Category: Issue Comments

Fairfax Financial Holdings has announced:

has completed its previously announced public offering of Cumulative 5-Year Rate Reset Preferred Shares, Series C (the “Series C Shares”) in Canada. As a result of the underwriters exercising their $50 million option in full, Fairfax issued an additional 2,000,000 Series C Shares for a total issue of 10,000,000 Series C Shares and total gross proceeds of $250 million. Net proceeds of the issue, after commissions and expenses, are approximately $243 million.

The Series C Shares were sold through a syndicate of Canadian underwriters led by Scotia Capital, RBC Capital Markets and BMO Capital Markets, and that also included CIBC World Markets Inc., TD Securities Inc., National Bank Financial Inc., Cormark Securities Inc., GMP Securities L.P., Desjardins Securities Inc. and HSBC Securities (Canada) Inc.

Fairfax intends to use the net proceeds of the offering to augment its cash position, to increase short term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations from time to time, and for general corporate purposes.

This is a cumulative FixedReset issue, 5.75%+315 announced last week.

The issue traded 271,990 shares in a range of 24.80-94 before closing at 24.85-90, 17×311. Vital statistics are:

FFH.PR.C is tracked by HIMIPref™, but is relegated to the Scraps subindex on credit concerns.

DBRS has announced that it:

today removed all trends on the ratings of 53 preferred shares and securities issued by 48 split share companies and trusts (the Issuers). DBRS will no longer assign trends to preferred shares (the Preferred Shares) issued by split share corporations.

Each of the Issuers has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – preferred shares and capital shares. The main form of credit enhancement available to Preferred Shares is a buffer of downside protection. Downside protection corresponds to the percentage decline in market value of the Portfolio that must be experienced before the Preferred Shares would be in a loss position. The amount of downside protection available to Preferred Shares fluctuates over time based on changes in the market value of the Portfolio.

Split share ratings are unique in that the level of credit enhancement available is dependent largely on the market value of the split share company’s portfolio. As a result, the outlook for a particular rating can change significantly over very short time periods, as was demonstrated during the equity markets decline of Q4 2008/Q1 2009, and the subsequent rebound. Therefore, a longer-term trend is not a fitting indicator for a Preferred Share rating because the level of stability associated with the rating is dependent on the volatility and trend of equity markets. As a result, DBRS has removed its trends for existing Preferred Share ratings and will no longer use rating trends when assigning Preferred Share ratings.

DBRS will continue to place Preferred Share ratings Under Review with Positive, Negative or Developing Implications when appropriate to indicate the potential for a rating change based on changes in the market value of a split share issuer’s portfolio.

This continues their revision of SplitShare rating methodology.

A “trend” would have value if it was clearly understood that it referred to drag on NAV (e.g., when fixed charges exceed portfolio income), but otherwise we’re just as well off without it.

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.

Not a good month for insurers, particularly Sun Life, but it makes a change from a year ago to see BAM dominating the best performers’ list!

Transcontinental has announced:

that it has closed its previously announced bought deal public offering of 4,000,000 cumulative 5-year rate reset first preferred shares, series D (the “Series D Preferred Shares”) for gross proceeds of $100 million, purchased by a syndicate of underwriters led by Scotia Capital Inc. and CIBC World Markets Inc., acting as joint book-runners.

Transcontinental has also granted the underwriters an option to purchase up to 600,000 additional Series D 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 Transcontinental will be $115 million.

The issue was announced September 21 and marks a continuance of the recent flood of low credit quality FixedResets.

The issue traded 230,450 shares in a range of 24.80-90 before closing at 24.80-83, 7×8.

Vital Statistics are:

TCL.PR.D is tracked by HIMIPref™. It has been added to the Scraps subindex due to credit concerns.

Great-West Lifeco has announced:

the closing of its previously announced offering of Non-Cumulative First Preferred Shares, Series L. Following the successful sale of the initially announced offering of 6,000,000 Series L Shares, the underwriters of the offering exercised their option to purchase an additional 800,000 Series L Shares, resulting in the Company issuing today 6,800,000 Series L Shares to raise gross proceeds of $170 million. The net proceeds will be used by the Company for general corporate purposes and to augment the Company’s current liquidity position.

