Category: Issue Comments

World Financial Split Corp. has announced:

that it has filed a preliminary 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 the record date will receive one Warrant for each Class A Share held. Each Warrant will entitle its holder to acquire one Class A Share and one Preferred Share upon payment of the subscription price. The record date and the subscription price will be determined at the time the Fund files its final prospectus for the offering. The Fund has applied to list the Warrants and the Class A Shares and the Preferred Shares issuable upon the exercise thereof on the Toronto Stock Exchange. 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 Fund invests in a portfolio that includes common equity securities selected from the ten largest financial services companies by market capitalization in each of Canada, the United States and the rest of the world (the “Portfolio Universe”). In addition, up to 20% of the NAV of the Fund may be invested in common equity securities of financial services companies that are not in the Portfolio Universe but meet certain market capitalization and credit rating thresholds. To generate additional returns above the distributions earned on its securities, the Fund may, from time to time, write covered call options in respect of some or all of the securities in its portfolio. The Fund may also, from time to time, write cash-covered put options in respect of securities in which the Fund is permitted to invest. The Fund’s investment portfolio is managed by its investment manager, Mulvihill Capital Management Inc.

The preliminary prospectus does not yet appear to be available.

WFS.PR.A has an Asset Coverage of 1.4-:1 as of September 30 and is scheduled to be wound-up 2011-6-30; I suspect that a term extension is in the works.

WFS.PR.A was last mentioned on PrefBlog with the reminder that the Capital Unit dividend was still suspended – it cannot be paid unless Asset Coverage of the preferreds is greater than 1.5:1. WFS.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

Brookfield Asset Management and Brookfield Infrastructure Partners has announced:

that they have signed an agreement with Babcock & Brown Infrastructure (ASX: BBI) (“BBI”) to sponsor a comprehensive restructuring and recapitalization (“Recapitalization”). BBI has a diverse portfolio of transportation and utility assets located in Australia, the U.S., the UK, continental Europe, New Zealand and China.

Under the agreement with BBI, Brookfield Asset Management and Brookfield Infrastructure (collectively, “Brookfield”) have jointly and severally subscribed for a proposed investment in stapled securities and assets of BBI of approximately US$1.1 billion. The proposed investment is comprised of the purchase of approximately A$625 million to A$713 million (~US$555 million to $635 million) of stapled securities for a 35% to 40% interest in the restructured BBI and A$295 million (~US$265 million) for the direct purchase2 from BBI of a 49.9% economic interest in Dalrymple Bay Coal Terminal (“DBCT”), in Queensland, Australia, and 100% of PD Ports, a leading ports business in northeast England. Immediately following the purchase of PD Ports, Brookfield will repay £100 million (~US$160 million) of debt at PD Ports.

Brookfield’s Investor Presentation includes the following graphic:

Click for big

DBRS comments:

DBRS views this plan as neutral to Brookfield’s ratings providing it (i) is not required to acquire any additional portion of the investment that BIP does not acquire and (ii) maintains sufficient liquidity at the corporate level while supporting the BBI restructuring program. At the end of Q2 2009, Brookfield had over $800 million in cash and financial assets on hand as well as bank lines at the corporate level, plus access to ongoing cash flow and other forms of liquidity within the Brookfield group. DBRS would view negatively a combination of this plan along with any other acquisitions that together puts pressure on Brookfield’s liquidity at the corporate level.

The following BAM preferred shares are tracked by HIMIPref™: BAM.PR.B, BAM.PR.E, BAM.PR.G, BAM.PR.H, BAM.PR.I, BAM.PR.J, BAM.PR.K, BAM.PR.M, BAM.PR.N, BAM.PR.O and BAM.PR.P.

Epcor Power LP issued a press release today with respect to various partnership, operating and regulatory problems:

EPCOR Power L.P. (TSX: EP.UN) (the Partnership) and EPCOR Power Equity Ltd. (TSX: EPP.PR.A) announced today that the Partnership’s current financial expectations for 2009 will be approximately 5 per cent lower than its previous 2009 financial guidance provided in March 2009. The 2009 financial guidance provided in March 2009 was based on the expectation that cash provided by operating activities before working capital changes plus dividends from Primary Energy Recycling Holdings would be approximately $147 million.
…
The Partnership also provided an update on the negotiations of new power purchase agreements (PPAs) for the North Carolina facilities, where the current PPAs expire on December 31, 2009. The Partnership and Progress Energy Carolinas, Inc. (Progress) have been in negotiations but, to date, have been unable to finalize new PPAs that are acceptable to both parties. As a result, the Partnership will be applying to the North Carolina Utilities Commission (NCUC) to arbitrate.
…
The Partnership noted that in August 2009, Progress applied to the NCUC to replace 397 megawatts of coal-fired generation with 950 megawatts of new gas-fired generation, a net add of over 550 megawatts, with an expected in service date of early 2013. On October 1, 2009 the NCUC issued a notice of decision that requires Progress to submit for NCUC approval, its plans to retire additional coal generation reasonably proportionate to the additional 550 megawatts as a condition to the approval of the new 950 megawatt plant. The Partnership believes that the retirement of additional generation creates a gap in Progress’ resource plan which the cost competitive generation offered by the Partnership’s North Carolina facilities can help fill.

DBRS continued its trend negative assessment in June:

DBRS will continue to monitor the situation while incorporating the positive aspects of the distribution reduction, with a one-notch downgrade of the current debt and preferred ratings possible if Power LP’s financial flexibility diminishes and the prospect of a covenant issue becomes more concrete, and/or there were material reductions in cash flow.

EPP.PR.A was last mentioned on PrefBlog when DBRS assigned the negative trend. EPP.PR.A is tracked by HIMIPref™, but is relegated to the “Scraps” index on credit concerns.

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™