Category: Issue Comments

Energy Split Corp II has announced:

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 ROC Preferred Shares. In such circumstances, any excess distributions received on the royalty trust portfolio minus the distributions payable on the ROC Preferred Shares and all administrative and operating expenses will be reinvested in short-term debt securities or used to purchase ROC 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 ROC 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 ROC Preferred Share distributions and all administrative and operating expenses.

The Company’s ongoing dividend policy entitles holders of ROC Preferred Shares to receive quarterly fixed cumulative distributions equal to $0.1718 per ROC Preferred Share. The Capital Yield Shareholders are provided with a leveraged play on the yield and price performance from a fixed portfolio consisting of 16 oil and gas royalty trusts listed on the Toronto Stock Exchange.

Capital Yield Shares and ROC Preferred Shares of Energy Split Corp. II Inc. are listed for trading on The Toronto Stock Exchange under the symbols EN and EN.PR.A respectively.

The previous policy was:

Holders of Capital Yield Shares will be entitled to receive distributions that the board of directors of the Company may declare from time to time subject to the prior rights of the Holders of the ROC Preferred Shares. Under the distribution policy adopted by the board of directors, it is expected that Holders of Capital Yield Shares will receive quarterly tax efficient distributions to be paid by the Company on or before the 16th day of March, June, September and December of each year in an amount equal to the distributions paid on the units of Royalty Fund II after payment of the fixed distribution payable on the ROC Preferred Shares and operating expenses of the Company.

EN.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-3 by DBRS. It is tracked by HIMIPref™ and is a member of the “Scraps” sub-index.

Allbanc Split Corp. has announced:

it has called 1,600 Preferred Shares for cash redemption on March 10, 2009 (in accordance with the Company’s Articles) representing approximately 0.125% of the outstanding Preferred Shares as a result of the special annual retraction of 46,300 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 9, 2009 will have approximately 0.125% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $26.75 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 10, 2009.

ABK.PR.B was last mentioned on PrefBlog when it revised the policy on Capital Unit dividends. ABK.PR.B is not tracked by HIMIPref™.

Standard & Poors has announced:

it lowered its ratings on Toronto-based Manulife Financial Corp. (TSX: MFC; Manulife Financial) and all of its rated operating companies by one notch.
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All of these operating insurance companies now have long-term counterparty credit and financial strength ratings of ‘AA+’. The counterparty credit rating on Manulife Financial is ‘AA-‘. The outlook is stable.

“In our opinion, the downgrade reflects the decline and ongoing volatility of the global equity markets, the resultant impact on earnings, reserves, capital and financial leverage, and the company’s reduced level of financial flexibility,” said Standard & Poor’s credit analyst Donald Chu. Currently, equity markets are down almost halfway from their peak in the major markets where Manulife competes. While we believe that Manulife Financial has done relatively well managing itself through an equity market tail event, we believe the increased earnings and capital volatility are not consistent with the previous ‘AAA’ rating.

The previous mention of these issues on PrefBlog was on Dec. 2, 2008, when S&P affirmed the ratings with a negative outlook. MFC’s 4Q08 Results were briefly reported on PrefBlog.

All three issues are tracked by HIMIPref™. MFC.PR.A is a member of the OperatingRetractible sub-index; MFC.PR.B & MFC.PR.C are members of the PerpetualDiscount index.

Allbanc Split Corp. 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 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 underlying portfolio securities 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 underlying portfolio securities. However, as long as Net Asset Value 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 portfolio securities minus the Preferred Share dividends and all administrative, operating and income tax expenses. Based on yesterday’s closing sale prices of the underlying portfolio securities and after giving effect to the Capital Share dividend, the Net Asset Value per Unit would be $30.51 or $3.76 in excess of the original issue price of the Preferred Shares.

On February 12, the NAVPU was $34.71. The last week … has not been kind.

ABK.PR.B was last mentioned on PrefBlog when it was downgraded to Pfd-3 as part of the DBRS Mass Downgrade of Split-Shares. ABK.PR.B is not tracked by HIMIPref™.

They’re playing hardball! M-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 $12.50. The net asset value as of February 13, 2009 was $8.91 and has been adversely impacted by the significant decline in the Manulife stock held in the portfolio.

Preferred shareholders should be pretty upset with Quadra about this and demand that the company be wound up immediately. They can’t force the company to do so, but management does not appear to understand that every single penny of the company’s net assets belong to the preferred shareholders; the capital unitholders have been wiped out and are worth zip, zero, zilch.

However, Quadra has other ideas:

The Company’s total net asset value is approximately $8.71 per unit as at February 18, 2009, consisting of less than 7% 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 intends to establish a normal course issuer’s bid which would allow the Company to re-purchase units in the market when trading prices are at a discount to the net asset value.

