Category: Issue Comments

M Split Corp has announced:

This sharp decline in Manulife has resulted in the Company’s net asset value being reduced significantly and as mentioned in previous updates, has required the Company to implement the Priority Equity Portfolio Protection Plan (the “Plan”) in accordance with the prospectus. As a result of implementing the Plan, the Company has been required to sell the vast majority of the Manulife common shares held in the Portfolio and acquire fixed income securities.

The Company’s total net asset value is approximately $8.37 per unit as at June 18, 2009, consisting of less than 1% common shares of Manulife. The reduced exposure to Manulife will materially limit the future impact of price movements of Manulife shares on the net asset value of the Company and lower the ability of the Company to generate income from dividends and its covered call option writing program.

The significant price decline of Manulife has made it extremely difficult to achieve the original stated objectives for both classes of shares. The Company established a normal course issuer’s bid which allows the Company to repurchase units in the market when trading prices are at a discount to the net asset value.

Subsequent to the unsuccessful shareholder vote on February 5, 2009 of the reorganization proposal, the Company has continued to dialogue with certain larger shareholders to try and establish potential solutions for reorganizing the Company that would be suitable for all shareholders and result in a successful shareholder vote. Outside of certain larger shareholders, the remaining shareholders had voted overwhelmingly in support of management’s latest proposal.

The Company has received several shareholder requests to wind up the Company. In response to this request, the Company would like to remind all shareholders that all such reorganization proposals must receive a 66 2/3 favorable vote by both the Class A shareholders and the Preferred shareholders voting separately by class. This requirement is outlined in the Company’s prospectus and is part of the articles of incorporation of the Company. Under any kind of termination proposal at the current time, Class A shareholders would receive no value for their Class A shares since the net asset value per unit is below $10. The Class A shares have traded in a range between $0.27 and $0.78 since February 5, 2009 and closed at $0.40 on June 18, 2009. As such, the Company does not believe that this proposal is in the best interests of the Class A shareholders and any proposal that would provide no value to the Class A shareholders would ultimately never be approved by Class A shareholders.

The Company will continue to seek solutions that will balance and meet the interests of both Classes of shareholders and also result in a successful vote. The costs of holding a meeting are significant to the Company and, as such, the Company will only bring forward a proposal that has a high probability of being passed by the requisite majorities of each Class of shareholders.

Huh. Providing no value – indeed, taking away value – for the preferred shareholders didn’t seem to stop their last proposal from coming to vote.

XMF.PR.A is currently quoted at 7.07-28, while XMF is at 0.36-50. The company should buy the maximum permitted under its issuer bid, remind shareholders of their retraction rights, and propose a wind-up that will pay the common shareholders a nominal sum. Waiving management fees, or a good chunk thereof, would be a good thing too, but I’m not holding my breath!

XMF.PR.A is not tracked by HIMIPref™.

A Globe & Mail story highlights a Manulife Financial Press Release that states:

On a separate matter unrelated to prior announcements made today by Manulife Financial Corporation, the Company stated that it received an enforcement notice from staff of the Ontario Securities Commission (OSC) this week relating to its disclosure before March 2009 of risks related to its variable annuity guarantee and segregated funds business. The OSC notice indicates that it is the preliminary conclusion of OSC staff that the Company failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products. The Company has the opportunity to respond to the notice before OSC staff makes a decision whether to commence proceedings, and the Company intends to cooperate with OSC staff. The Company believes that its disclosure satisfied applicable disclosure requirements.

The prior announcements that the company is so anxious to emphasize are separate and unrelated are retirement of the CFO and Capital Update; the Capital Update trumpets MCCSR but makes no reference to the degree of double leverage inherent in the MFC holdco / insurance sub. structure. They never do, of course, but it is something that preferred shareholders in the holdco (MFC.PR.A, MFC.PR.B, MFC.PR.C, MFC.PR.D & MFC.PR.E) should bear firmly in mind at all times.

With respect to double-leverage, it is of interest to note that Manulife issued $1-billion of 5-Year MTNs at 4.896%, closing 2009-6-2, with the pricing supplement stating:

Approximately $730 million of the net proceeds to MFC from the sale of the Notes will be applied to reduce amounts outstanding under the Credit Facility and the balance of the net proceeds will be utilized for general corporate purposes of MFC.