The offering was made through a syndicate of underwriters co-led by BMO Capital Markets, CIBC and Scotia Capital Inc. The shares will be posted for trading on the Toronto Stock Exchange under the symbol “GWO.PR.L”.

The issue was announced last week and was priced very tight to market.

The issue traded 148,165 shares in arange of 24.45-60 before closing at 24.50-75, 18×60. Vital Statistics are:

GWO.PR.L is tracked by HIMIPref™. It has been added to the PerpetualDiscount subindex.

TRP.PR.A, the 4.60%+192 FixedReset announced last week has settled, trading 896,387 shares in a range of 24.91-03 before closing at 24.98-00, 120×126.

I was actually a little disappointed at the volume – given that the issue was super-sized to 22-million shares, I had been hoping for a million shares trading on opening day … but it was not to be.

Vital statistics are:

TRP.PR.A is tracked by HIMIPref™. It will be placed in the FixedReset subindex for now; at some point in the future the FixedReset index will be split into FixedResetPremium and FixedResetDiscount, but I will wait until the latter putative index can be adequately populated.

Connor, Clark & Lunn have announced (with a sigh of relief, I’m sure):

on behalf of ROC Pref Corp. (the “Company”) that the Company has matured as scheduled today. The redemption value will be $25.00 per Preferred Share, equal to the original subscription price, and all scheduled quarterly distributions have been paid. We thank you for your investment in ROC Pref Corp.

PRF.PR.A was last mentioned on PrefBlog when it was downgraded to P-2 by S&P. PRF.PR.A is not tracked by HIMIPref™

Split Yield Corp has announced:

Split Yield Corporation (“Split Yield”) reports financial results for the six months ending July 31, 2009.

The six month period ending July 31, 2009 was one of the most tumultuous periods in financial market history. Against this backdrop, the market prices of the stocks in the portfolio mirrored this activity reaching lows in early March but recovering significantly by the end of July. The net asset value per unit (a unit consists of one Class I Preferred share, one Class II Preferred share and one Capital share) increased by $3.43 to $18.66 per unit as at July 31, 2009.

In a word, yech. As the audited financials state:

The Company has 1,213,202 Class I Preferred shares and 1,213,202 Class II Preferred shares outstanding as at July 31, 2009 with a principal repayment of $24,264,040 and $18,198,030 respective due on termination date, February 1, 2012. As at July 31, 2009 the Company had net assets equivalent to $18.66 per Class I Preferred share and nil per Class II Preferred share. This represents a deficiency as at July 31, 2009 of $1.34 per Class I Preferred share and $15.00 per Class II Preferred share for a total deficiency of $19,823,720. If this condition prevails, the Company will have insufficient assets to meet its full liability of the Preferred shares at the termination date.

How did things come to such a pass? Well … I don’t know. The chart of NAV:

… shows some numbers for cumulative performance that, when a product is taken, come to a cumulative return since inception of -4.77%, and NAV has declined a lot more than that. I can only assume that this figure reports total return on the portfolio gross of distributions, in which case the decline in NAV is due to the cumulative distributions since inception of $7.25, $10.54 and $12.52 on the capital units, YLD.PR.B and YLD.PR.A, respectively. The MER (1.95% annualized in 1H09) will also have played a role.

The company notes:

The Company’s investment manager, Quadravest Capital Management Inc., actively manages the Company’s portfolio consisting primarily of common equities in the S&P/TSX 60 and the S&P 100 Indices. In order to generate additional income above the dividend and interest income earned in the Portfolio, the Company writes covered call options. This conservative strategy is designed to enhance the income in the portfolio by enabling the Company to earn strong income in times of volatile markets while reducing the effects of market corrections. In addition, this source of income is treated as capital gains and as such receives a more favorable tax treatment relative to other sources of income.

Quick! Does anybody have total return figures handy for those indices, from April 16, 1998 to July 31, 2009?

BPO.PR.L, the new FixedReset 6.75%+417 announced August 21 has closed smoothly.

The issue traded 898,182 shares in range of 25.02-30 before closing at 25.03-05, 20×75.

BPO.PR.L is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.