Category: Issue Comments

Dividend 15 Split Corp. has announced:

that it has issued 1,181,421 Units for an aggregate of $23.3 million pursuant to the Rights offering that expired on November 16, 2009 at 4:00 p.m. (local time). The net proceeds from the subscription of Units will be used to acquire additional securities in accordance with the Company’s Investment objectives. By raising additional cash through this offering it allows the Company to capitalize on certain attractive investment opportunities that may arise over the next few months. In addition, the offering is expected to increase the trading liquidity of the Company and reduce the management expense ratio.

Both the Preferred Shares and Class A Shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “DFN.PR.A” and “DFN” respectively.

It was only yesterday that I predicted negligible take-up! So much for predictions! There were 10,037,713 units outstanding on May 31, so issue size has increased by a little over 11% (barring interim retractions).

DFN.PR.A was last mentioned on PrefBlog when the rights offering was announced. DFN.PR.A is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.

Nothing on their website yet, but IIROC halted MFC at 4:31pm today while they announced a $2.5-billion common share deal:

Manulife Financial launched a $2.5-billion stock sale late Wednesday as the life insurer moves to build what it’s chief executive officer described as ‘fortress levels of capital.”

A syndicate of underwriters being led by Scotia Capital and RBC Dominion Securities agreed to buy $2.5-billion in Manulife (MFC-T20.180.180.90%)common shares at a price of $19 each.

They had 1,623-million shares outstanding at the end of the third quarter, so this issue of 130-million-odd shares represents a dilution of about 8%.

It is not clear just what will be done with the money – delevering the holdco would be nice – but presumably this will cause a reappraisal of credit: S&P put them on Watch-Negative on November 6.

MFC has the following preferred shares outstanding: MFC.PR.A (OpRet), MFC.PR.B & MFC.PR.C (PerpetualDiscount), MFC.PR.D & MFC.PR.E (FixedReset). All are tracked by HIMIPref™.

Update: Press Release:

The Company has granted the underwriters an over-allotment option, exercisable in whole or in part at any time up to 30 days after closing, to purchase up to an additional $375,060,000 in common shares at the same offering price. Should the over-allotment option be exercised in full, the total gross proceeds of the offering would be $2,875,460,000.

The estimated net proceeds from the offering will be approximately $2.413 billion, after deducting the underwriting fee and before the estimated offering expenses payable by the Company. The Company expects to use the net proceeds from this offering for general corporate purposes, which may include contributions of capital to its insurance and other subsidiaries, potential acquisitions or other growth initiatives. The Company has not yet made a determination as to how much of the proceeds will be invested in MLI and how much will be used for other corporate purposes. Following the offering, the Company also intends to retire the approximately $1 billion outstanding indebtedness under its Credit Facility with Canadian chartered banks using other cash resources of the Company.

Update, 2009-11-19:DBRS comments:

DBRS notes that on November 18, 2009, Manulife Financial Corporation (Manulife or the Company) announced a $2.5 billion equity issue which will significantly increase the amount of available capital to its primary operating life insurance subsidiary. Manulife also intends to retire the approximately $1 billion outstanding indebtedness under its Credit Facility with banks. At the end of September 2009, there was over $1 billion in cash held at the holding company. There are no rating implications stemming from these actions.

The equity issuance is consistent with the Company’s desire to have “Fortress Capital” to support its longer term financial strength and market franchise. This capital is a cushion against potential earnings volatility associated with heightened equity and credit market exposures, which can also be deployed for growth opportunities. Adjusting for the equity issue and the retirement of the bank debt, the net new capital improves the Company’s consolidated debt ratio (including preferred shares) to 25% from a relatively high 29% at the end of September 2009, and the adjusted debt ratio is 17.2% (down from 20.7%). DBRS anticipates that growth in retained earnings at normalized levels will reduce the total debt ratio to below 25%, which is the Company’s target

The YPG Holdings treasury department has been working overtime; there were two announcements of interest today.

First, they are redeeming the 4.65% of 2011:

Yellow Pages Group announced today that YPG Holdings Inc. (the “Company”) intends to exercise its right to redeem all of its outstanding $150 million 4.65% Medium Term Notes, Series 6, due February 28, 2011 (CUSIP No. 98424ZAF14) (the “Series 6 Notes”) on the following terms:

Redemption Date: January 15, 2010;
Redemption Price: $1,041.681 per $1,000 principal amount;
Accrued and Unpaid Interest: $17.836 per $1,000 principal amount; and
Total Redemption Price and Accrued and Unpaid Interest: $1,059.517 per $1,000 principal amount.

