Category: Issue Comments

Newgrowth Corp. has announced:

that the final condition required to extend the term of the Company for an additional five years to June 26, 2014 has been met. Holders of Class A Capital Shares previously approved the extension of the term of the Company subject to the condition that a minimum of 1,340,000 Class A Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”).

Under the Special Retraction Right, 88,897 Class A Capital Shares have been tendered to the Company for retraction on June 26, 2009. Holders of these shares will receive a retraction price equal to the amount, if any, by which the Unit Value exceeds $18.25. Holders of the remaining 2,238,510 Class A Capital Shares will continue to enjoy the benefits of a leveraged participation in the capital appreciation of the Company’s portfolio of publicly listed common shares of selected Canadian chartered banks, telecommunication, pipeline and utility companies.

The Class B Preferred Shares will be redeemed by the Company on June 26, 2009 in accordance their terms at a price per share equal to the lesser of $18.25 and Unit Value. In order to maintain the leveraged “split share” structure of the Company, the Company will offer a new series of Class B Preferred Shares to be called the Series 2 Preferred Shares pursuant to a preliminary prospectus dated May 22, 2009.

The preliminary prospectus for the new issue does not state a dividend rate. Given that the capital units (NEW.A) have a market value of about $44-million and that coverage of at least 2:1 may be reasonably expected, it is unlikely that the new issue will be tracked by HIMIPref™.

The refunding proposal has been previously discussed on PrefBlog. NEW.PR.B is not tracked by HIMIPref™.

Moody’s has announced it has:

changed the rating outlook on the Bank of Montreal (BMO) and its subsidiaries to negative from stable. BMO is rated B for bank financial strength and Aa1 for deposits. The negative outlook applies to BMO’s Harris subsidiaries including Harris N.A. (bank financial strength rating of B-, long-term deposits of Aa3). Note that there already exists a negative outlook on Harris N.A.’s bank financial strength rating.

Senior vice president, Peter Routledge, stated that “the outlook change is the product of several factors. First, BMO’s business mix has a material weighting towards capital markets activities in general, and structured credit activities specifically, which is likely to result in continued earnings volatility, in Moody’s view. Second, the bank has entered a prolonged period of higher loan losses which will pressure earnings for several quarters. Finally, these two factors will dampen BMO’s risk-adjusted profitability, which is already low relative to its current rating level.” Partially offsetting these concerns is the bank’s strong level of capitalization and an improving risk management discipline.
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BMO’s structured credit exposures have produced approximately C$2 billion in pre-tax losses since the turmoil in the credit markets began. Although the bank has bled much of the potential losses contained in these exposures into its earnings, additional losses could accelerate rapidly in a severe economic downturn. Moody’s primary focus is on two BMO exposures: (1) credit protection vehicle — known as Apex Trust; and (2) the structured investment vehicles, Links Finance Corporation / Links Finance LLC and Parkland Finance Corporation / Parkland (USA) LLC.
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According to Mr. Routledge, “the challenge BMO faces is managing these two points of earnings pressure from a low level of risk-adjusted profitability, relative to its current ratings level.” BMO’s performance since 2007 is instructive. During that time, the bank’s capital markets charges have consumed approximately 25% of BMO’s pre-provision, pre-tax (core) earnings, and caused its already weak ratio of core earnings to risk-weighted assets to drop by 50 basis points on average (i.e., from approximately 2.2% to 1.7%). According to Mr. Routledge, “while Moody’s believes that BMO’s core earnings and capital are more than adequate to absorb prospective credit and capital markets losses, a deterioration in risk-adjusted profitability — a long-stated major ratings driver for the bank — could ultimately lead to a downgrade in BMO’s bank financial strength rating.”

As noted above, two positive credit trends offset partially the aforementioned negative rating drivers. First, the bank’s capitalization is very strong, with a Tier 1 ratio of 10.7% and a ratio of tangible common equity (adjusted for Moody’s hybrid credit) as a percent of risk-weighted assets at 9%.

BMO has seven issues of preferreds on the Toronto exchange: the PerpetualDiscounts BMO.PR.H, BMO.PR.J, BMO.PR.K & BMO.PR.L and the FixedResets BMO.PR.M (+165), BMO.PR.N (+383) & BMO.PR.O (+458).

All are tracked by HIMIPref™ and are included in their respective indices.

