Category: Issue Comments

Global Credit Pref Corp has announced:

that it received a credit event notice today from The Toronto-Dominion Bank with respect to Lear Corp. as a result of that entity failing to make the $38 million required interest payments within the 30 day grace period on its 8.5% and 8.75% senior notes.

Global Credit Pref Corp. is a mutual fund corporation that issued 10-year redeemable, retractable cumulative preferred shares. The Company has exposure, by way of an equity forward sale agreement, to a structured credit linked note issued by The Toronto-Dominion Bank and held by Global Credit Trust, the return on which is currently linked to the credit performance of 122 reference entities, subsequent to the removal of Lear Corp. (the “CLN Portfolio”).

The return on the credit linked note is linked to the number of defaults experienced over its term among the reference entities in the CLN Portfolio. The credit linked note has been structured so that it is unaffected by the first net losses on the CLN Portfolio up to 5.12% of the initial value of the CLN Portfolio (initially representing defaults by 11 reference entities in a CLN Portfolio comprised of 129 reference entities). The net loss on a reference entity that defaults is calculated as the percentage exposure in the CLN Portfolio to such reference entity reduced by a 40% fixed recovery rate. Following the credit event, the credit linked note will be able to withstand approximately 5 further credit events in the CLN Portfolio. Global Credit Pref Corp.’s capacity to return $25.00 per preferred share on the scheduled redemption date of September 30, 2015 and the payment of quarterly fixed cumulative preferential distributions of $0.3281 per preferred share (a 5.25% yield on the original subscription price of $25.00 per preferred share) will not be affected by this credit event.

These prefs are currently rated P-5(low)/Watch Negative by S&P. RPB.PR.A was not the only synthetic affected by the Lear event!

GPA.PR.A is not tracked by HIMIPref™. The last mention on PrefBlog was with respect to its downgrade to P-5.

BAM Split Corp – which today settled its new BNA.PR.D issue – has announced:

the Company has delivered a notice of early redemption to CDS Clearing and Depository Services Inc. (“CDS”) to inform them that the Company will redeem all of the outstanding Class A Preferred Shares, other than the Class A Preferred Shares owned by BAM Investments Corp. (“BAM Investments”), on July 27, 2009, at an early redemption price of $25.25 per share plus accrued and unpaid dividends.

BNA.PR.A is tracked by HIMIPref™. It is currently a member of the SplitShare subindex.

BNA.PR.D, the 5-year split share refunding BNA.PR.A announced June 18 settled today, trading 261,515 shares in a range of 24.89-03 before closing at 24.99-25.

BAM Split also announced:

Concurrently with the completion of the offering, BAM Investments has agreed to transfer 7,000,000 BAM Shares to the Company in exchange for additional Capital Shares of the Company. On or about July 27, 2009, BAM Investments will convert its existing holdings of Class A Preferred Shares, Class AA Preferred Shares, Series 1 and Class AAA Preferred Shares, Series 1 of the Company (collectively, the “Preferred Shares”) into Capital Shares and the Company will consolidate the existing Capital Shares held by BAM Investments so that an equal number of Preferred Shares and Capital Shares will be outstanding.

BNA.PR.D will be tracked by HIMIPref™. It has been added to the HIMIPref™ SplitShares Index.

Update: Prospectus (via SEDAR) to the rescue! The transactions with BAM Investments are fully disclosed in the prospectus, which provides a pro-forma statement of the capitalization changes:

The capitalization of the Company at March 31, 2009, and at such date as adjusted to give effect to the issue and sale of the Series 4 Preferred Shares offered hereby, the redemption of the Class A Preferred Shares, the conversion of BAM Investments’ Preferred Shares to Capital Shares, and the acquisition of an additional 7,000,000 BAM Shares is set forth in the table below.

This is very good news for holders of BNA.PR.B & BNA.PR.C, who are seeng their credit quality increase dramatically for free.

Update, 2009-7-10: DBRS has announced:

To increase the level of protection to the Class AA Preferred Shares, BAM Investments will convert its existing Non-Rated Preferred Shares, Class A Preferred Shares and Class AA Preferred Shares to Capital Shares following the issuance of the Series 4 Preferred Shares. In addition, BAM will transfer seven million additional BAM Shares into the Portfolio in exchange for Capital Shares, which will increase the amount of Company assets and further increase the downside protection available for the Class AA Preferred Shares.

