding. The price at which TD Bank is obligated pursuant to a note repurchase agreement to repurchase portions of the Credit Linked Note in the event that Shareholders exercise their monthly retraction rights represents a discount to the value of the Credit Linked Note. There is no assurance that the agreement with TD Bank to repurchase the Credit Linked Note at the more favourable price would be available in the future.

Later on, they note that the Method of Valuation is described in the Annual Information Form, incorporated by reference. Oddly, Connor Clark & Lunn’s website publishes the 2008 AIF, but the 2009 AIF is available only on SEDAR. The 2008 version states:

The CLN is valued on the 10th and last business day of each month by TD Bank. Factors affecting the value of the CLN include the market‘s assessment of overall credit quality of the Reference Portfolio, as measured by the trading price of the debt (and derivatives thereof) of companies in the portfolio, and interest rates as measured by the Canadian dollar swap rate to the date of maturity of the note, as well as the value of the trading reserve account. At June 30, 2008, the CLN value was $102.6 million, down from $219.6 million at June 30, 2007.

The 2009 version states:

The CLN is valued on the 10th and last business day of each month by TD Bank. Factors affecting the value of the CLN include the market’s assessment of overall credit quality of the Reference Portfolio, as measured by the trading price of the debt (and derivatives thereof) of companies in the portfolio, and interest rates as measured by the Canadian dollar swap rate to the date of maturity of the note, as well as the value of the trading reserve account. At June 30, 2009, the CLN value was $40.9 million, down from $102.6 million at June 30, 2008.

All in all, I don’t get it. Why is TD Bank willing to pay $1 more than NAV? This question is not addressed in the supplied FAQs.

My best guess at an answer is that it has to do with the power of substitution – the following is taken from the 2009 AIF:

The CLN features an embedded trading reserve account (the “Trading Reserve Account”), initially in an amount of $2.1 million, which stood at $nil million on June 30, 2009. The Trading Reserve Account may be available to absorb net losses that might be incurred when making substitutions in the Reference Portfolio. The Trading Reserve Account was used to purchase additional subordination from TD Bank following the November restructuring initiatives.
…
The Reference Portfolio is managed by the Investment Manager. The Investment Manager’s goal is to reduce the likelihood of having exposure to companies that default on their senior obligations. To that end, the Investment Manager can add or remove companies through a substitution process executed in accordance with the terms of the CLN. If the Investment Manager decides to remove a company that, in its judgment, has increased in risk, and to replace it with a lower risk company, there may be a net cost to the Trading Reserve Account depending on the credit spread comparison between the companies being substituted. The Trading Reserve Account described above may be available to absorb net losses that may be incurred through these substitutions.

The Investment Manager has made 66 substitutions in the Reference Portfolio since inception at a net benefit of $2.5 million to the Trading Reserve Account which, was used in the restructuring of the CLN.

It may be that the value – however it’s calculated – of the note is $3.50 per preferred, but with an infusion of – say – $2.00 new capital, substitutions could be effected to bring it to $10.00. Under this scenario, the ROC Pref III Corp. is scuppered because it has run out of money and has no reasonable way of getting more (and therefore cannot effect substitutions; also, even if they could get some money, they might not be permitted to put it into the CLN), but TD will be very happy to pay $3.50 NAV + $1.00 Premium + $2.00 recapitalization to get a $10.00 value.

I will make haste to note, however, that the above paragraph represents uninformed speculation on my part; I have always loathed structured products (whenever you want to sell, there’s exactly one buyer, at the ready with a large vise); I have no experience in the valuation of this sort of note; and acquiring such expertise would take me considerable time. Trying to understand preferred shares and more normal fixed income instruments is more my style.

Still … if I held RPB.PR.A, I’d be asking Connor Clark: “Before I vote, please tell me why TD is paying $1 over NAV.” They will almost certainly blandly direct inquiries of this nature to TD, so the follow-up question is: “Why aren’t you effecting substitutions out of the riskier elements of the portfolio?”

RPB.PR.A was last mentioned on PrefBlog when they announced their intention to hold the vote. RPB.PR.A is not tracked by HIMIPref™.

Update: The 2009 Annual Information Form is now available via CCL group.

Commerce Split Corp. has announced:

that it will hold a special meeting of shareholders on February 3, 2010 to vote on a proposed capital reorganization plan for the Company. The delay in setting the meeting date was attributable to additional time required by the regulatory process.