Standard and Poor’s has announced:

Standard & Poor’s Ratings Services today revised its outlook on Brookfield Properties Corp. (Brookfield) and its Toronto-based affiliate, BPO Properties Ltd. (BPP), to negative from stable. We continue to analytically view these two related companies as one rated entity. Brookfield retains an 89% equity interest (representing 54% of the voting securities and 100% of the non-voting securities) in BPP.

At the same time, we affirmed our ‘BBB’ long-term corporate credit rating on Brookfield and BPP and our ‘BB+’ preferred stock rating on the companies.
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The current environment of weak operating fundamentals, lower office property valuations, and more-restrictive lender underwriting in the U.S. will pose challenges to the company’s efforts to recapitalize its highly leveraged U.S. property fund (debt is due in late 2011). We would lower the rating one notch if the company does not meaningfully improve its liquidity position this year or if fixed-charge coverage measures were to decline from their current level (1.6x). We would consider revising the outlook to stable if Brookfield’s management successfully addresses the longer-term recapitalization needs of its U.S. fund while strengthening overall consolidated fixed-charge coverage measures.

BPO has the following preferred issues outstanding: BPO.PR.F, BPO.PR.H, BPO.PR.I, BPO.PR.J, BPO.PR.K.

BPP has the following preferred issues outstanding: BPP.PR.G, BPP.PR.J & BPP.PR.M. Each of these issues were mentioned on PrefBlog in the post BAM / BPP Floater Credit Inversion.

BPO.PR.F & BPO.PR.H were added to the S&P/TSX Preferred Share Index in the July 2007 rebalancing. BPO.PR.I was added and BPO.PR.J was removed in the July 2008 rebalancing.

All are tracked by HIMIPref™ all have been 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.

What can I say? The Floaters Index currently has three members. The top three spots in May were occupied by Floaters. That’s a change! I put a chart of the Floater index over the past year in my Market Action post of May 26.

Cooperators has announced:

that it has issued an additional 600,000 Non-Cumulative 5-Year Rate Reset Class E Preference Shares, Series D (the “Series D Preference Shares”) at a price of $25.00 per Series D Preference Share for gross proceeds to the Company of $15,000,000 pursuant to the exercise by a syndicate of underwriters co-led by Scotia Capital Inc. and TD Securities Inc. and including BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Desjardins Securities Inc., National Bank Financial Inc., HSBC Securities (Canada) Inc., Blackmont Capital Inc., Dundee Securities Corporation and Industrial Alliance Securities Inc. (collectively, the “Underwriters”) of their over-allotment option, as described in the short form prospectus of the Company dated May 14, 2009. Including the over-allotment option, total gross proceeds of the Company’s public offering of Series D Preference Shares (the “Offering”) were $115,000,000.

CCS.PR.D commenced trading on May 22.

Global Resource Split Corp. has announced:

that the Corporation will redeem all of its outstanding Preferred Shares and Class A Shares (together, the “Shares”) on June 30, 2009 (the “Redemption Date”) as contemplated by the constating documents of the Corporation. The Corporation will request that its Shares be delisted from the Toronto Stock Exchange after the close of trading on June 24, 2009. Thereafter, the Corporation will pay a capital gain dividend to all Class A Shareholders of record on June 30, 2009 prior to redeeming the Class A Shares. Such capital gain dividend will reduce the redemption price per Class A Share by an equivalent amount. The capital gain dividend, together with the redemption proceeds for the Shares, will be paid by the Corporation on or about July 6, 2009 through CDS Clearing and Depository Services Inc.

In addition, the Corporation will pay on June 30, 2009 a regular quarterly distribution of $0.13125 per Preferred Share to shareholders of record on June 15, 2009.

Preferred Shares and Class A Shares are currently listed on the Toronto Stock Exchange under the symbols GSX.PR.A and GSX, respectively.

GSX.PR.A has not been tracked by HIMIPref™. There are only 586,000 shares outstanding with a $10 par value.

CCS.PR.D, the new FixedReset 7.25%+521 announced May 6, had an entirely respectable market debut, trading 539,155 shares in a range of 25.30-69 before closing at 25.30-35, 7×2.

