Category: Issue Comments

Faircourt Asset Management has announced:

that the [Faircourt Income & Growth Split] Trust has completed its previously announced distribution to its unitholders of 4,903,305 rights (the “Rights”) exercisable for units (“Units”) of the Trust (the “Rights Offering”). All 4,903,305 Rights issued pursuant to the Rights Offering were exercised prior to their expiry (4:00 pm on August 27, 2009) for a total of 4,903,305 Units, each Unit consisting of one trust unit of the Trust (a “Trust Unit”) and one transferable warrant to acquire a Trust Unit (a “Warrant”), at a price of $2.30 per Unit for aggregate gross proceeds of $11.3 million. Each Warrant entitles the holder thereof to purchase one Trust Unit on, and only on, June 25, 2010 at a subscription price of $4.00.

TD Securities Inc. was the dealer manager for the Rights Offering.

The Trust will use the net proceeds of this issue to increase capital for investment.

Faircourt doesn’t exactly have the most forthcoming website in the world, but the prospectus for the Rights issue is available on SEDAR, dated July 15:

During the period from January 1, 2009 up to and including July 2, 2009, 441,641 Trust Units have been redeemed by the Trust in accordance with the Trust Unit’s annual redemption rights and 101,900 Preferred Securities have been repurchased by the Trust in accordance with the Trust’s normal course issuer bid. Effective January 2009, the Trust decided not to renew its loan facility, which facility was undrawn as of December 31, 2008. As of the date hereof, there are 4,903,305 Trust Units and 9,856,908 Preferred Securities (issued in $10 denominations) issued and outstanding of the Trust.

After giving effect to this Offering and assuming the exercise in full of the Rights (but not the exercise of the Warrants), there will be issued and outstanding the following securities of the Trust: 9,806,610 Trust Units, 9,856,908 Preferred Securities and 4,903,305 Warrants (exercisable into 4,903,305 Trust Units).

The NAV was 4.49 as of August 27 implying 22.0-million in capital. Proceeds of the Rights issue were 11.3-million, so excess capital is now 33.3-million against Preferred obligations of 98.6-million. Asset Coverage is therefore approximately 1.3+:1.

FIG.PR.A was last mentioned on PrefBlog when it was upgraded by DBRS to Pfd-4. FIG.PR.A is tracked by HIMIPref™, but has been relegated to the “Scraps” index due to credit concerns.

DBRS has announced that it:

has today taken a range of rating actions on 54 structured preferred shares issued by 49 split share companies and trusts (the Issuers). All the trends are now Stable.

Each of the Issuers has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – dividend-yielding preferred shares or securities (the Preferred Shares) and capital shares or units (the Capital Shares). The main form of credit enhancement available to these 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 will fluctuate over time based on changes in the market value of the Portfolio.

Of the 54 structured Preferred Share ratings updated today by DBRS, 32 have been upgraded, 18 have been confirmed and four have been downgraded. The majority of the ratings have been upgraded as a result of the strong gains in global equity markets over the past five months. In the first quarter of 2009, DBRS downgraded many of its Preferred Share ratings because of rapid and substantial declines in company net asset values (NAVs). From August 31, 2008, to March 9, 2009, the S&P/TSX Composite Index lost 45% of its value. Since March 9, the index has gained back more than half of those losses. As a result, many of the Preferred Shares that were downgraded in February or March have seen significant increases in NAV and are now being upgraded.

In addition to the recent rebound in equity markets, another factor in today’s rating changes is the release of an updated DBRS split share methodology, “Rating Canadian Split Share Companies and Trusts,” which details DBRS’s approach to rating Preferred Shares issued by split share companies and trusts. DRBS has applied a number of changes to strengthen its split share rating process,

Skot Kortje of StockTrends.ca has published a piece in the Globe and Mail touting CPD that, sadly, shows more of the perils of slipshod research and technical analysis (“technical analysis” is its own pejoritive) than anything else:

Although smart investors will scour for premium preferred shares with a fine-toothed comb, looking for the most secure issues with the best yield, trading the general strength of this broad group of secured securities is more easily facilitated by exchange traded funds that allow for a diversified position. In Canada, the Claymore S&P/TSX Canadian Preferred Share ETF has been trading on the Toronto Stock Exchange since the spring of 2007

As has been mentioned here before, CPD no longer reflects the broad preferred share market; it is heavily overweight in FixedResets and lower-quality retractibles. An investor might prefer this asset mix, to be sure, but the implicit claim that CPD reflects the broad group of preferred shares is simply false.

