Category: Issue Comments

BNS Split Corp. II has announced:

The Company has revised its Capital Share dividend policy and has determined that it will not pay a dividend on the Capital Shares if the Net Asset Value per Unit at the time of declaration, after giving effect to the dividend, would be less than or equal to the original issue price of the Preferred Shares. In such circumstances, any excess dividends received on The Bank of Nova Scotia common shares (“BNS Shares”) minus the dividends payable on the Preferred Shares and all administrative, operating and income tax expenses will be reinvested in short-term debt securities or BNS Shares. However, as long as the Net Asset Value per Unit at the date of declaration exceeds such amount, the Company intends to pay a dividend on the Capital Shares equal to the excess of the dividends received on the BNS Shares minus the Preferred Share dividends and all administrative, operating and income tax expenses. Based on yesterday’s closing sale prices of the BNS Shares and after giving effect to the Capital Share dividend, the Net Asset Value per Unit would be $27.10 or $6.27 in excess of the original issue price of the Preferred Shares.

Not much, perhaps (as noted by DBRS when downgrading ES.PR.B), but better than nothing! The original policy had no Asset Test:

It will be the policy of the Board of Directors to declare and pay quarterly dividends on the Capital Shares in an amount equal to the dividends received by the Company on the BNS Shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses. Based on the current BNS Share dividends and estimated expenses of the Company, the Company expects to pay quarterly dividends of $0.0420 per Capital Share ($0.1680 per year or approximately 1.46% of the Capital Share offering price).

BSC.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-3 as part of the DBRS Mass SplitShare Downgrade. BSC.PR.A is not tracked by HIMIPref™.

DBRS has announced that it:

has today downgraded the Class B, Preferred Shares (the Preferred Shares) issued by Energy Split Corporation (the Company) to Pfd-5 from Pfd-4 (low), with a Stable trend. The rating has been removed from Under Review with Negative Implications.
…
All of the downside protection available to the Preferred Shares has been eroded. Based on the most recent net asset value (NAV), holders of the Preferred Shares would experience a loss of approximately 17% of their initial issuance price if the Forward Agreement were terminated and proceeds distributed.

The Company’s dividend policy has been to pay quarterly distributions to the Capital Shares equal to the excess income available from the quarter after paying Preferred Shares dividends and other Company expenses. On February 18, 2009, DBRS downgraded the Preferred Shares to Pfd-4 (low) and left the rating Under Review with Negative Implications. It was noted that the Company’s dividend policy allowed for a very high level of payouts to the Capital Shares compared to what would be expected based on the asset coverage available to the Preferred Shares. On February 26, 2009, the Company declared a distribution of $0.60 per Capital Share and announced a revision of its distribution policy. On the next distribution date (June 16, 2009), the Company will not pay a distribution on the Capital Shares if the NAV at the time of declaration, after giving effect to the distribution, would be less than or equal to the original issue price of the Preferred Shares. Considering the current NAV of the Company and the amount of excess income available, DBRS believes that the revised policy is not restrictive enough in limiting payouts to the Capital Shares.

As a result of the current asset coverage and dividend policy for payouts to the Capital Shares, DBRS has downgraded the rating of the Preferred Shares to Pfd-5. A main constraint to the rating is that volatility of the market price and changes in distribution policies of the oil and gas trusts in the Portfolio may result in reductions in asset coverage or dividend coverage from time to time.

ES.PR.B had assets of $18.27 to cover preferred obligations of $21.00 as of February 26.

ES.PR.B was last mentioned on PrefBlog when the Dividend Policy change was announced. ES.PR.B is not tracked by HIMIPref™.

DBRS has announced that it:

has today revised the trends on most ratings of HSBC Bank Canada (the Bank) to Negative from Stable following Negative trends being placed on the ratings of HSBC Holdings plc (the Parent). (Please see DBRS’s HSBC Holdings plc press release dated March 3, 2009).

DBRS’s ratings of HSBC are based on the relationship the Bank has with its ultimate parent, which is one of the largest global banking groups. DBRS’s long-term Issuer Rating of HSBC Holdings plc is now AA (high) with a Negative trend.