There are – quite properly – no announcements regarding the enforcement notice regarding disclosure on the OSC website.

The MFC preferreds were last mentioned on PrefBlog when downgraded to A- [Negative Outlook] by Fitch.

BMO.PR.P, the new FixedReset 5.40%+241 announced last week, settled today and traded 889,295 shares in a range of 25.05-19 before closing at 25.09-12, 10×18.

The deal size was 14-million shares (=$350-million) with a 2-million share (=$50-million) greenshoe. It is not clear whether or not the greenshoe has been exercised.

Vital statistics are:

BMO.PR.P has been added to the HIMIPref™ FixedResets subindex.

YPG Holdings has launched a 5-Year MTN issue with a 7.30% coupon:

Yellow Pages Group announced today an offering by YPG Holdings Inc. (the “Company”) of Medium Term Notes for gross proceeds of $260 million. The net proceeds from the issuance of the Notes will be used for general corporate purposes, to repay indebtedness outstanding under the Company’s commercial paper program and to repay an amount of $200 million under its term credit facility. This offering is scheduled to close on or about June 25, 2009.

Pursuant to this offering, the Company will issue $260 million of 7.30% Series 7 Notes (compounded semi-annually), which will be dated June 25, 2009, will mature on February 2, 2015 and will be issued at a price of $100.00.

The Series 7 Notes will be guaranteed by Yellow Pages Income Fund (TSX: YLO.UN), YPG Trust, YPG LP, Yellow Pages Group Co., Trader Corporation, YPG (USA) Holdings, Inc., Yellow Pages Group, LLC and YPG Directories, LLC. The Notes have been assigned a rating of BBB (high) with a stable trend by DBRS Limited and a rating of BBB- with a stable outlook from Standard & Poor’s Rating Service.

Their ability to issue on these terms provides credibility to their previously announced issuer bid for YPG.PR.A and YPG.PR.B. The former closed yesterday at 22.50-58 to yield 7.52%-7.40% to retraction 2012-12-31, while the latter closed at 17.35-49 to yield 10.84%-10.71% to retraction 2017-6-30. There is, of course, a difference in the credit quality between the MTNs and the preferreds, but that’s a very high tax-adjusted spread!

YPG.PR.A and YPG.PR.B are both tracked by HIMIPref™ but are relegated to the “Scraps” index on credit concerns.

Financial 15 Split Corp. has announced:

its regular monthly distribution of $0.1257 for each Class A share ($1.5084 annually) and $0.04375 for each Preferred share ($0.525 annually). Distributions are payable June 10, 2009 to shareholders on record as of May 29, 2009.

This is of interest since the Capital Unit Dividend was suspended in December; therefore capital unitholders received no distributions for the five months from December to April inclusive, which has avoided the reduction of NAV by about $0.62.

The NAV on May 29 was $15.91 on May 29, according to the company.

FTN.PR.A is tracked by HIMIPref™ but has been relegated to the “Scraps” index due to credit concerns. It was last mentioned on PrefBlog when DBRS downgraded it to Pfd-4 in February as part of a mass downgrade of SplitShares.

Fitch Ratings has announced that it:

has downgraded the debt and preferred stock ratings of Manulife Financial Corporation (MFC) by one notch. Fitch also assigns an ‘A’ rating to MFC’s CAD1 billion 4.896% notes due 2019 and its 7.768% notes due 2019, and an ‘A-‘ rating to MFC’s non-cumulative preferred class 1, series 1 shares. The Rating Outlook is Negative.
…
The one-notch downgrade of MFC’s parent company-related ratings reflects Fitch’s decision to move to standard notching of parent company ratings relative to insurance company subsidiary ratings. This is primarily as a result of the increased volatility in earnings and capital of the group, declining fixed-charge coverage at the holding company level, and a moderate increase in financial leverage. Earnings before interest and taxes (EBIT) to fixed charges declined to 2.6 times (x) in 2008, from an average of 13.1x for the previous three years ending 2008. Fitch considers MFC’s payment capacity to be solid and expects fixed charge coverage in 2009 to range between 6x and 7x in a generally flat equity market scenario.
…
Fitch’s Negative Outlook reflects:

–Fitch’s view that near-term conditions in the financial markets will likely continue for an extended period, which could cause the company to experience higher-than-expected volatility in its financial results and additional challenges in 2009;
–The potential for higher-than-expected credit related investment losses;
–The potential need to further increase the capital supporting the company’s large, unhedged variable annuity business, driven by further declines in equity markets.

