Category: Issue Comments

Economic Investment Trust Limited has announced:

that on November 30, 2009 it will redeem for cash all of its outstanding 5% Cumulative Preferred Shares Series A at a redemption price of $53.125, comprised of $50.00 per share, a premium of $2.50, and accrued dividends in the amount of $0.625 per share.

Even the most Assiduous Readers may be forgiven for asking ‘What?’. The June 09 Financials state:

At June 30, 2009, there are 5,615,535 Common Shares issued and outstanding and each share is entitled to one vote. There are 7,200 (2008 – 7,700) 5% Cumulative Preferred Shares Series A issued and outstanding. During the fi rst quarter, the Company purchased 500 Preferred Shares Series A for cancellation.

So the total market capitalization of the preferreds comes to less than half a million dollars. EVT.PR.A closed today at 51.23 bid for 800, no offer. This is the first mention of EVT.PR.A on PrefBlog. EVT.PR.A is not tracked by HIMIPref™.

Commerce Split Inc. has announced:

it plans on holding a special meeting of shareholders in December 2009 to vote on a reorganization plan for the Company.

The reorganization proposal will provide both Priority Equity and Class A shareholders with an opportunity to participate in an alternative structure going forward. This proposal is designed to address the impact that the significant decline in price of the Company’s underlying holding of CIBC common stock and the resultant activation of the Priority Equity Protection Plan has had on the ability of the Company to meet some of its original investment objectives.

Many of the characteristics of the proposal will be similar to the previous shareholder proposal that was contained in the December 23, 2008 Management Information Circular. This previous proposal, although not passed, did receive overwhelming support, outside of certain larger shareholders. If this proposal had been implemented at that time, both classes of shareholders would have experienced significant improvement in the value of their investments. As a consequence of the results of this vote and continued interest in seeking a solution that balances the interests of both classes of shareholders, the Company is bringing forward this proposal which will provide shareholders with a choice of remaining in the current Fund with all the existing attributes or the option to transfer into a new Fund that will have a different set of attributes, subject to maintaining an equal number of shares of each Class outstanding in each option.

The Company, subject to all necessary Board and regulatory approvals, expects to send out the full details of this proposal to all shareholders through a Management Information Circular in November, 2009 with a shareholder vote to follow in December, 2009.

The proposal will allow shareholders the option to participate in a new Fund with different attributes. The new Fund would allow the fixed income instruments purchased under the Priority Equity Protection Plan to be liquidated and the proceeds to be re-invested in common shares of CIBC. This would allow the new Fund to begin receiving dividends on a more fully invested position (on up to 100% of Fund assets versus a currently invested position in CIBC common stock of 20%) in CIBC common stock, increase income producing potential under the covered call writing program and increase participation in any capital appreciation of CIBC common stock held. The requirement that an equal number of Priority Equity shareholders and Class A shareholders be outstanding would also be maintained in the New Fund.

Priority Equity shareholders transferring their Priority Equity shares to the new Fund would receive i) one new $5 preferred share to yield 7.5% per annum and ii) one $5 par value equity share that will receive dividends of 7.5% per annum if and when the Company’s net asset value exceeds $12.50.

In addition, each Priority Equity share exchanged would receive i) one half Series I warrant, with one full Series I warrant allowing holders to purchase a full Unit (a Unit consisting of one new preferred share, one new equity share and a Class A share) of the Company at a price of $10 for 1 year and ii) a full Series II warrant to acquire a full Unit of the Company at a price of $12.50 for 2 years. These warrants will effectively provide upside potential on the performance of CIBC shares held in the Fund. The Company believes that the proposed package of securities will provide Priority Equity shareholders with substantial value added compared to their existing investment.

Class A shares will receive dividends when the net asset value reaches $15 per unit in the new Fund with all other attributes to remain the same. The value of the Class A share opportunity in the new Fund is that it will provide more exposure to any increases in CIBC common stock held through the Fund and the Company believes this provides substantial shareholder value relative to Class A shareholders’ existing investment.