As of the close last night, CPD had a weighting of 25% in OperatingRetractibles, which doesn’t reflect any broad group of preferred shares I’ve heard of lately. Its 19% weighting in issues rate Pfd-3(high) or lower doesn’t ring any bells either.

Currently yielding 4.9 per cent, CPD …

Technically true, if we care about Current Yield – which we shouldn’t. With over 50% of the portfolio in instruments – OperatingRetractibles and FixedResets – which have a Current Yield well in excess of their Yield-to-Worst, it should be clear that today’s Current Yield is not sustainable.

Nevertheless, as the banks go, so goes CPD.

Nonsense. The correlation of preferred shares with financial common equity is pretty low – about 0.2. It rises in times of financial stress – like August 1998 and November 2009 – but the correlations of a great many asset classes rises in times of financial stress. A much more defensible statement would be ‘As the corporate bond markets go, so goes CPD’.

None of this should be taken as implying that CPD is a bad investment. It can be very useful for many investors and presents its own selection of attributes with varying degrees of desirability … none of which are discussed in the article at issue.

DBRS has announced that it:

has today discontinued its rating on the Preferred Shares issued by Copernican World Banks Split Corp. at the request of AIC Investment Services Inc. (the Promoter).

This may be related to the AIC deal with Manulife.

CBW.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-5 by DBRS. CBW.PR.A is not tracked by HIMIPref™.

NB Split Corp. announced in February that:

The Board of Directors has determined that it will not declare a dividend on the Capital Shares for this quarter. The Board of Directors will review on a quarterly basis whether the Company will declare a dividend on the Capital Shares. Any excess of dividends received by the Company over that required to fund the Preferred Share distributions and operating expenses will be held in cash or cash equivalents by the Company.

… and announced in May

Just trying to keep things up to date! NB Split’s portfolio is entirely comprised of NA common. Asset Coverage as of August 13 was 1.4+:1 according to the company.

NBF.PR.A is not tracked by HIMIPref™ since the issue size is too small. It was last mentioned on PrefBlog when it was downgraded to Pfd-4(low) by DBRS.

As a fascinating aside, the FTN.PR.A financials show a recovery of $20,000 in service fees; sadly, this unusual item is not explained in the note.

DBRS has announced that it:

has today confirmed Loblaw Companies Limited’s (Loblaw or the Company) long-term debt ratings at BBB and its Cumulative Redeemable Second Preferred Shares, Series A rating at Pfd-3, and revised the trends to Stable from Negative.
…
DBRS believes that the management changes and strategic initiatives made in early 2008 have proved successful in stabilizing the business. Loblaw has been able to keep market share almost level and deliver reasonable revenue growth while improving margins for a full year now. The performance over the past year has led to a significant improvement in key credit metrics – lease-adjusted gross debt-to-EBITDAR for the 52 weeks ending June 20, 2009 is now 2.8 times (x) (compared with 3.1x for 2008, and 3.7x for the 52 weeks ending June 14, 2008), a level that is well within the BBB rating category for Loblaw. With solid performance for four quarters in a row, DBRS is prepared to revise the trend on its long-term ratings for Loblaw to Stable from Negative.

DBRS is prepared to take this action despite the fact that operating performance and credit metrics may actually moderate over the near term due to the effects of food price deflation, a weak economic environment, and intense competition. We believe a more stable Canadian food retailing sector, combined with the initiatives taken by Loblaw over the past year and a half to address its internal problems, have strengthened the Company and positioned it to withstand a more challenging environment within the current rating category. DBRS also acknowledges that Loblaw’s intention to increase its capital budget for the remainder of the year (to $1 billion from previous guidance of $750 million) will use much of the free cash flow that could have been used to reduce net debt further.

L.PR.A was last mentioned on PrefBlog when a bond issue offered a pricing clue last May.

L.PR.A is tracked by HIMIPref™. It is relegated to the “Scraps” index on credit concerns.

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.