Under DBRS’s bank rating methodology, DBRS has assigned HSBC Bank Canada a support assessment of SA1, reflecting a strong expectation of timely support from HSBC Holdings plc. All guaranteed debts are rated at the same level as the Parent. The guaranteed short-term obligations remain Stable, as a AA long-term rating would continue to support an R-1 (high) short-term rating.

Given the strategic nature of the relationship between HSBC Bank Canada and HSBC Holdings plc, but the lack of an explicit guarantee, the non-guaranteed Long-Term Deposits and Senior Debt rating of HSBC is one notch lower than HSBC Holdings plc.

The referenced press release states:

The Negative trend reflects DBRS’s concern that further economic weakening in HSBC’s markets will result in continued elevated credit costs, which will pressure earnings. Moreover, the Negative trend reflects DBRS’s expectation that the global economic slowdown may pressure revenue generation ability. While DBRS considers the Group’s solid earnings power a fundamental strength and a significant factor supporting HSBC’s rating, the unprecedented weakness and the global recessionary environment may result in a weakening of HSBC’s sizeable pre-provisioning earnings generation ability and lead to earnings pressure.

S&P took no action; Moody’s downgraded the Household Finance unit which is being de-emphasized within HSBC.

Canadian Western Bank has announced:

that it has closed the previously announced private and public offerings of 8.0 million Preferred Units for gross proceeds of $200 million. The private placement consisted of 5.4 million Preferred Units for gross proceeds of $135 million to three institutional purchasers, The bought deal public offering consisted of 2.6 million Preferred Units (“Public Offering Preferred Units”) for gross proceeds of $65 million. Genuity Capital Markets acted as agent and lead underwriter, respectively, on the transactions. Preferred Units consist of one Non-Cumulative 5-Year Rate Reset Preferred Share, Series 3 (the “Series 3 Preferred Shares”) in the capital of the Bank and a certain number of common share purchase warrants (each whole warrant a “Warrant”). Each whole Warrant is exercisable at a price of $14.00 to purchase one common share in the capital of the Bank for five years.

The Bank has granted the underwriters an option to purchase, on the same terms, up to an additional 390,000 Public Offering Preferred Units. This option is exercisable in whole or in part by the underwriters at any time within the next 30 days. The maximum gross proceeds raised under the public offering would be $74.75 million should this option be exercised in full.

It was not a particularly successful issue, trading 99,125 shares in a range of 21.95-24.00 (!!) before closing at 21.80-95.

As noted in the report of the new issue announcement, this issue will not be tracked by HIMIPref™.

Update, 2009-3-12: Canadian Western Bank has announced:

it had closed the issuance of an additional 390,000 Preferred Units as a result of the underwriters exercising their full over-allotment option under the recently announced Preferred Unit public offering. Each Preferred Unit consists of one non-cumulative 5-year rate reset preferred share, series 3 and 1.78 common share purchase warrants. Each whole warrant entitles the holder to purchase one common share of the Bank for a 5 year period at a price of $14.00 per share. The Preferred Units were sold at $25 per unit on the same terms as the public offering.
The gross proceeds from the exercise of the over-allotment were $9,750,000. Total gross proceeds from the private offering of Preferred Units, the public offering of Preferred Units and the exercise of the over-allotment option were $209,750,000.

CWB.PR.A closed today at 21.60-70, 10×26. Somebody really wants those warrants!

Sixty Split Corp. has announced:

that it has called 8,298 Preferred Shares for cash redemption on March 13, 2009 (in accordance with the Company’s Articles) representing approximately 1.219% of the outstanding Preferred Shares as a result of the special annual retraction of 85,596 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on March 12, 2009 will have approximately 1.219% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.00 per share

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including March 13, 2009.

SXT.PR.A is tracked by HIMIPref™ but is not currently included in the HIMIPref™ Indices due to low averageTradingValue. It was last moved to “Scraps” on the March 30, 2007 Rebalancing.

Fitch Ratings has announced it:

has downgraded the ratings of Manulife Financial Corporation (MFC) and its operating subsidiaries. At the same time Fitch assigns an ‘A’ rating to MFC’s Non-cumulative Preferred Class A, Series 4. The Rating Outlook is Negative. (See complete list of ratings actions at the end of this release.)