Shareholders that do not wish to transfer into the new Fund may maintain their investment in the existing Fund under the existing set of attributes for each class of share.

The Company believes this reorganization plan is in the best interest of all shareholders. The full details of the Plan will be sent to all shareholders in November, 2009.

The immediate thing that strikes me about this press release is the plethora of detail relative to the terse release from XMF.PR.A, its sister in misery. This may be related to its September 15 valuation of $9.24 net of accrued preferred share dividends.

XCM closed today at 1.18-1.24, 50×63, while XCM.PR.A closed at 7.75-86, 100×2 … in contrast to XMF.PR.A, the October retraction is in the money (although not clear whether retractors will get the accrued dividend). Of course, the higher NAV has led to a lower committment to the fixed income portfolio: XCM has 21% exposure to CM as of August 31, which makes arbitrage somewhat riskier.

The fascinating part about this reorganization is the optional nature of the proposed conversions. It remains to be seen whether the proposed exchange will be coercive or not … the final proposal may well have unpleasant language about fees and expenses and so on that would, in practical terms, force conversion if the plan is passed.

XCM.PR.A was last mentioned on PrefBlog when management refused to consider winding up the company. XCM.PR.A is not tracked by HIMIPref™.

M-Split Corp. has announced:

that it plans on holding a special meeting of shareholders in December 2009 to vote on a reorganization proposal for the Company.

The reorganization proposal will allow shareholders to vote on an alternative structure going forward. This proposal is designed to address the impact that the significant decline in price of the Company’s underlying holding of Manulife common stock and the resultant activation of the Priority Equity Protection Plan has had on the ability of the Company to meet some of its original investment objectives.

Many of the characteristics of this new proposal will be similar to the previous shareholder proposal that was contained in the December 23, 2008 Management Information Circular. This previous proposal, although not passed, did receive overwhelming support, outside of certain larger shareholders. If this proposal had been implemented at that time, both classes of shareholders would have experienced significant improvement in the value of their investments.

The Company, subject to all necessary Board and regulatory approvals, expects to send out the full details of this proposal to all shareholders through a Management Information Circular in November, 2009 with a shareholder vote to follow in December, 2009.

The Company believes this reorganization proposal will be in the best interest of all shareholders.

Presumably the company has managed to get support of some of the larger shareholders who scuttled the last attempt; in the last press release reported on PrefBlog, the company claimed to be maintaining a dialogue.

The NAV as of Sept. 15 was $8.51, with less than 1% exposure to MFC as of June 18, 2009.

Of note is the upcoming special retraction:

Shareholders who concurrently retract a Priority Equity share and a Class A share (together, a “unit”) in the month of October in each year will be entitled to receive an amount equal to the transactional net asset value per unit on the last day of October.

Note that the company does not appear to be putting any money into its issuer bid:

On March 2, 2009, the Company announced the acceptance of a Normal Course Issuer bid that could allow the Company to purchase, from time to time, up to 10% of the public float of the shares. The Company plans on utilizing this only in situations where the combined trading prices of the Priority Equity shares and Class A shares are at an excessive discount to net asset value of the Company.

XMF.PR.A closed today at 7.79-90, 198(!)x27, while XMF closed at 0.52-56, 3×12; my guess is that arbitrageurs have moved in, given that the NAV is dependent almost entirely on five-year strips. Note that:

Any accrued or declared and unpaid dividends payable on or before a Retraction Date in respect of Priority Equity Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date.

The prospectus is not explicit on the disposition of accrued dividends on the exercise of an October retraction.

XMF.PR.A is not tracked by HIMIPref™.

The DC FixedReset 6.75%+410 announced August 25 has closed and is now trading as DC.PR.B.

Dundee Corporation was pleased to announce:

that it has completed its offering of 4,600,000 Cumulative 5-Year Rate Reset First Preference Shares, Series 2 (“Rate Reset Series 2 Preference Shares”) of the Company at a purchase price of $25.00 per Rate Reset Series 2 Preference Share, for aggregate gross proceeds of $115,000,000. The Rate Reset Series 2 Preference Shares are listed on the Toronto Stock Exchange under the symbol DC.PR.B.

