Category: Issue Comments

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.

EPP.PR.B, the FixedReset 7.00%+418 announced mid-October has closed successfully.

It traded 291,267 shares in a range of 25.12-80 (!) before closing at 25.65-92, 17×10 on the Toronto Stock Exchange. There was no trading on either Pure or Alpha.

Vital statistics are:

EPP.PR.B will be tracked by HIMIPref™, but is assigned to the Scraps subindex on credit concerns.

Global Credit Pref Corp has announced:

that it received a credit event notice today from The Toronto-Dominion Bank with respect to CIT Group Inc. as a result of that entity filing for Chapter 11 bankruptcy protection in the Southern District of New York.
…
The return on the credit linked note is linked to the number of defaults experienced over its term among the reference entities in the CLN Portfolio. The credit linked note has been structured so that it is unaffected by the first net losses on the CLN Portfolio up to 5.12% of the initial value of the CLN Portfolio (initially representing defaults by 11 reference entities in a CLN Portfolio comprised of 129 reference entities). The net loss on a reference entity that defaults is calculated as the percentage exposure in the CLN Portfolio to such reference entity reduced by a 40% fixed recovery rate. Following the credit event, the credit linked note will be able to withstand approximately 4 further credit events in the CLN Portfolio.

Global Credit Pref Corp.’s capacity to return $25.00 per preferred share on the scheduled redemption date of September 30, 2015 and the payment of quarterly fixed cumulative preferential distributions of $0.3281 per preferred share (a 5.25% yield on the original subscription price of $25.00 per preferred share) will not be affected by this credit event.

The preferred shares are listed for trading on the Toronto Stock Exchange under the symbol GPA.PR.A.

GPA.PR.A was last mentioned in PrefBlog when it announced it was affected by the Lear credit event. GPA.PR.A is not tracked by HIMIPref™.

ROC Pref Corp III has announced:

that the decision of the Board of Directors of CIT Group Inc.
(“CIT”) to proceed with a prepackaged plan of reorganization is expected to constitute a credit event under the credit linked note (“CLN”) issued by TD Bank to which the Company has exposure.
…
The recovery rate for ROC Pref III Corp. is fixed at 40%. As a result, the CIT credit event is expected to reduce the number of additional credit events that ROC Pref III Corp. can sustain before the payment of $25.00 per Preferred Share at maturity is adversely affected from 1.6 to 0.6.

As indicated in a press release dated September 4, 2009, given the events of the credit market over the past year and the credit events that have occurred in the underlying portfolio, the Manager and Investment Advisor believe that a restructuring may be necessary in order to preserve the maximum value available to preferred shareholders. The Company expects to be in a position to announce a restructuring plan in November 2009.

ROC Pref III Corp. is listed for trading on the Toronto Stock Exchange under the symbol RPB.PR.A and is
scheduled to be redeemed on March 23, 2012.

The September 4 announcement was very light on details; it’s difficult to see just what may be done. September 30, the portfolio had 127 names; 6 of which had previously defaulted. Now it’s seven and the recovery rate drops off very sharply commencing with about 7.9 defaults; when eleven defaults have been experienced, recovery on the note – according to the original prospectus – is a big fat zero. They’ve already reorganized once:

Connor Clark & Lunn Capital Markets (the “Manager”) and Connor Clark & Lunn Investment Management (the “Investment Manager”) felt it was prudent to undertake certain restructuring initiatives during the quarter to increase the likelihood that ROC III will be able to repay the $25.00 preferred share issue price at maturity. These initiatives include: (i) the trading reserve account was used to buy additional subordination in the credit linked note (which increases the “safety cushion” by increasing the number of defaults the reference portfolio can withstand before the principal and interest payable on the credit linked note is adversely affected); (ii) coupons on the credit linked note payable from December 2008 to June 2009 have been sold to TD Bank in exchange for additional subordination; and (iii) the Manager’s deferred management fee has been made available for the benefit of the preferred shareholders. These restructuring initiatives were reviewed and approved by the independent members of the Company’s board of directors.

RPB.PR.A was last mentioned on PrefBlog when the reorganization idea was floated. RPB.PR.A is not tracked by HIMIPref™.

ROC Pref Corp. II has announced:

The impact of the CIT credit event on ROC Pref II Corp. will be known when the recovery rate is determined within the next several weeks. Before giving effect to the CIT credit event, a total of approximately 3.0 credit events among the companies in the CLN’s reference portfolio could be sustained before payments under the CLN are impacted including the payment of $25 per Preferred Share on December 31, 2009 based on the assumption of a 40% recovery rate for each credit event. Realized recovery rates for any particular reference company may vary substantially from the assumed 40% recovery rate and the Company would not be able to sustain 3.0 credit events and pay $25 per Preferred Share at maturity if the realized recovery rates were less than 40%. Currently in the market place, the recovery rate is trading at approximately 65%. If the realized recovery rate for CIT is 60%, the CIT credit event would be equivalent to approximately 0.7 credit events at a 40% recovery rate. The realized recovery rate may differ from this level.

ROC Pref II Corp. is listed for trading on the Toronto Stock Exchange under the symbol RPA.PR.A and is
scheduled to be redeemed on December 31, 2009.

Three fully weighted credit events … two months. It could be interesting!

RPA.PR.A was last mentioned on PrefBlog when the company announced the Idearc credit event. RPA.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.

There were no repeaters from the September list, which is rather unusual – there’s usually some rebounding, but not this time.