Category: Issue Comments

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series H (Series H Shares) (TSX: ENB.PR.H) on September 1, 2023. As a result, subject to certain conditions, the holders of the Series H Shares have the right to convert all or part of their Series H Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series I of Enbridge (Series I Shares) on September 1, 2023. Holders who do not exercise their right to convert their Series H Shares into Series I Shares will retain their Series H Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series H Shares outstanding after September 1, 2023, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on September 1, 2023; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series I Shares outstanding after September 1, 2023, no Series H Shares will be converted into Series I Shares. There are currently 14,000,000 Series H Shares outstanding.

With respect to any Series H Shares that remain outstanding after September 1, 2023, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series H Shares for the five-year period commencing on September 1, 2023 to, but excluding, September 1, 2028 will be 6.112 percent, being equal to the five-year Government of Canada bond yield of 3.992 percent determined as of today plus 2.12 percent in accordance with the terms of the Series H Shares.

With respect to any Series I Shares that may be issued on September 1, 2023, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series I Shares for the three-month floating rate period commencing on September 1, 2023 to, but excluding, December 1, 2023 will be 1.79258 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 5.07 percent plus 2.12 percent in accordance with the terms of the Series I Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series H Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2023 until 5:00 p.m. (EST) on August 17, 2023, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.H was issued as a FixedReset, 4.00%+212, that commenced trading 2012-3-29 after being announced 2012-3-20. It will reset to 4.376% effective 2018-9-1. The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Hot on the heels of yesterday’s downgrade, TC Energy has announced:

that its Board of Directors has approved plans for TC Energy to separate into two independent, investment-grade, publicly listed companies through the spinoff of TC Energy’s Liquids Pipelines business (the Transaction). The decision comes as a result of a two-year strategic review and is anticipated to be completed on a tax-free basis in the second half of 2024.

The spinoff will unlock shareholder value by providing both companies with the flexibility to pursue their own growth objectives through disciplined capital allocation, enhancing efficiencies and driving operational excellence. Once completed, the spinoff will result in two high-quality, focused energy industry leaders that are committed to providing safe and reliable service to their customers and the communities in which they operate.

TC Energy post-Transaction: A diversified, industry-leading natural gas and energy solutions company, uniquely positioned to meet growing industry and consumer demand for reliable, lower-carbon energy, by leveraging complementary business sets.
Liquids Pipelines Company: A critical infrastructure company with highly strategic assets that connect resilient and secure supply to the highest demand markets, while delivering incremental growth and value creation opportunities.
…
TC Energy intends that the initial combined dividends of the two companies will be equivalent to TC Energy’s annual dividend immediately prior to the completion of the Transaction, and that over time the combined value of the two companies’ dividends is expected to remain consistent. Dividends will be at the discretion of the respective boards of directors of each company following the Transaction.

Management intends to capitalize the Liquids Pipelines Company with a financial structure that aligns with its asset base, business model and growth plans. Following the Transaction, management anticipates that TC Energy will retain its current credit ratings and that the Liquids Pipelines Company will have investment-grade credit ratings. TC Energy plans to transition an approximately proportionate share of its long-term debt to the Liquids Pipelines Company on a cost-effective basis.

Transaction details, approvals and business continuity
Under the proposed Transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares (TRP: TSX, TRP: NYSE) and receive a pro-rata allocation of common shares in the new Liquids Pipelines Company. The Transaction is expected to be tax-free for TC Energy’s Canadian and U.S. shareholders. The determination of the number of common shares in the new Liquids Pipelines Company to be distributed to TC Energy shareholders will be determined prior to the closing of the proposed transaction.

TC Energy expects to seek shareholder approval of the Transaction at a meeting of shareholders in mid-2024. The Transaction will be implemented through a court-approved plan of arrangement under the Canada Business Corporations Act. In addition to TC Energy shareholder and court approvals, the Transaction is subject to receipt of favourable tax rulings from Canadian and U.S. tax authorities, receipt of necessary regulatory approvals and satisfaction of other customary closing conditions. TC Energy expects that the Transaction will be completed in the second half of 2024.

TC Energy will ensure business continuity and reliable services to its valued customers throughout the separation. A separation management office will be established guiding the successful coordination and governance including the development of a separation agreement and a transition service agreement between the two entities once the Transaction is complete.