It was very recently that Fitch rated MFC Prefs at A with a negative outlook. These are fast changes for the credit rating!

Fitch rates SLF Prefs at BBB+ and GWO prefs at A … so beer tonight all ’round at GWO headquarters – they’re a notch better in Fitch’s view, at any rate!

MFC has the following issues outstanding: MFC.PR.A (OpRet), MFC.PR.B & MFC.PR.C (PerpetualDiscount) and MFC.PR.D & MFC.PR.E (FixedReset). All are tracked by HIMIPref™

The MFC credit was last mentioned on PrefBlog when Moody’s downgraded the “Insurer Financial Strength”.

It’s been a long time … but if the issue can hold on to its gains for another three weeks, then we’ll have a member of the long neglected PerpetualPremium index.

Vital statistics are:

It was transferred from PerpetualPremium to PerpetualDiscount at the June 2008 rebalancing, which left four issues in the PerpetualPremium index as of 2008-6-30.

Yellow Pages Income Fund has announced:

that its subsidiary YPG Holdings Inc. has received approval from the Toronto Stock Exchange on its notice of intention to make a normal course issuer bid for its first preferred shares through the facilities of the Toronto Stock Exchange from June 11, 2009 to no later than June 10, 2010, in accordance with applicable regulations of the Toronto Stock Exchange.

Under its normal course issuer bid, YPG Holdings intends to purchase for cancellation up to but not more than 1,200,000 and 800,000 of its outstanding first preferred shares, series 1 and first preferred shares, series 2, respectively, representing 10% of the public float of each series of first preferred shares outstanding on June 9, 2009. YPG Holdings currently has 12,000,000 first preferred shares, series 1 and 8,000,000 first preferred shares, series 2 issued and outstanding. Within the past 12 months, YPG Holdings has not purchased any of its first preferred shares. The average daily trading volumes of YPG Holdings’ first preferred shares, series 1 and first preferred shares, series 2 for the period between December 1, 2008 and May 31, 2009 were 17,290 and 20,929, respectively. In accordance with the rules of the Toronto Stock Exchange, the maximum numbers of first preferred shares, series 1 and first preferred shares, series 2 that can be purchased on a daily basis by YPG Holdings are respectively 4,322 and 5,232, subject to the block purchase exception.

YPG Holdings believes that the trading price of the series 1 and series 2 first preferred shares may from time to time not reflect the fundamentals and future prospects for the business of YPG Holdings and the Fund. YPG Holdings’ directors have authorized this normal course issuer bid and, in their opinion, such purchases are in the best interest of YPG Holdings and its securityholders and constitute an appropriate use of YPG Holdings’ funds.

The yields of YPG.PR.A and YPG.PR.A were discussed on PrefBlog last March; while the junkier credits have surged in price since then, they closed last night at 22.50-73 (7.82-50%) and 17.46-69 (10.98-76%), giving interest equivalent yields well in excess of, for instance, the YPG 5.25 of 2016, currently quoted to yield 7.48%.

Not much has happened as yet on this news, although prices have moved up … YPG.PR.A is now 22.61-87 and YPG.PR.B is now 17.71-99. Note that today is the last cum-dividend date for the current coupon: it goes ex-Dividend tomorrow.

It is not my normal practice to comment on NCIB’s unless the company has a history of actually putting up a little actual cash to back up their press release … but in this case spreads are so extreme that a healthy company might well consider a buy-back attractive.

DBRS has announced that it:

has today downgraded the LROC Preferred Units issued by Kingsway Linked Return of Capital Trust to Pfd-4 from Pfd-3. The rating remains Under Review with Negative Implications, where it was initially placed on February 10, 2009.

The LROC Preferred Units are supported by an exposure to a note guaranteed by Kingsway Financial Services Inc. and Kingsway America Inc. (collectively, Kingsway) through a forward purchase agreement. The downgrade of the LROC Preferred Units is a result of DBRS downgrading the long-term debt ratings of Kingsway on June 4, 2009, to BB (low) from BBB (low) and leaving the ratings Under Review with Negative Implications.

The DBRS downgrade of Kingsway has been previously discussed on PrefBlog.

KSP.UN is not tracked by HIMIPref™.