Co-operators announced:

that it has closed its bought deal offering (the “Offering”) of $100 million of Non-Cumulative 5-Year Rate Reset Class E Preference Shares, Series D (the “Series D Preference Shares”) underwritten by a syndicate of underwriters co-led by Scotia Capital Inc. and TD Securities Inc. and including BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Desjardins Securities Inc., National Bank Financial Inc., HSBC Securities (Canada) Inc., Blackmont Capital Inc., Dundee Securities Corporation and Industrial Alliance Securities Inc. (collectively, the “Underwriters”).

The Company entered into an underwriting agreement dated as of May 7, 2009 with the Underwriters pursuant to which the Underwriters agreed to purchase from Co-operators General and sell to the public 4,000,000 Series D Preference Shares at a price of $25.00 per Series D Preference Share for gross proceeds to the Company of $100,000,000.

The greenshoe was for 600,000 shares and it looks like it was not exercised.

CCS.PR.D will be tracked by HIMIPref™, but is relegated to the “Scraps” index on credit concerns.

SLF.PR.F, the 6.00%+379 FixedReset announced on May 8 settled today.

Sun Life Financial announced:

the successful completion of a Canadian public offering of $250 million of Class A Non-Cumulative 5-Year Rate Reset Preferred Shares Series 6R (the “Series 6R Shares”) at a price of $25.00 per share and yielding 6.00 per cent annually. The offering, initially for $200 million of Series 6R Shares, was increased to $250 million following exercise by the underwriting syndicate, co-led by TD Securities Inc. and BMO Nesbitt Burns Inc., of an option to purchase an additional $50 million of Series 6R Shares.

The Series 6R Shares were issued under a prospectus supplement dated May 8, 2009, which was issued pursuant to a short form base shelf prospectus dated April 1, 2009. Copies of those documents are available on the SEDAR website for Sun Life Financial Inc. at www.sedar.com. The Series 6R Shares are listed on the Toronto Stock Exchange under the ticker symbol SLF.PR.F.

So the greenshoe was fully exercised.

Vital statistics after the first day’s trading are:

It will be most interesting to learn whether the rapturous reception accorded SLF.PR.F will coax a few more issues out of the woodwork!

SLF.PR.F has been added to the FixedReset HIMIPref™ subindex.

Newgrowth Corp. has announced:

that holders of its Class A Capital Shares (“Capital Shares”) have overwhelmingly approved a share capital reorganization (the “Reorganization”) allowing holders of Capital Shares, at their option, to retain their investment in the Company after the scheduled redemption date of June 26, 2009. The Reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the redemption date of June 26, 2009 for up to an additional 5 years. The Class B Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions and have been called for redemption on June 26, 2009. In order to maintain the leveraged “split share” structure of the Company, the Company expects to create and issue a new series of Class B preferred shares on or about June 26, 2009.
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The Reorganization will involve an adjustment of the Company’s Portfolio so that the Company provides broader exposure to Canadian chartered banks, telecommunication, utility and pipeline companies and the Portfolio will be rebalanced to an equal weight position in order to improve diversification and mitigate single issuer exposure.

Holders of Capital Shares who do not wish to continue their investment in the Company after June 26, 2009 must give notice that they wish to exercise their special retraction right and how they wish to be paid for their shares on or prior to May 29, 2009. Holders of Capital Shares who retract their Capital Shares will be paid on June 26, 2009. The Reorganization will become effective provided that holders of at least 1,340,000 Capital Shares retain their Capital Shares and do not exercise the special retraction right.

There are currently 2,327,407 units outstanding with a NAV of $38.12/unit so there is the potential for this to be a reasonably large-sized offering of replacement preferreds.

NEW.PR.B was last mentioned on PrefBlog when the proposed refunding was announced. NEW.PR.B is not tracked by HIMIPref™.

R Split II Corp. has announced:

The Capital Shares and Preferred Shares will be redeemed by the Company on May 29, 2009 (the “Redemption Date”) in accordance with the redemption provisions of the shares. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $30.50 and the Net Asset Value per Unit. The Capital Shares will be redeemed at a price for every share equal to the amount (for every two capital shares) by which the Net Asset Value per Unit exceeds $30.50.
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A further press release will be issued by the Company in connection with the redemption prices on May 28, 2009. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on May 29, 2009.

Given that asset coverage is currently 2.8+:1 there cannot be much doubt that maturity will be at par.

RBT.PR.A was last mentioned on PrefBlog with respect to last year’s partial call for redemption. RBT.PR.A is not tracked by HIMIPref™.

Update, 2009-06-01: Redemption completed.