For additional detail on the Transaction, investor presentation materials and more, please visit our website at www.tcenergy.com/liquids-spinoff.

There can be no assurance that the Transaction will ultimately occur or, if it does occur, what its structure, terms or timing will be.

As noted in the release, the company has created a spinoff information page; this includes a slide deck that projects Debt / EBITDA of 4.75x for TC Energy commencing by the end of 2024 and an initial 5.0x for the liquids business. Assuming there has been no jiggery-pokery with the EBITDA calculations, this implies that debt will be redistributed more or less proportionately to EBITDA.

I have no information regarding what will happen to the preferreds. Most likely is that they will stay with TC Energy (by far the larger of the two companies going forward), but who knows?

Affected issues are: TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H and TRP.PR.I.

Update, 2023-7-28: DBRS states:

DBRS Limited (DBRS Morningstar) notes that TC Energy Corporation (TC Energy or the Company) has announced the spinoff of its liquids pipelines business into a separate listed company with an expected closing date in H2 2024. TC Energy expects the liquids pipeline company to be capitalized with approximately $8.0 billion of senior and junior subordinated debt, the proceeds of which will be used to repay debt at the Company. The transaction is subject to favourable tax rulings from Canadian and U.S. tax authorities, the receipt of necessary regulatory approvals, and shareholder approval.

DBRS Morningstar does not expect the spinoff to have an impact on the Company’s ratings. The spinoff has a modestly negative impact on TC Energy’s business risk profile because of the loss of diversification. Nevertheless, DBRS Morningstar foresees the Company’s business risk profile post spinoff remaining strong, underpinned by regulated/contracted cash flows, strong supply and demand fundamentals at its natural gas pipelines and power businesses, and an asset base that is still very diversified despite the spinoff. DBRS Morningstar also believes that the negative impact on the financial risk profile from the loss of cash flow from the spinoff will be more than offset by the reduction in debt. The spinoff also lowers TC Energy’s dividend payouts by approximately 14%. DBRS Morningstar’s upgrade and downgrade thresholds (as noted in its press release dated July 25, 2023) remain unchanged.

S&P states:

S&P Global Ratings said that TC Energy Corp.’s (BBB+/Negative/–) recently announced spinoff of its liquids business via a spinout to its existing shareholders does not affect its rating on the company. We view the proposed spinoff as being leverage neutral for the company’s credit measures.

The transaction is anticipated to close in the second half of 2024. This transaction is part of a broader asset-divestiture program that the company has undertaken and which we have built into our current ratings and outlook on the company.

Although the spinoff of the liquids business does, on balance, slightly weaken the business risk, overall, we believe that TC’s business risk remains excellent, as per our criteria. While the liquids business provided highly stable cash flows with largely take-or-pay contracts, the remaining gas pipeline transmission and power assets are also highly contracted and benefit from rate regulation.

We continue to expect the company will achieve credit metrics of 5.0x on a debt-to-EBITDA basis for 2023 and 4.7x for 2024. See our research update published July 24, 2023.

DBRS has announced that it:

DBRS Limited (DBRS Morningstar) downgraded the ratings of TC Energy Corporation (TCC or the Company) and TransCanada PipeLines Limited (TCPL; TCC’s wholly owned subsidiary) as follows:
— TCC’s Preferred Shares – Cumulative rating to Pfd-3 (high) from Pfd-2 (low)
— TCPL’s Issuer Rating to BBB (high) from A (low)
— TCPL’s Unsecured Debentures & Notes rating to BBB (high) from A (low)
— TCPL’s Junior Subordinated Notes rating to BBB (low) from BBB
— TCPL’s Commercial Paper rating to R-2 (high) from R-1 (low)

Concurrently, DBRS Morningstar downgraded the Medium-Term Notes & Unsecured Debentures rating of Nova Gas Transmission Limited (NGTL) and the Issuer Rating of Trans Québec & Maritimes Pipeline Inc. (TQM) to BBB (high) from A (low). The ratings of NGTL and TQM are aligned with the ratings of TCPL based on the assumption of implicit support. All trends are Stable. DBRS Morningstar also removed the ratings from Under Review with Negative Implications, where they were placed on February 3, 2023, following the updated and materially higher cost estimate from the Company for the Coastal GasLink Project with a potential for additional increases. DBRS Morningstar considered the development to be credit negative as the costs were materially higher than DBRS Morningstar’s previous expectation and will have to be fully borne by TCC through the construction period. At the time, DBRS Morningstar expected to resolve the Under Review with Negative Implications status after having more certainty on the Company’s funding plan and the scope of the asset divestiture program.