After giving effect to the foregoing changes, the downside protection available to the Class AA Preferred Shares will be approximately 62%, based on the market value of the BAM Shares as of July 8, 2009. The dividend coverage ratio will be approximately 1.6 times.

The rating assigned to the Series 4 Preferred Shares is an indication of the probability that the Company will make timely payments of dividends and ultimately repay principal by the Final Maturity. The Pfd-2 (low) ratings are primarily based on the downside protection and dividend coverage available to the Class AA Preferred Shares.

The main constraints to the rating are the following:
(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.
(2) There is a lack of diversification as the Portfolio is entirely made up of BAM Shares.
(3) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Shares dividend coverage.
(4) The BAM Shares pay dividends in U.S. dollars, so the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate.

Note that a “downside protection” of 62% is equivalent to asset coverage of 2.6+:1.

Last week, YPG announced:

an offering by YPG Holdings Inc. (the “Company”) of Medium Term Notes for gross proceeds of $90 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 $50 million under its term credit facility. This offering is scheduled to close on or about July 3, 2009.

Pursuant to this offering, the Company will issue $90 million of 6.85% Series 8 Notes (compounded semi-annually), which will be dated July 3, 2009, will mature on December 3, 2013 and will be issued at a price of $100.00.

The Series 8 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.

… and now they have announced:

an offering by YPG Holdings Inc. (the “Company”) of Medium Term Notes Series 9 and an additional offering of Medium Term Notes Series 8 for combined gross proceeds of $165 million. All of the net proceeds from the issuance of the Series 9 Notes and Series 8 Notes will be used to repay indebtedness outstanding under the Company’s term credit facility. Both offerings are scheduled to close on or about July 10, 2009.

Pursuant to these offerings, the Company will issue $130 million of 6.50% Series 9 Notes (compounded semi-annually), which will be dated July 10, 2009, will mature on July 10, 2013 and will be issued at a price of $100.00. The Company will also increase the size of its $90 million offering of 6.85% Series 8 Notes, which were issued on July 3, 2009, by issuing a further $35 million of 6.85% Series 8 Notes (compounded semi-annually). The Series 8 Notes mature on December 3, 2013.

The Series 9 Notes and the Series 8 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 Series 9 Notes and Series 8 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.

YPG is certainly showing that it can access the bond market and is chipping away steadily at its bank debt (as noted in mid-June); it’s certainly encouraging, but a 10-year issue would increase confidence in YPG.PR.B given the term structure of their debt.

Standard & Poors has announced:

it revised its outlook on Brookfield Asset Management Inc. to negative from stable. At the same time, we affirmed the ratings, including the ‘A-‘ long-term corporate credit rating on the company.

“The outlook revision reflects what we view as pressure on the credit risk profile of Brookfield’s core subsidiaries, Brookfield Properties Corp. and Brookfield Renewable Power Inc., as well as our expectation of weaker operating cash flows, in particular, a lower level of investment gains,” said Standard & Poor’s credit analyst Greg Pau.

In the past two months, we have revised the outlook on the ‘BBB’ ratings on both Brookfield Properties (BBB/Negative/–) and Brookfield Renewable Power (BBB/Negative/A-3) to negative from stable to reflect the pressure on their respective credit standings. In the case of Brookfield Properties, we expect that valuation declines on its commercial properties and stricter lender underwriting could heighten refinancing risks of maturing debt, particularly that in the pro rata US$1.6 billion debt maturing in its U.S. fund in 2011. With the generally weak state of commercial property market in major U.S. cities and financial centers, we believe that any recovery in valuation could be slow and modest.
…
The negative outlook reflects our expectation that pressures on Brookfield’s core subsidiaries’ credit risk profile, cash flow volatility from potentially lower investment gains, and the challenging market conditions could weaken the company’s own financial risk profile. Standard & Poor’s could consider lowering the rating if the credit risk profiles of Brookfield Properties and Brookfield Renewable Power deteriorate further. We could also lower the rating if remitted cash flows further weaken to result in remitted OCF interest coverage falling below 4x or OCF to total debt falling below 20%. Conversely, we could revise the outlook to stable when the company’s cash flows strengthen again when market conditions improve or the company materially reduces its corporate level debts, resulting in OCF coverage measures returning to levels similar to those attained in 2008.