The rating action reflects Fitch’s updated review of MFC’s exposure to the volatile global equity market conditions, which are having a negative impact on MFC’s earnings performance and capital levels. In Fitch’s view, MFC’s earnings and capital volatility are outside of Fitch’s rating rationale for the prior ratings. The key driver of this heightened volatility is the combination of MFC’s outsized, unhedged equity market exposure and the potential for further equity market declines in the next 12 to 18 months.

The total effect of the approximately 23% decline in global equity markets in fourth-quarter 2008 was estimated to account for $2.9 billion of MFC’s reported $1.9 billion net loss available to common shareholders. MFC’s high degree of sensitivity to the equity markets was driven primarily by significant increased actuarial reserving for guarantees on its $74 billion book of guaranteed segregated funds /variable annuities business. Additional drivers were declines in values of common equities in the investment portfolios of its operating entities, as well as its equity exposure to variable life reserves, and declining fee revenue.

Fitch notes that this equity market volatility is two-sided and that a significant advance in equity market levels could result in increases in reported earnings and capital for MFC due to declining reserving and capital requirements on the segregated fund/variable annuity guarantee business.

While Fitch views the capitalization of MFC’s operating companies as quite strong at year-end 2008 when measured by risked-based capital metrics, these levels are being challenged due to the recent equity market declines and anticipated increases in actuarial reserve and capital requirements related to the large block of unhedged variable annuity guarantees written before 2008. Fitch does not envision any near-term liquidity problems as the guarantees are not near-term cash claims.

Fitch believes MFC has good financial flexibility and the ability to raise capital to meet potential capital requirements and/or potential acquisition-related needs at the new rating levels through the issuance of debt or additional forms of equity through its recently increased Canadian and new U.S. shelf registrations.

Fitch rates Sun Life Financial Preferreds at “A”; Great-West Lifeco Preferreds at “A”; and National Bank Preferreds at “A”; inter alia.

Manulife has the following preferreds outstanding: MFC.PR.A (OpRet); MFC.PR.B (PerpetualDiscount); and MFC.PR.C (PerpetualDiscount). These issues were last mentioned on PrefBlog when S&P Downgraded to P-1(low) on February 24.

US Financial 15 Split Corp. has announced:

that it has suspended its regular monthly dividends effectively immediately for Priority Equity (“Preferred”) shareholders in order to preserve cash and to assist in rebuilding the net asset value in an attempt to meet longer term objectives. Since the Preferred shares are cumulative, this suspended dividend (and all subsequent dividends not paid) will be accrued to the benefit of the Preferred shareholders and recorded as a liability in the Company’s net asset value. Also, there will not be a distribution paid to Class A Shares for February 27, 2009 as per the Prospectus which states no regular monthly dividends or other distributions will be paid on the Class A Shares in any month as long as the net asset value per unit is equal to or less than $15.00. The net asset value as of February 13, 2009 was $4.17 and has been adversely impacted by the significant declines in the US financial services companies held in the portfolio.

FTU.PR.A was last mentioned on PrefBlog in October when DBRS ceased coverage at the request of Quadra. Quadra has also suspended dividends on XMF.PR.A and XCM.PR.A, with considerably less provocation.

FTU.PR.A is tracked by HIMIPref™. It was moved from the SplitShares subIndex to “Scraps” in April 2008 on credit concerns.

A. M. Best has announced:

has downgraded the financial strength rating (FSR) to A+ (Superior) from A++ (Superior) and issuer credit ratings (ICR) to “aa” from “aa+” for the core life insurance subsidiaries of Sun Life Financial Inc. (SLF) (Toronto Canada), which consist of Sun Life Assurance Company of Canada (Sun Life) (Toronto, Canada), Sun Life Assurance Company of Canada (U.S.) (Wilmington, DE) and Sun Life Insurance and Annuity Company of New York (New York, NY). Concurrently, A.M. Best has downgraded the ICR to “a” from “aa-” of SLF as well as the existing debt ratings of the enterprise. The downgrading of the debt ratings reflects a revision to standard notching for the group in accordance with A.M. Best’s published debt rating methodology. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The downgrades reflect the challenges SLF faces due to stresses in the global macroeconomic environment, especially in its U.S. operations. The prolonged weakness in the equity markets has negatively impacted both SLF’s insurance operations—through higher reserve and capital charges and lower fee income—and its asset management operation, MFS, which has recorded lower assets under management. SLF’s U.S. insurance operations recorded a loss in 2008 due to the impact of equity market declines, credit related losses, as well as, the unfavorable impact of changes in currency exchange rates as well as credit impairment losses. While risk-adjusted capital levels at the group remain strong, the U.S. operations have required capital contributions, reducing financial flexibility for the group. Despite this additional funding, A.M. Best believes its targeted U.S. risk-based capital levels will remain modest relative to its peers.