DBRS Morningstar believes the agreement to monetize a 40% interest in TCC’s Columbia Gas Transmission, LLC and Columbia Gulf Transmission, LLC (collectively, Columbia Assets) systems for total expected cash proceeds of $5.2 billion (USD 3.9 billion) significantly bridges the funding gap in 2023. Nevertheless, the rating downgrades reflect DBRS Morningstar’s expectation that the Company’s financial risk profile will no longer be supportive of an A (low) rating. In addition, the ratings are also negatively affected by (1) the expected increase in structural subordination after the sale of the Columbia Assets as TCC intends to recapitalize the Columbia Assets with additional debt; (2) cash flow leakage because of the increase in minority interest at the Columbia Assets; and (3) the execution risks associated with the elevated capital program planned for 2023 and 2024.

TCC’s business risk profile continues to be strong and is underpinned by predominantly regulated and contracted cash flow (95% of the 2023 estimated comparable EBITDA), strong supply and demand fundamentals at its natural gas pipelines and power assets and a diversified asset base. The impact of the sale of the Columbia Assets on TCC’s business risk profile is not material, and DBRS Morningstar expects the negative impact, if any, of additional capital rotation transactions on the Company’s business risk profile will be modest. DBRS Morningstar also expects TCC to maintain its net economic exposure in Mexico to approximately 10% of total consolidated comparable EBITDA.

While the sale of the Columbia Assets aids in deleveraging, TCC’s financial risk profile will still be weaker relative to its financial risk profile when its ratings were last confirmed in June 2022. DBRS Morningstar expects the Company’s EBITDA and cash flow to grow annually in the 5% range over the next three years. However, given the large capital program ($30 billion between 2023 and 2026) and significant dividends, DBRS Morningstar expects the Company to generate material free cash flow (cash flow after capital expenditures and dividends) deficits in 2023 and 2024, which will likely have to be funded with debt and proceeds from capital rotation. As a result, factoring in the proceeds of the sale of TCC’s stake in the Columbia Assets in 2023, DBRS Morningstar expects the Company’s lease-adjusted debt-to-cash flow ratio (last 12 months ended Q1 2023: 11.9%) to average around 12% in 2023 and 2024. DBRS Morningstar believes the Company has adequate additional levers available, including an extensive portfolio of contracted assets with stable cash flows, that could be monetized to deleverage further and potentially improve the Company’s financial risk profile.

DBRS Morningstar could consider a positive rating action if the Company (1) maintains a cash flow-to-debt ratio of 15% or more, (2) successfully navigates its elevated capital program through 2024 with no notable additional project delays or cost overruns and pursues a capital expenditure program in the $6 billion to $7 billion range thereafter, and (3) has no material changes in its business risk profile. Conversely, TCC’s ratings could be subject to a negative rating action if (1) the cash flow-to-debt ratio declines below the 11% level for an extended period of time or (2) there are significant delays or cost overruns at its key projects.

Yesterday, S&P announced that it had affirmed TRP at P-2(low) with a Negative Outlook:

• TC Energy Corp. (TC) recently announced the sale of a 40% interest in the Columbia Gas Transmission LLC and Columbia Gulf Transmission LLC systems for proceeds of approximately C$5.2 billion.
• TC previously indicated that it is committed to asset sales to help fund its capital program and the increased cost of Coastal GasLink Project, and to reduce leverage. The announced sale helps to partially achieve this goal.
• As a result, S&P Global Ratings affirmed all ratings, including its ‘BBB+’ issuer credit rating on TC, based on projected credit metrics that are forecast to be 5.0x in 2023 and 4.7x in 2024.
• The negative outlook indicates the uncertainty regarding the timing and amount of further asset sales, which the company has committed to in order to ensure that it can achieve a debt-to-EBITDA ratio of not greater than 4.75x on a consistent basis.

S&P Global Ratings today took the rating actions listed above.