The offering was underwritten on a bought deal basis by a syndicate co-led by GMP Securities L.P. and Scotia Capital Inc. that included BMO Nesbitt Burns Inc., CIBC World Markets Inc., Dundee Securities Corporation, National Bank Financial Inc., TD Securities Inc., Canaccord Capital Corporation and Raymond James Ltd.

The gross proceeds of $115-million implies that the greenshoe was not taken up.

The issue traded 722,705 shares before closing at 25.07-08, 40×63. Vital statistics are:

By way of comparison, DC.PR.A is retractible and closed at 21.25-40 today to yield 7.91% to a SoftMaturity 2016-6-29. If the relative pricing of these issues makes any sense to anybody, please drop me a line explaining it!

DC.PR.B is tracked by HIMIPref™ but is relegated to the “Scraps” index due to credit concerns.

Update, 2009-9-16 Here’s a relative pricing clue!

The race is on to see how long it will take DC.PR.B to reach 26-26.50 like the other fixed resets.

The issue had closed about 2 hours after it was posted and just started trading yesterday.

I didn’t get any at the IPO but sold all of my MFC.PR.E to buy this one and will also sell at 26 or 27, probably in a month or two if history repeats itself.

FixedReset structure + new issue = free money? Well, it’s one way to invest.

Missed this when it came out … on August 19, Financial 15 Split II announced:

its regular monthly distribution of $0.10 for each Class A share ($1.20 annually) and $0.04375 for each Preferred share ($0.525 annually). Distributions are payable September 10, 2009 to shareholders on record as at August 31, 2009.

as opposed to its July announcement:

regular monthly distribution of $0.04375 for each Preferred share ($0.525 annually). Distributions are payable August 10, 2009 to shareholders on record as at July 31, 2009. There will not be a distribution paid to Financial 15 II Class A Shares for July 31, 2009 as per the Prospectus which states no regular monthly dividends or other distributions will be paid on the Class A Shares in any month as long as the net asset value per unit is equal to or less than $15.00. The net asset value as of July 15, 2009 was $14.71.

FFN.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-4(high) by DBRS. In the first half of 2009, its income coverage was 1.0+:1. The Capital Unit divided was suspended in November 2008.

FFN.PR.A is tracked by HIMIPref™, but has been relegated to the “Scraps” index on credit concerns.

BNS Split Corp. II has announced:

it has called 149,946 Preferred Shares for cash redemption on September 22, 2009 (in accordance with the Company’s Articles) as a result of the special annual retraction of 598,092 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on September 21, 2009 will have approximately 7.722% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $20.83 per share.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including September 22, 2009.

Payment of the amount due to holders of Preferred Shares will be made by the Company on September 22, 2009. From and after September 22, 2009 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

BSC.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3(high) by DBRS. BSC.PR.A is not tracked by HIMIPref™.

Connor Clark & Lunn Capital Markets have announced:

Connor Clark & Lunn ROC Pref Corp. ( the “Company”) announced today that the preferred share dividend will remain suspended and will not resume for the quarter ending September 30th 2009. Connor, Clark & Lunn Capital Markets Inc. (the “Manager”) and Connor Clark & Lunn Investment Management Ltd. ( the “Investment Manager”) have taken this action in order to have the funds available for potential use, if necessary, as part of a restructuring plan for the Company that the Manager and Investment Manager are currently working on in conjunction with the independent members of the Board of Directors.

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 Manager believe that a restructuring may be necessary in order to preserve the maximum value available to preferred shareholders. The funds that would have been used to pay the dividend will remain in the Company.

The Company expects to be in a position to announce a restructuring plan during the fourth quarter of 2009, but if it is not able to do so then the decision whether to pay the dividend will be reviewed on a quarterly basis.

Note that this structured investment has no capital units; the “preferred” is considered by some (e.g., S&P, the TSX and the issuer) to be appropriate since there is subordination in the underlying investment.