While its U.S. segment reported the weakest results in 2008, SLF also recorded declines in earnings in its Canadian and Asian operations. A.M. Best believes that earnings will remain under pressure for the group, resulting in lower fixed coverage, due to continued equity market weakness and higher asset impairments. SLF retains exposure to real estate-linked assets through its investments in commercial mortgage loans, direct real estate and residential and commercial mortgage-backed securities. A.M. Best notes that a large portion of SLF’s real estate portfolio is underwritten in Canada, which is expected to continue to perform better than similar investments in the United States.

The stable outlook is based on SLF’s diversified revenue stream from multiple regions, profitable operations in Canada, favorable risk-adjusted capitalization and well developed and fully integrated risk management framework. The year-end regulatory capital ratio in Canada is considered strong. SLF is a Canadian-based holding company with a top three market position in the Canadian insurance market. SLF also maintains an expanding wealth management and life insurance operation in Asia.

There is a complete list of ratings available.

This announcement follows a Credit Watch Negative by S&P and a downgrade to Baa2 by Moody’s.

Recently, A.M. Best has

• affirmed MFC at “a” on preferred stock
• affirmed GWO at “a-” on preferred stock
• affirmed IAG at bbb+

Sun Life Financial has the following issues outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E. All are tracked by HIMIPref™ and are incorporated in the PerpetualDiscounts subIndex.

Energy Split Corp. has announced:

that it has revised its Capital Yield Share distribution policy and starting with the next distribution date on June 16, 2009, has determined that it will not pay a distribution on the Capital Yield Shares if the Net Asset Value at the time of declaration, after giving effect to the distribution, would be less than or equal to the original issue price of the Class B Preferred Shares. In such circumstances, any excess distributions received on the royalty trust portfolio minus the distributions payable on the Class B Preferred Shares and all administrative and operating expenses will be reinvested in short-term debt securities or used to purchase Class B Preferred Shares in the market for cancellation under a normal course issuer bid. However, as long as Net Asset Value at the date of declaration exceeds the original issue price of the Class B Preferred Shares, the Company intends to pay a distribution on the Capital Yield Shares equal to the excess of the distributions received on the royalty trust portfolio minus the Class B Preferred Share distributions and all administrative and operating expenses.

The previous policy was:

to declare and pay quarterly distributions in an amount equal to the distributions paid by the royalty trusts comprising the Royalty Trust Portfolio minus the distributions payable on the ROC Preferred Shares and all administrative and operating expenses of the Company and Royalty Fund.

ES.PR.B is currently underwater, with the preferred share redemption price of $21.00 “covered” by NAV of $18.27 as of February 26.

The last mention of ES.PR.B was when it was downgraded to Pfd-4(low) by DBRS. ES.PR.B is not tracked by HIMIPref™.

Nova Scotia Power has announced:

that effective April 1, 2009 (the “redemption date”) the Company will redeem all of its outstanding Cumulative Redeemable First Preferred Shares, Series C (the “Series C shares”) for a redemption price of $25.00 per share.

The Notice of Redemption and associated documents are being sent to Registered holders of these shares today. Beneficial holders of the Series C shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds.

After the redemption date, holders of the Series C shares will cease to be entitled to dividends or to exercise any rights of shareholders.

NSI.PR.C was last mentioned on PrefBlog when it was added to the TXPR index at the January rebalancing.

NSI.PR.C is tracked by HIMIPref™; it is included in the “Scraps” sub-index due to volume concerns.