Sale of partial interest helps to reduce leverage. TC has stated its commitment to funding its capital plan and deleveraging in part through asset sales. Given the ambitious capital plan that TC is pursuing, asset sales are the foundation of it achieving its stated objective of reducing debt to EBITDA to 4.75x or lower. The sale of the Columbia gas assets is a first step toward achieving this goal. Given the anticipated proceeds of approximately C$5.2 billion, we anticipate that debt to EBITDA will be about 5.0x in 2023. In addition, we forecast further asset sales in 2024 and beyond, which will bring credit metrics to approximately 4.7x.

Although historically we have considered financial metrics on a funds from operations (FFO)-to-debt basis, we believe that moving to debt to EBITDA as the basis for measuring leverage better aligns the company with its peer group, which is primarily located in the U.S., and which is evaluated on a debt-to-EBITDA basis. This is particularly the case, given that the company receives almost half of its revenue from its U.S. assets. We believe that TC’s businesses, which have a significant proportion of regulated or contractual arrangements, provide some mitigation with respect to the company’s leverage and are consistent with a ‘BBB+’ rating when leverage is about 4.7x.

The negative outlook reflects our view that there is execution risk in the company’s divesture program, the success of which is required in order for TC to deleverage its balance sheet to about 4.7x in 2024 and 2025.

We could take a negative rating action if adjusted debt to EBITDA remains above 4.75x on a consistent basis. This could result from increased debt to finance large capital projects or debt-funded acquisitions or from cost overruns or delays in projects entering service. This could also result from the company receiving lower proceeds for asset sales than forecast without any mitigations such as lower capital expenditures.

We could revise the outlook to stable if TC adopts a more conservative financial policy that improves credit measures, such that adjusted debt to EBITDA is consistently in the 4.7x-4.75x area or lower.

Affected issues are: TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H and TRP.PR.I.

Emera Incorporated has announced:

the applicable dividend rates for its Cumulative Minimum Rate Reset First Preferred Shares, Series H (the “Series H Shares”) and Cumulative Floating Rate First Preferred Shares, Series I (the “Series I Shares”), in each case, payable if, as and when declared by the Board of Directors of the Company:

• 6.3240% per annum on the Series H Shares ($0.39525 per Series H Share per quarter), being equal to the sum of the Government of Canada bond yield as at July 17, 2023, plus 2.54%, payable quarterly on the 15th of February, May, August and November of each year during the five-year period commencing on August 15, 2023 and ending on (and inclusive of) August 14, 2028; and
• 7.4940% on the Series D Shares of the Company (the “Series D Shares”) for the three-month period commencing on August 15, 2023 and ending on (and inclusive of) November 14, 2023 ($0.47222 per Series D Share for the quarter), being equal to the sum of the three-month Government of Canada treasury bill yield rate as at July 17, 2023, plus 2.54% (calculated on the basis of the actual number of days elapsed during the quarter divided by 365), payable on the 15th of November 2023. The quarterly floating dividend rate will be reset every quarter.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 22, 2018, to the short form base shelf prospectus dated May 16, 2018, relating to the issuance of the Series H Shares (collectively, the “Prospectus”), holders of the Series H Shares have the right, at their option, to convert all or any of their Series H Shares, on a one-for-one basis, into Series I Shares on August 15, 2023 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series H Shares into Series I Shares will continue to hold their Series H Shares. The foregoing conversion right is subject to the following:

• if the Company determines that there would be less than 1,000,000 Series I Shares outstanding on the Conversion Date, then holders of Series H Shares will not be entitled to convert their shares into Series I Shares, and
• alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series H Shares on the Conversion Date, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on the Conversion Date.

Holders of Series H Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 17, 2023 until 5:00 p.m. (EDT) on July 31, 2023. Any notices received after this deadline will not be valid. Holders of Series H Shares who wish to exercise their conversion right must carefully follow the procedures and instructions received from their broker or other nominee and contact their broker or other nominee if they need assistance. Such broker or nominee may set deadlines for the return of instructions that are well in advance of the 5:00 p.m. (EDT) deadline on July 31, 2023. As such, it is recommended that holders of Series H Shares communicate instructions to their broker or nominee well in advance of the deadline in order to provide their broker or other nominee with adequate time to complete the necessary steps prior to the deadline.