The redemption price has been determined in accordance with the terms of the Series 6 Notes and the provisions of the trust indenture dated April 21, 2004 governing the Series 6 Notes. Interest accrued on the Series 6 Notes up to, but excluding, the redemption date will be paid on the redemption date. The Company plans to finance the redemption through its existing commercial paper program.

That’s a very fat price for a one-year, The Pricing Supplement for the Series 6 is on SEDAR dated 2006-2-22:

YPG Holdings shall be entitled, at its option, to redeem the Series 5 Notes and/or Series 6 Notes in whole at any time or in part from time to time, by giving prior notice of not less than 30 days and not more than 60 days to the holders thereof, at the greater of the “Canada Yield Price” (as defined herein) and par, together in each case with accrued and unpaid interest to but excluding the date fixed for redemption. “Canada Yield Price” shall mean a price equal to the price of the Series 5 Notes or Series 6 Notes, as the case may be, calculated on the banking day preceding the day on which the redemption is authorized by YPG Holdings to provide a yield from the date fixed for redemption to the maturity date of the Series 5 Notes or Series 6 Notes to be redeemed, as the case may be, equal to the “Government of Canada Yield” plus 0.50% in the case of the Series 5 Notes or the “Government of Canada Yield” plus 0.16% in the case of the Series 6 Notes.

Of particular interest to YPG.PR.B holders is news of their issue of 10-year bonds at 7.75%:

YPG Holdings sold C$300 million ($286 million) of 10-year medium term notes, according to a term sheet seen by Reuters on Wednesday.

The 7.75 percent notes, due March 2, 2010, were priced at C$100.00 to yield 7.753 percent, or 432.5 basis points over the Canadian government benchmark, the term sheet said.

The bookrunners of the sale were investment dealer arms of Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal.

The reported due date of 2010-3-2 is a typographical error. I am advised it’s really 2020-3-2.

I noted in July that a ten-year issue would increase confidence and now they’ve done it!

YPG.PR.B closed last night at 17.56-60 to yield 11.09-05%; it is retractible 2017-6-30 at 25.00, so it has a term of about 7.5 years. There may be some who argue that the seniority difference justifies a 335bp spread to bonds, but I’m not one of them!

YPG is tracked by HIMIPref™ but is relegated to the “Scraps” index on credit concerns. The MAPF Performance Report for October 2009 disclosed a position in YPG.PR.B.

Update, 2009-11-21: I should have linked to the post about the YPG.PR.A & YPG.PR.B Issuer Bid and its reality.

DBRS has announced that it:

has today discontinued its rating of the Preferred Shares issued by AIC Global Financial Split Corp. at the request of AIC Limited (the Promoter).

The NAV was 11.16 as of November 6 according to Manulife Financial.

ASC.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-5 by DBRS. ASC.PR.A is tracked by HIMIPref™ but is relegated to the Scraps subindex on credit concerns.

S Split Corp. has announced:

that it has filed a final short form prospectus relating to an offering of Warrants to holders of Class A Shares of the Fund. Each Class A shareholder of record on November 19, 2009 will receive one Warrant for each Class A Share held. One Warrant will entitle its holder to acquire one Class A Share and one Preferred Share (together, a “Unit”) upon payment of the subscription price of $18.75. The Toronto Stock Exchange has conditionally approved the listing of the Warrants under the symbol SBN.WT and the Class A Shares and the Preferred Shares issuable upon the exercise thereof. It is expected that the Warrants will commence trading on November 17, 2009 and will remain trading until noon (Toronto time) on the expiry date of March 31, 2010.

The exercise of Warrants by holders will provide the Fund with additional capital that can be used to take advantage of attractive investment opportunities and is also expected to increase the trading liquidity of the Class A Shares and the Preferred Shares and to reduce the management expense ratio of the Fund.

The Units had a NAV of 20.14 on November 5. SBN closed today at 8.01-29, 3×11 and SBN.PR.A closed at 10.00-34, 22×1.

SBN.PR.A was last mentioned on PrefBlog when the intent to issue warrants was announced. SBN.PR.A is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.

World Financial Split Corp. has announced:

that it has filed a final short form prospectus relating to an offering of Warrants to holders of Class A Shares of the Fund. Each Class A shareholder of record on November 19, 2009 will receive one Warrant for each Class A Share held. One Warrant will entitle its holder to acquire one Class A Share and one Preferred Share (together, a “Unit”) upon payment of the subscription price of $13.14. The Toronto Stock Exchange has conditionally approved the listing of the Warrants under the symbol WFS.WT and the Class A Shares and the Preferred Shares issuable upon the exercise thereof. It is expected that the Warrants will commence trading on November 17, 2009 and will remain trading until noon (Toronto time) on the expiry date of March 31, 2010.