On a perhaps not entirely unrelated note, DBRS has confirmed Brookfield Renewable Power following a shuffling of assets down the line:

DBRS has today confirmed the Senior Unsecured Debentures and Notes rating of Brookfield Renewable Power Inc. (BRP or the Company) at BBB (high), with a Stable trend. This action follows today’s announcement that BRP intends to sell substantially all of its renewable generating facilities in Canada with a total capacity of 387 MW to its 50.01% owned Great Lakes Hydro Income Fund (the Fund, rated STA-2 (high)). BRP will also amend two existing power purchase arrangements (PPAs) under which it acquires power from two of the Fund’s generating assets, and will provide a price guarantee in connection with the bulk of the transferred assets.

Total consideration payable by the Fund to BRP is $945 million, to be funded with the net proceeds from the sale of $760 million of Fund units, and a $200 million senior unsecured note to BRP. BRP will subscribe for 50.01% of the $760 million equity offering in order to maintain its current ownership percentage. Initial cash proceeds to BRP will be approximately $365 million, with an additional $200 million when the note matures.
…
BRP’s consolidated financial profile is not expected to be materially changed as a result of the Transaction as the Company will continue to consolidate the Fund’s results. On a non-consolidated basis, while BRP would lose a modest amount of operating cash flow from the sale of the physical generating assets, and will take on additional price exposure through the additional/amended power purchase agreements with certain of the Fund’s assets, these challenges are viewed as largely offset by the considerable Transaction consideration to be received, the expectation of BRP continuing with a prudent hedging strategy, and the Company maintaining its ownership position in the Fund.

The following BAM issues are tracked by HIMIPref™: BAM.PR.B, BAM.PR.E, BAM.PR.G, BAM.PR.H, BAM.PR.I, BAM.PR.J, BAM.PR.K, BAM.PR.M, BAM.PR.N, BAM.PR.O & BAM.PR.P.

Additionally, the ratings of BAM Split Corp are capped by BAM’s rating: BNA.PR.A, BNA.PR.B, BNA.PR.C and the new issue that closes 2009-7-9.

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; the bottom three spots in June were occupied by Floaters.

Connor Clark has announced:

that Lear Corporation has reached agreement on a consensual debt restructuring under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the United States Bankruptcy Code. This plan is expected to constitute a credit event under the credit linked note (“CLN”) issued by TD Bank to which the Company has exposure.

Given the unprecedented economic downturn and corresponding decline in global automobile production volumes, as well as continued difficult conditions in credit markets generally, Lear’s Board of Directors concluded that this action was the fastest and most effective way to de-lever its capital structure.

The recovery rate for ROC Pref III Corp. is fixed at 40%. As a result, the Lear credit event is expected to reduce the number of additional defaults that ROC Pref III Corp. can sustain before the payment of $25.00 per Preferred Share at maturity is adversely affected by 1.0 to 1.6.

They provide a table:

There are 127 names in the reference portfolio, with 6.0 defaults as of 2009-3-31; on that date there were 17 non-defaulted junk names. The death watch continues.

RPB.PR.A was last mentioned on PrefBlog in connection with December’s credit event for Tribune Corp..

RPB.PR.A is not tracked by HIMIPref™.

On May 27, Sentry Select announced:

that the units of Select 50 S-1 Income Trust, Sentry Select Focused Growth & Income Trust, Pro-Vest Growth & Income Fund and the capital units and preferred securities of the Multi Select Income Trust (collectively, the “Units”) will be voluntarily delisted from the Toronto Stock Exchange at the close of business on Tuesday, June 2, 2009. The delisting of the Units is being done in preparation for the merger of each of the Funds into Sentry Select Canadian Income Fund (collectively, the “Mergers”), which are expected to occur on or about June 12, 2009.

… and on June 16 announced:

that the mergers of Sentry Select 40 Split Income Trust (“40 Split”), Pro-Vest Growth & Income Trust (“Pro-Vest”), Multi-Select Income Trust (“Multi-Select”), Sentry Select Focused Growth & Income Trust (“Focused Growth”) and Select 50 S-1 Income Trust (“Select 50”) (collectively the “Terminating Funds”) with Sentry Select Canadian Income Fund (the “Continuing Fund”) (the “Mergers”), became effective on June 12, 2009. The Mergers were approved at special meetings of unitholders of the Terminating Funds held concurrently on May 20, 2009.