Holders of Series H Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series H Shares and receive the new annual fixed dividend rate applicable to the Series H Shares, subject to the conditions stated above. Holders of Series H Shares will have the opportunity to convert their shares again on August 15, 2028 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with, an investment in Series H Shares and Series I Shares, please see the Company’s Prospectus, which is available on SEDAR at www.sedar.com.

EMA.PR.H is a FixedReset, 4.90%+254M490, that commenced trading 2018-5-31 after being announced 2018-5-17. Notice of extension was provided in 2023. It is tracked by HIMIPref™ but has been relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader niagara for bringing this to my attention!

Emera Incorporated has announced:

the applicable dividend rates for its Cumulative Rate Reset First Preferred Shares, Series C (the “Series C Shares”) and Cumulative Floating Rate First Preferred Shares, Series D (the “Series D Shares”), in each case, payable if, as and when declared by the Board of Directors of the Company:

• 6.4340% per annum on the Series C Shares ($0.40213 per Series C Share per quarter), being equal to the sum of the Government of Canada bond yield as at July 17, 2023, plus 2.65%, payable quarterly on the 15th of February, May, August and November of each year during the five-year period commencing on August 15, 2023 and ending on (and inclusive of) August 14, 2028; and
• 7.6040% on the Series D Shares of the Company (the “Series D Shares”) for the three-month period commencing on August 15, 2023 and ending on (and inclusive of) November 14, 2023 ($0.47916 per Series D Share for the quarter), being equal to the sum of the three-month Government of Canada treasury bill yield rate as at July 17, 2023, plus 2.65% (calculated on the basis of the actual number of days elapsed during the quarter divided by 365), payable on the 15th of November 2023. The quarterly floating dividend rate will be reset every quarter.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 31, 2012, to the amended and restated short form base shelf prospectus dated February 18, 2011, relating to the issuance of the Series C Shares (collectively, the “Prospectus”), holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Series D Shares on August 15, 2023 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares. The foregoing conversion right is subject to the following:

• if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and
• alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.

Holders of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 17, 2023 until 5:00 p.m. (EDT) on July 31, 2023. Any notices received after this deadline will not be valid. Holders of Series C Shares who wish to exercise their conversion right must carefully follow the procedures and instructions received from their broker or other nominee and contact their broker or other nominee if they need assistance. Such broker or nominee may set deadlines for the return of instructions that are well in advance of the 5:00 p.m. (EDT) deadline on July 31, 2023. As such, it is recommended that holders of Series C Shares communicate instructions to their broker or nominee well in advance of the deadline in order to provide their broker or other nominee with adequate time to complete the necessary steps prior to the deadline.

Holders of Series C Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series C Shares and receive the new annual fixed dividend rate applicable to the Series C Shares, subject to the conditions stated above. Holders of Series C Shares will have the opportunity to convert their shares again on August 15, 2028 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with, an investment in Series C Shares and Series D Shares, please see the Company’s Prospectus, which is available on SEDAR at www.sedar.com.

EMA.PR.C was issued as a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. After notice of extension in 2018 the rate was reset to 4.721%; I recommended against conversion; there was no conversion. DBRS discontinued coverage of Emera in June, 2016. Notice of extension was given in 2023. The preferreds are rated P-3(high) by S&P. It is tracked by HIMIPref™ and is assigned to the Scraps – FixedReset (Discount) subindex.

Thanks to Assiduous Reader niagara for bringing this to my attention!

Emera Incorporated has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Rate Reset First Preferred Shares, Series C of the Company (the “Series C Shares”) on August 15, 2023. There are currently 10,000,000 Series C Shares outstanding.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 31, 2012, to the amended and restated short form base shelf prospectus dated February 18, 2011, relating to the issuance of the Series C Shares (collectively, the “Prospectus”), the holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series D of the Company (the “Series D Shares”) on August 15, 2023 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares.

The foregoing conversion right is subject to the following:

if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and

alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.
In either case, Emera will give written notice to that effect to holders of Series C Shares no later than August 8, 2023.

The dividend rate applicable for the Series C Shares for the five-year period commencing on August 15, 2023 and ending on (and inclusive of) August 14, 2028, and the dividend rate applicable to the Series D Shares for the 3-month period commencing on August 15, 2023 and ending on (and inclusive of) November 14, 2023, will be determined on July 17, 2023 and notice of such dividend rates shall be provided to the holders of the Series C Shares on that day.