The exercise of Warrants by holders will provide the Fund with additional capital that can be used to take advantage of attractive investment opportunities and is also expected to increase the trading liquidity of the Class A Shares and the Preferred Shares and to reduce the management expense ratio of the Fund.

The NAV of the units was 13.23 on November 5. WFS closed today at 3.25-34, 11×10, and WFS.PR.A closed at 9.40-45, 25×7.

WFS.PR.A was last mentioned on PrefBlog when the intent to issue warrants was announced. WFS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps subindex on credit concerns.

Update, 2009-12-4: The company has renewed its issuer bid. This news is not worthy of its own post (despite the commentary in Split-Share Buy-Backs? WFS.PR.A & FIG.PR.A Examined) because, as the 2008 Annual Report states:

Under the terms of the normal course issuer bid that was renewed in November 2008, the Fund proposes to purchase, if considered advisable, up to a maximum of 1,275,271 Class A shares (2007 – 1,414,293) and up to a maximum of 1,275,271 Preferred shares (2007 – 1,414,293), 10 percent of its public float as determined in accordance with the rules of the Toronto Stock Exchange. The purchases would be made in the open market through facilities of the Toronto Stock Exchange. The normal course issuer bid will remain in effect until the earlier of November 12, 2009 or until the Fund has purchased the maximum number of units permitted under the bid. As at December 31, 2008, nil shares (2007 – nil) have been purchased by the Fund.

Standard & Poor’s has announced:

• Manulife Financial Corp.’s (TSX/NYSE: MFC) operating performance is below expectations.
• MFC’s risk tolerance remains high and the majority of its
  equity-linked liabilities remain unhedged. Also, earnings and capitalization are highly sensitive to volatile equity markets and changes in interest rates.

• MFC’s planned reorganization will reduce its cash flow diversification.
• We are placing our ‘AA-‘ counterparty credit rating on MFC on CreditWatch with negative implications because we expect to restore standard notching following the reorganization.
• We are revising the outlook on our ‘AA+’ financial strength ratings on MFC’s subsidiaries to negative from stable.

Under its current organizational structure, MFC has two major cash flow streams consisting of MLI and its U.S. subsidiaries held under John Hancock Financial Services Inc. (John Hancock Financial). Its U.S. subsidiaries are currently organized in two columns with each providing approximately one quarter of the group’s operating performance. This organizational diversification is important to support the nonstandard two-notch differential between the counterparty credit ratings on MFC and the higher financial strength ratings on its core subsidiaries. Following the planned reorganization, MLI will be the only major direct source of earnings and cash flow for MFC. But, more importantly, the U.S. half of total earnings will be channeled through a single U.S. insurance company and, therefore, be subject to the dividend restrictions of a single U.S. insurance regulator instead of two. Although the eorganization results in many benefits to Manulife, including increased capital and operational efficiency, it is our opinion that the reduced diversification increases the potential for lower cash flows to MFC during severe or extreme stress events and is more in line with standard notching.

The target date for completion of the reorganization is year-end 2009. When completed, we expect to lower the ratings on MFC by one notch. This would restore a standard three-notch differential between the ratings on MFC and the higher financial strength ratings of its core ubsidiaries.

Meanwhile, Manulife CEO Daniel “Cowboy” Guloien thinks his luck will change:

But on a conference call with analysts Thursday, Mr. Guloien made it clear that he thinks he’s developed a strategy that will strengthen the company’s capital levels and still allow shareholders to benefit if stock markets go up. And he’s sticking to it – no matter what S&P says. “I could look like a hero [by taking] a huge one-time charge and say, ‘We’ve put it behind us.’ And I think that would mollify rating agencies and other people who are concerned about downside risk,” he said.

“I happen to believe that the shareholders who have suffered a great deal by seeing unhedged positions cost [the company] in terms of the market downdraft have a right to earn that back in the market updraft.

“And I’m not prepared to put their interest behind me because a rating agency has a view on an unhedged position.”

MFC has the following preferred shares outstanding: MFC.PR.A (OpRet), MFC.PR.B & MFC.PR.C (PerpetualDiscount), MFC.PR.D & MFC.PR.E (FixedReset). All are tracked by HIMIPref™.