The Terminating Funds transferred all of their assets to the Continuing Fund in exchange for Series A units of the Continuing Fund and the assumption by the Continuing Fund of all the liabilities of the Terminating Funds. Each unitholder of the Terminating Funds, except unitholders of 40 Split, received Series A units of the Continuing Fund having the same aggregate net asset value as their units of the Terminating Funds as of the close of business on June 11, 2009.
…
Each unitholder of Multi-Select received 0.3819 Series A units of the Continuing Fund in exchange for each unit of Multi-Select.

DBRS has announced that it:

has today discontinued the rating on the Preferred Securities issued by Multi Select Income Trust (the Trust). On June 12, 2009, the Capital Units issued by the Trust were merged along with units from other funds into the Sentry Select Canadian Income Fund. The Preferred Securities had been scheduled for final redemption on September 30, 2009, but were redeemed at the initial issue price of $10 per security on the date of the merger.

MST.PR.A was tracked by HIMIPref™ and was last mentioned on PrefBlog when it was downgraded to Pfd-3(high) by DBRS. At the time of redemption it was in the “Scraps” index due to credit concerns.

DBRS has announced that it:

has today downgraded the preferred shares and innovative Tier 1 instrument ratings of the Canadian banks it rates, following the application of changes in DBRS’s global banking methodology. The ratings have been removed from Under Review with Negative Implications, where they were placed on April 20, 2009. All other ratings for the Canadian banks are unaffected; related rating trends remain unchanged. The downgrades reflect the revision of DBRS’s views on external support as it relates to preferred shares and the elevated risk of non-payment of preferred dividends relative to the risk of default indicated by senior debt ratings. The downgrades do not reflect any specific credit event at any of the listed institutions or related entities.

The change in methodology affects preferred shares ratings in three ways:

(1) The change in the global banking methodology dictates that the starting point for notching preferred shares will be based on the intrinsic assessment rating, rather than the senior debt rating (which may incorporate the benefit of external support). The primary factor that has led to this change in the methodology is recent actions taken in other jurisdictions that demonstrate no systemic external support for preferred shares. As such, the preferred shares and Tier 1 innovative instruments ratings of the listed institutions and their related entities that benefited from a one-notch uplift in October 2006 (due to the support assessment designation of SA2) will now be removed.

The preferred shares and Tier 1 innovative instruments of the affected institutions are: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank.

(2) The other change in the global banking methodology incorporates the elevated risk of non-payment of preferred dividends relative to the risk of default for more senior debt instruments. As such, the changes in the methodology have increased the base notching, even within the strongest rating categories, and the base notching now expands as the credit quality of the bank migrates downward. Within this approach, there exists some flexibility to adjust the notching for factors that reflect the position of individual banks. Historically, DBRS’s methodology resulted in a fixed relationship across all rating categories.

The preferred shares and Tier 1 innovative instruments of the affected institutions are: National Bank of Canada and Laurentian Bank of Canada.

(3) The final change in the global banking methodology affects SA1 category banks. The preferred shares rating for the subsidiary will be notched relative to the preferred share of the parent in the same way that all debt ratings are notched between the two entities.

The preferred shares and Tier 1 innovative instruments of the affected institution is: HSBC Bank Canada.
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DBRS will host a teleconference tomorrow morning, Tuesday June 30, at 11:00 am ET, to discuss today’s rating action.

Interested callers should dial the appropriate number listed below at least five minutes before the 11:00 am ET call time.

Local Callers: 416-695-5800, quoting passcode: 5742370

Toll Free Callers: 800-408-3053, quoting passcode: 5742370

This follows the original announcement that they were on Review-Negative.

Affected issues are:

The main effect of this, I feel, is the decreased notching between the top banks and the top insurers. Previously, MFC, SLF, PWF & GWO had been ranked a notch below the Big 5 … and I thought that was a little on the skimpy side. Now there’s no notching. Interesting…

Update: It is interesting to note that this is largely a reversal of the the October 2006 Mass Upgrade of Banks.