Holders of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 17, 2023 until 5:00 p.m. (EDT) on July 31, 2023. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide their broker or other nominee with adequate time to complete the necessary steps.

Holders of Series C Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series C Shares and receive the new annual fixed dividend rate applicable to the Series C Shares, subject to the conditions stated above. Holders of Series C Shares will have the opportunity to convert their shares again on August 15, 2028 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with, an investment in Series C Shares and Series D Shares, please see the Company’s Prospectus, which is available on SEDAR at www.sedar.com.

EMA.PR.C was issued as a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. After notice of extension in 2018 the rate was reset to 4.721%; I recommended against conversion; there was no conversion. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-3(high) by S&P. It is tracked by HIMIPref™ and is assigned to the Scraps – FixedReset (Discount) subindex.

Thanks to Assiduous Reader niagara for bringing this to my attention!

Emera Incorporated has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Minimum Rate Reset First Preferred Shares, Series H of the Company (the “Series H Shares”) on August 15, 2023. There are currently 12,000,000 Series H Shares outstanding.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 22, 2018, to the short form base shelf prospectus dated May 16, 2018, relating to the issuance of the Series H Shares (collectively, the “Prospectus”), the holders of the Series H Shares have the right, at their option, to convert all or any of their Series H Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series I of the Company (the “Series I Shares”) on August 15, 2023 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series H Shares into Series I Shares will continue to hold their Series H Shares.

The foregoing conversion right is subject to the following:

if the Company determines that there would be less than 1,000,000 Series I Shares outstanding on the Conversion Date, then holders of Series H Shares will not be entitled to convert their shares into Series I Shares, and
alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series H Shares on the Conversion Date, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on the Conversion Date.
In either case, Emera will give written notice to that effect to holders of Series H Shares no later than August 8, 2023.

The dividend rate applicable for the Series H Shares for the five-year period commencing on August 15, 2023 and ending on (and inclusive of) August 14, 2028, and the dividend rate applicable to the Series I Shares for the 3-month period commencing on August 15, 2023 and ending on (and inclusive of) November 14, 2023, will be determined on July 17, 2023 and notice of such dividend rates shall be provided to the holders of the Series H Shares on that day.

Holders of Series H Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 17, 2023 until 5:00 p.m. (EDT) on July 31, 2023. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide their broker or other nominee with adequate time to complete the necessary steps.

Holders of Series H Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series H Shares and receive the new annual fixed dividend rate applicable to the Series H Shares, subject to the conditions stated above. Holders of Series H Shares will have the opportunity to convert their shares again on August 15, 2028 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with, an investment in Series H Shares and Series I Shares, please see the Company’s Prospectus, which is available on SEDAR at www.sedar.com.

EMA.PR.H is a FixedReset, 4.90%+254M490, that commenced trading 2018-5-31 after being announced 2018-5-17. It is tracked by HIMIPref™ but has been relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader skeptical for bringing this to my attention!

DBRS has announced that it:

changed the trend on RF Capital Group Inc.’s (RF Capital or the Company) Cumulative Preferred Shares to Stable from Positive. DBRS Morningstar also confirmed the Cumulative Preferred Shares rating at Pfd-4 (high). The Company’s Support Assessment is SA3.

KEY RATING CONSIDERATIONS
The trend change to Stable from Positive reflects in part the weaker macroeconomic outlook, which is likely to result in continued market uncertainty and slower growth in investable assets, both of which are factors that can negatively affect RF Capital’s earnings and the timely realization of its strategic goals. Moreover, RF Capital has ambitious growth plans that require significant investment. While DBRS Morningstar views these investments positively in the long term, the growth initiatives, including expenditures on technology platforms, have pressured profitability and free cash flow in recent quarters. Future investments are not expected to adversely affect earnings in the same manner.

The rating confirmation recognizes the Company’s solid wealth management franchise, which is underpinned by its good reputation and stability in assets under administration (AUA) and its continued progress in executing its strategic vision. A significant portion of revenues are fee based, supporting the consistency of underlying earnings. DBRS Morningstar sees operational risk as a key risk for the Company to manage and expects that investments and upgrades to various technology platforms to help service clients should provide a longer-term benefit to RF Capital’s operational capabilities as well as its expense base. The rating also considers that RF Capital could face challenges in executing its ambitious strategy for future growth. Furthermore, in order to grow the business through advisor acquisition, RF Capital may require an increase in leverage.