EPCOR Power L.P. (TSX: EP.UN) (the Partnership) and EPCOR Power Equity Ltd. (TSX: EPP.PR.A, EPP.PR.B) have announced:

changes to their respective company names. The change in names follows Capital Power Corporation’s (TSX: CPX) (Capital Power) acquisition of EPCOR Utilities Inc.’s power generation assets and operations effective July 1, 2009 when it assumed the role of manager and operator of the Partnership’s assets. The following table summarizes the previous and new names and associated Toronto Stock Exchange (TSX) ticker symbols:

Previous Names	New Names
EPCOR Power L.P. (EP.UN)	Capital Power Income L.P. (CPA.UN)
EPCOR Power Equity Ltd. •Series 1 (EPP.PR.A) •Series 2 (EPP.PR.B)	CPI Preferred Equity Ltd. •Series 1 (CZP.PR.A) •Series 2 (CZP.PR.B)

EPCOR Power L.P.’s units and the preferred shares (Series 1 and 2) issued by EPCOR Power Equity Ltd. will continue to trade on the TSX with the new ticker symbols expected to take effect on or about November 9, 2009.

Great-West Lifeco has announced:

that it intends to redeem all of its outstanding Series E First Preferred Shares on December 31, 2009. The redemption price will be $26.00 for each Series E First Preferred Share plus an amount equal to all declared and unpaid dividends, less any tax required to be deducted and withheld by the Corporation. The paid-up capital of the Series E First Preferred Shares is $22.78 per share.

A formal notice and instructions for the redemption of the Series E First Preferred Shares will be sent to shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series E First Preferred Shares.

There’s a shocker! They closed last night at 26.60-63, so some players have found out the hard way that purchasing issues with a negative yield-to-worst is playing with fire.

As of August 18, GWO.PR.X was held in CPD with a weight of 3.82%; as of June 30, it was held in DPS.UN with a weight on August 18 (assuming that it was not sold in the interim) of 0.8%; and as of September 30 it was in the BMO-CM “50” index to the tune of 4.42%.

This is a monster issue, by the way, with the TSX reporting 22.09-million shares outstanding. Holders should also take note that the difference between the redemption price of 26.00 and the paid-up capital of 22.78 is a deemed dividend, while the capital gain or loss is determined by the difference between the holder’s ACB and the 22.78 figure … but check with your personal tax advisor before taking action on the basis of tax commentary from a portfolio manager!

GWO.PR.X was last mentioned on PrefBlog in the post Potential for Buy-Backs and Unscheduled Exchanges. GWO.PR.X is tracked by HIMIPref™ and is currently included in the Operating Retractible subindex.

YPG Holdings has released its 3Q09 financials with some information of interest to holders of the captioned issues. According to the Management Discussion & Analysis:

On June 9, 2009, YPG Holdings Inc. received approval from the Toronto Stock Exchange on its notice of intention to make a normal course issuer bid for its preferred shares Series 1 and 2 through the facilities of the Toronto Stock Exchange from June 11, 2009 to June 10, 2010, in accordance with applicable regulations of the Toronto Stock Exchange. Under its normal course issuer bid, the Fund intends to purchase for cancellation up to 1,200,000 and 800,000 of its series of preferred shares outstanding on June 9, 2009. These figures represent 10% of the public float of each series of preferred shares outstanding on June 9, 2009. Since June 11, 2009, 39,500 Preferred Shares Series 1 and 328,632 Preferred Shares series 2 were repurchased at average prices of $22.71 and $17.87, respectively. The total cost of repurchasing preferred shares in the second and third quarters of 2009 amounted to $6.8 million, including brokerage fees.

As of the second quarter, the amount repurchased – in the three weeks or so between NCIB approval and quarter end – the amount was derisory:

As at June 30, 2009, the Fund purchased for cancellation 8,800 Series 1 shares of the Fund for a total cash consideration of $0.2 million including brokerage fees at an average price of $22.47 per Series 1 share and 12,600 Series 2 shares of the Fund for a total cash consideration of $0.2 million including brokerage fees at an average price of $17.43 per Series 2 share.

YPG recorded a third quarter loss on goodwill writedown, but for a company like YPG – which is, basically, all goodwill – balance sheet values are of limited utility. It is operating cash flow that’s important; this was down, but not by more than one would expect in a vicious recession.

YPG.PR.A and YPG.PR.B were last mentioned on PrefBlog in connection with YPG’s issuance of 5-Year MTNs. YPG.PR.A and YPG.PR.B are both tracked by HIMIPref™ but are relegated to the Scraps subindex on credit concerns.