As previously announced in the Company’s press release of September 18, 2009, this proposal is designed to address the impact that the significant decline in price of the Company’s underlying holding of CIBC common stock and the resultant activation of the Priority Equity Portfolio Protection Plan has had on the ability of the Company to meet its original investment objectives.

The record date for shareholders entitled to receive notice of and vote at this special meeting has been established as December 14, 2009. Full details of the proposed reorganization will be contained in a Management Information Circular expected to be mailed to shareholders in early January, 2010.

The proposed reorganization has been discussed on PrefBlog.

XCM.PR.A is not tracked by HIMIPref™.

M-Split Corp. has announced:

that it will hold a special meeting of shareholders on February 3, 2010 to vote on a proposed capital reorganization plan for the Company. The delay in setting the meeting date was attributable to additional time required by the regulatory process.

As previously announced in the Company’s press release of September 18, 2009, this proposal is designed to address the impact that the significant decline in price of the Company’s underlying holding of Manulife common stock and the resultant activation of the Priority Equity Portfolio Protection Plan has had on the ability of the Company to meet its original investment objectives.

The record date for shareholders entitled to receive notice of and vote at this special meeting has been established as December 14, 2009. Full details of the proposed reorganization will be contained in a Management Information Circular expected to be mailed to shareholders in early January, 2010.

The proposed reorganization has been discussed on PrefBlog. XMF.PR.A is not tracked by HIMIPref™.

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.

The redemption calls from the POW/PWF/GWO/IGM group really shook things up!

5Banc Split Inc. has announced:

that it has called 1,796,047 Preferred Shares for cash redemption on December 15, 2009 representing approximately 17.2% of the outstanding Preferred Shares as a result of holders of 1,796,047 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 14, 2009 will have approximately 17.2% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $10.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 15, 2009.

In addition, holders of a further 1,222,021 Preferred and Capital Shares have deposited such shares concurrently for retraction on December 15, 2009. As a result, a total of 3,018,068 Preferred and Capital Shares, or approximately 25.8% of both classes of shares currently outstanding will be redeemed.

Payment of the amount due to retracting shareholders will be made by the Company on December 15, 2009. From and after December 16, 2009 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.

FBS.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS. FBS.PR.B is tracked by HIMIPref™, but is relegated to the “Scraps” subindex on credit concerns.

Big 8 Split Corp. has announced:

that it has called 137,975 Preferred Shares for cash redemption on December 15, 2009 representing approximately 11.5% of the outstanding Preferred Shares as a result of holders of 137,975 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 14, 2009 will have approximately 11.5% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $12.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 15, 2009.

Payment of the amount due to retracting shareholders will be made by the Company on December 15, 2009. From and after December 16, 2009 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.

BIG.PR.B was last mentioned on HIMIPref™ when DBRS put the issue on Review-Negative. BIG.PR.B is not tracked by HIMIPref™.

Energy Split Corp. II has announced:

that it has called 5,209 ROC Preferred Shares for cash redemption on December 16, 2009 (in accordance with the Company’s Articles) representing approximately 0.559% of the outstanding ROC Preferred Shares as a result of the special annual retraction of 107,818 Capital Yield Shares by the holders thereof. The ROC Preferred Shares shall be redeemed on a pro rata basis, so that each holder of ROC Preferred Shares of record on December 15, 2009 will have approximately 0.559% of their ROC Preferred Shares redeemed. The redemption price for the ROC Preferred Shares will be $13.74 per share.

Holders of ROC 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 December 16, 2009.

Payment of the amount due to holders of ROC Preferred Shares will be made by the Company on December 16, 2009. From and after December 16, 2009 the holders of ROC 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.

The Company’s ongoing dividend policy entitles holders of ROC Preferred Shares to receive quarterly fixed cumulative distributions equal to $0.1718 per ROC Preferred Share. The Capital Yield Shareholders are provided with a leveraged play on the yield and price performance from a fixed portfolio consisting of 14 oil and gas royalty trusts listed on the Toronto Stock Exchange.

EN.PR.A was last mentioned on PrefBlog when they revised the Capital Unit Dividend Policy. EN.PR.A is tracked by HIMIPref™ but is relegated to the “Scraps” subindex on both volume and credit concerns.