RATING DRIVERS
Continued franchise momentum and return to consistent profitability, while maintaining solid balance sheet fundamentals, would lead to a rating upgrade. Conversely, DBRS Morningstar would downgrade the rating if RF Capital’s acquisition strategy leads to a material increase in leverage or if there are any significant operational or reputational issues.

RATING RATIONALE
RF Capital’s rating benefits from its long-standing presence and good reputation in Canada, where it operates in the independent wealth advisory space. At $35.4 billion in AUA as of May 31, 2023, the Company is one of the larger independent players in an industry dominated by the wealth management arms of the large Canadian banks and is further aiming to grow in this space both organically and through acquisitions. To achieve its desired scale, RF Capital has embarked on an ambitious multiyear growth strategy, aiming to grow its AUA nearly threefold to $100 billion in the next three to five years and its adjusted EBITDA to between $200 million and $300 million. To that end, the Company has made significant investments in advisor recruitment and support and succession planning initiatives. RF Capital has also made considerable investments in recent years in its technology, including moving its advisory platform to Fidelity Clearing Canada’s (Fidelity) uniFide platform and partnering with Envestnet to support its advisors via digital tools, among other items. While positive for the Company’s long-term growth prospects, the investments have resulted in significant nonrecurring implementation costs in the short term, which in turn has reduced EBITDA. Operational risk remains high relative to historical levels, although it has declined from the prior year as the Company completes its technology projects. Supplier risk is moderately higher than before, given the outsourcing of several business functions. The weaker macroeconomic outlook for Canada may also affect the Company’s ability to realize its strategic goals in a timely manner, including its planned foray into opportunistic acquisitions and strategic partnerships, as well as potentially reduce its net flows and, in turn, its fee-based revenues.

At $67.8 million, wealth management revenue declined in Q1 2023 compared with Q1 2022, driven in part by a modest decline in AUA and lower fee revenue. Conversely, interest revenue increased because of higher interest rates. At 90% at Q1 2023, a high proportion of commissionable revenue is fee based, a key support for the rating. The adjusted EBITDA margin (which excludes transformation costs and the amortization of acquired intangibles) stood at 14.9% in Q1 2023 versus 12.5% in Q1 2022 as an increase in gross margin more than offset an increase in adjusted operating expenses.

Following the sale of its capital markets business in 2019 and the more recent move to use Fidelity as the provider of custody, clearing, and trade settlement services, RF Capital’s on balance sheet risk is minimal and reduced compared with prior years. Market fluctuations can result in a decline in AUA or increase in redemption rates and fund outflows, adversely affecting earnings. Expense management is critical to maintaining earnings, given the largely fixed nature of operating costs (not including variable advisor compensation). The material progress made in increasing the Company’s scale, as well as the realization of run-rate operating expense savings from the transition to the Fidelity platform, can be expected to improve future profitability. Nonetheless, DBRS Morningstar expects earnings to remain muted over the next year.

The Company is sufficiently funded and has in place a $200 million revolving credit facility (out of which $80.5 million was drawn at Q1 2023) to facilitate investments in platforms, recruiting, and finance advisor team acquisition. The Company reported a fixed-charge coverage ratio (using adjusted EBITDA) of 4.1 times (x) for 2022. Furthermore, RF Capital holds appropriate working capital levels to manage its day-to-day liquidity needs. Regulatory capital requirements are minimal and well within the Company’s capacity. The Company employs a moderate amount of leverage with debt (including 25% of preferred shares per DBRS Morningstar criteria) to adjusted EBITDA of 2.7x in Q1 2023.

The affected issue is RCG.PR.B.

DBRS has announced that it:

downgraded its rating on the Preferred Shares issued by Dividend Growth Split Corp. (the Company) to Pfd-3 (low) from Pfd-3. The Preferred Shares have experienced a considerable drop in downside protection (to 31.5% in June 2023 from 38.9% in May 2022) as a result of the decline in the portfolio’s net asset value (NAV) in response to the volatility in the stock market, which was triggered by the mix of the global high inflationary environment, tighter monetary policies, and various geopolitical events, such as the Russia-Ukraine war. The Company’s maturity date is September 27, 2024. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction right at the end of each successive term.