RPQ.PR.A was last mentioned on PrefBlog when it was downgraded to P-2(high)/Watch Negative by S&P.

RPQ.PR.A is not tracked by HIMIPref™.

Update: Due to an error on my part, this post originally referred to PRF.PR.A. In fact, the issue referred to is RPQ.PR.A

Connor, Clark & Lunn Capital Markets have advised:

ROC Pref III Corp. ( the “Company”) announced today that the preferred share dividend will remain suspended and will not resume for the quarter ending September 30th 2009. Connor, Clark & Lunn Capital Markets Inc. (the “Manager”) and Connor Clark & Lunn Investment Management Ltd. ( the “Investment Manager”) have taken this action in order to have the funds available for potential use, if necessary, as part of a restructuring plan for the Company that the Manager and Investment Manager are currently working on in conjunction with the independent members of the Board of Directors.

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 Manager believe that a restructuring may be necessary in order to preserve the maximum value available to preferred shareholders. The funds that would have been used to pay the dividend will remain in the Company.

The Company expects to be in a position to announce a restructuring plan during the fourth quarter of 2009, but if it is not able to do so then the decision whether to pay the dividend will be reviewed on a quarterly basis.

Note that this structured investment has no capital units; the “preferred” is considered by some (e.g., S&P, the TSX and the issuer) to be appropriate since there is subordination in the underlying investment.

RPB.PR.A was last mentioned on PrefBlog when the Lear credit event nudged it closer to default. RPB.PR.A is not tracked by HIMIPref™.

Enbridge has just issued thirty-year notes at 5.75%, according to DBRS:

DBRS has today assigned a rating of “A” with a Negative trend to Enbridge Inc.’s $400 million 4.77% unsecured medium-term notes (Notes) issue maturing September 2, 2019 and $200 million 5.75% unsecured medium-term notes (Notes) issue maturing September 2, 2039. The Notes are being issued under the pricing supplement dated August 28, 2009, to the prospectus dated June 6, 2008, and the Trust Indenture dated October 20, 1997, as supplemented and amended from time to time.

The Notes will rank equally with all of Enbridge Inc.’s existing senior unsecured medium-term notes and debentures. Net proceeds from the sale of the above-noted securities will be used for the repayment of outstanding commercial paper or credit facility borrowings, or both, and for other general corporate purposes.

This is good to know in light of ENB.PR.A, a 5.50% straight preferred that is currently redeemable at par and closed today at 25.25-40, 4×2.

Now, issuance of $200-million at 5.75% interest doesn’t mean they can issue more; and if they could issue more they might not want to, in order to keep shareholders’ equity where the regulators like it. Never-the-less, this is a clear signal that from a straight business perspective, Enbridge can probably consider this issue as representing fairly expensive money and that the decision to keep or call ENB.PR.A relies on non-interest-rate factors.

Mulvihill has announced:

World Financial Split Corp. (the “Fund”) has declared its quarterly distribution of $0.13125 on each of its Preferred Shares payable September 30, 2009 to shareholders of record as of September 15, 2009. To the extent that any portion of the distributions are ordinary taxable dividends and not capital gains dividends, they will be eligible dividends. Distributions on its Class A shares continue to be suspended in accordance with the terms of the offering prospectus, which states “No distribution will be paid on the Class A shares if (i) the distributions payable on the Preferred shares are in arrears; or (ii) after the payment of the distribution by the Company, the NAV per unit would be less than $15.00.

Asset Coverage as of August 27 was 1.3+:1.

The Semi-Annual Report of 2009-6-30 makes no mention of the ballyhooed issuer bid, so we may assume that idea is inoperable, despite the significant discount of market price to NAV. Investors were not so shy, however: nearly 20% of the funds total liabilities (that is, including equity) are on the books as being “Redemptions Payable” on the June 30 statements. The number of units outstanding dropped to 9,091,210 on June 30 from 11,835,359 on Dec. 31, 2008.

Income coverage is horrible, with a mere $290,924 net investment income available to cover $1,143,513 in expenses and $3,012,518 in preferred share distributions.

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