The Company invests in a portfolio consisting primarily of equity securities of Canadian dividend growth companies. In addition, the Company may hold up to 20% of the total assets of the portfolio directly in global dividend growth companies or indirectly through exchange-traded funds for diversification and improved return potential. To qualify for inclusion in the portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing, each dividend growth company included directly in the portfolio must (1) have a market capitalization of at least $2.0 billion and (2) have a history of dividend growth. Investments will generally be equal weighted at the time of investment; however, after rebalancing the portfolio, the Company may hold nonequal weight positions.

Dividends received from the portfolio are used to pay fixed cumulative quarterly dividends equal to $0.55 per annum (p.a.) to each Preferred Shareholder, yielding 5.5% on the original issue price of $10.00. Holders of Class A Shares receive monthly distributions targeted at $1.20 p.a. The NAV test in place prevents any distributions to the Class A Shares if the Company’s NAV falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. Distributions to the Class A Shares are currently suspended.

As of June 8, 2023, the downside protection stood at 31.5%, compared with 38.9% as on May 30, 2022. Dividend coverage based on the current dividend yield on the portfolio was 0.6x. Without giving consideration to the capital appreciation potential or any source of income other than the dividends earned by the portfolio, the targeted monthly distributions to the Class A Shares are likely to create a grind on the portfolio’s NAV equivalent to 1.4% over the remaining term to maturity. The Company can write covered call options for some or all of the portfolio’s common shares to generate additional income to supplement the dividends received on the portfolio. The Company can engage in securities lending.

Considering the amount of downside protection, the term extension, and the projected grind on the portfolio, DBRS Morningstar downgraded the rating on the Preferred Shares to Pfd-3 (low) from Pfd-3.

The main constraints to the rating are as follows:

(1) The downside protection available to holders of the Preferred Shares depends on the value and dividend policies of the securities in the portfolio. In current times, valuation is exposed to market fluctuations resulting from high inflation, economic slowdown, global supply chain disruptions, and the Russia-Ukraine war.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.

(3) Dividends and interest received on the portfolio are currently unable to fully cover distributions on the Preferred Shares.

(4) The Company relies on the portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.

(5) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

DGS.PR.A has a Whole Unit NAVPU of 14.75 as of 2023-6-15. It’s a big issue, with over 48-million Whole Units (preferred share + Capital Unit) outstanding as of 2023-6-21.

Brompton Group has announced (on 2023-4-4):

Life & Banc Split Corp. (the “Company”) is pleased to announce that the board of directors has approved an extension of the maturity date of the Class A and Preferred shares of the Company for an additional 5-year term to October 30, 2028. The Preferred share dividend rate for the extended term will be announced at least 60 days prior to the original October 30, 2023 maturity date and will be based on market yields for preferred shares with similar terms at that time. The 5-year term extension allows Class A shareholders to continue to invest in the Canadian financials sector with an attractive distribution rate of 13.7% based on the April 3, 2023 closing price and the opportunity for capital appreciation. As well, the extension of the term of the Company is not a taxable event and enables shareholders to defer potential capital gains tax liability that would have otherwise been realized on the redemption of the Class A shares or Preferred shares at the end of the term, until such time as such shares are disposed of by shareholders.

Since inception on October 17, 2006 to February 28, 2022, the Class A shares have delivered a 10.5% per annum total return, outperforming the S&P/TSX Capped Financials Index by 2.3% per annum and the S&P/TSX Composite Index by 4.2% per annum.(1) Since inception to February 28, 2023, Class A shareholders have received cash distributions of $17.85 per share. Class A shareholders also have the option to reinvest their cash distributions in a dividend reinvestment plan which is commission free to participants.

The term extension offers Preferred shareholders the opportunity to enjoy preferential cash dividends until October 30, 2028. Since inception, the Preferred shares have delivered a 5.2% per annum total return, outperforming the S&P/TSX Preferred Share Index by 3.3% per annum with lower volatility.(1) The Company invests, on an approximately equal weighted basisin a portfolio consisting of common shares of the six largest Canadian banks (currently, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank) and the four major publicly traded Canadian life insurance companies (currently, iA Financial Corporation Inc., Sun Life Financial Inc., Manulife Financial Corp. and Great-West Lifeco Inc.).