The Company will continue to review and dialogue with shareholders in order to establish potential solutions for reorganizing the Company that would be suitable for all shareholders.

… but then, what can you expect from people who use “dialogue” as a verb?

The Capital Units are currently quoted at $0.55-77, 1×1, on the Toronto Exchange. I object to the very idea of the company using the discount on the trading price of the preferreds to subsidize a free lunch for the capital unitholders; but on the other hand an issuer bid will be accretive to preferred shareholders not stupid enough to sell. So views on the topic will be mixed.

The company should be wound up. This will require consent of the capital unitholders; I suggest they be offered $0.25 on wind-up; this being $0.25 more than they’ll get if the company elects to drag the farce out to the scheduled wind-up on December 1, 2014. But, if not wound up, preferred shareholders should remember that they’ve got a perfectly good strip-bond-like investment, with minimal market exposure. They should certainly not even dream of selling on the market that the current quote of 7.00-38, which is an almost 20% discount to NAV at the bid.

XMF.PR.A is not tracked by HIMIPref™. It was last mentioned on PrefBlog when the preferred-unfriendly reorganization plan was defeated.

They’re playing hardball! Commerce Split Corporation 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 $12.50. The Net Asset Value as of February 13, 2009 was $9.07 and has been adversely impacted by the significant decline in the CIBC stock held in the portfolio.

Preferred shareholders should be pretty upset with Quadra about this and demand that the company be wound up immediately. They can’t force the company to do so, but management does not appear to understand that every single penny of the company’s net assets belong to the preferred shareholders; the capital unitholders have been wiped out and are worth zip, zero, zilch.

However, Quadra has other ideas:

The Company’s total net asset value is approximately $8.91 per unit as at February 18, 2009, consisting of less than 17% common shares of CIBC. The reduced exposure to CIBC will materially limit the future impact of price movements of CIBC 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 CIBC has made it extremely difficult to achieve the original stated objectives for both classes of shares. The Company intends to establish a normal course issuer’s bid which would allow the Company to re-purchase units in the market when trading prices are at a discount to the net asset value.

The Company will continue to review and dialogue with shareholders in order to establish potential solutions for reorganizing the Company that would be suitable for all shareholders.

… but then, what can you expect from people who use “dialogue” as a verb?

The Capital Units are currently quoted at $0.66-87, 6×2, on the Toronto Exchange. I object to the very idea of the company using the discount on the trading price of the preferreds to subsidize a free lunch for the capital unitholders; but on the other hand an issuer bid will be accretive to preferred shareholders not stupid enough to sell. So views on the topic will be mixed.

The company should be wound up. This will require consent of the capital unitholders; I suggest they be offered $0.25 on wind-up; this being $0.25 more than they’ll get if the company elects to drag the farce out to the scheduled wind-up on December 1, 2014. But, if not wound up, preferred shareholders should remember that they’ve got a perfectly good strip-bond-like investment, with minimal market exposure. They should not even dream of selling on the market at the current quote of 7.01-24, a discount of over 20% to NAV at the bid.

XCM.PR.A is not tracked by HIMIPref™. It was last mentioned on PrefBlog when the preferred-shareholder-hostile reorganization plan was defeated.

Hat tip to Assiduous Reader and Cub Reporter franceal for alerting me to this development.

Weston has announced:

that it will redeem for cash, on April 1, 2009 (the “Redemption Date”), all of its outstanding Preferred Shares, Series II for a redemption price of $25.00 per share, together with an amount equal to all dividends, if any, accrued thereon and unpaid up to but not including the Redemption Date.

WN.PR.B is a 5.15% ($1.2875) retractible; April 1 is the first call date; it would have been retractible for shares on July 1.

WN.PR.B was last mentioned on PrefBlog when it was placed on Review-Developing by DBRS and Review-Negative by S&P. The issue has been tracked by HIMIPref™; it was moved from the OpRet subIndex to Scraps in May 2007 due to credit concerns.

Faircourt has announced:

a correction to the Net Asset Values (“NAV’s”) for the Fund for the period from December 23rd, 2008 to January 5th, 2009. The revision was required as a year-end special capital gains distribution declared by one of the Fund’s holdings was not reflected in the NAV during this period due to the late notification of the dividend to RBC Dexia Investor Services, the Fund’s valuation agent by its market and pricing feeds.
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This correction only impacts the NAV of the Fund for the period from December 23rd to January 5th and does not impact the current NAV.

They get two bonus marks for disclosure, minus one for not telling us who’s to blame and minus another one for apostrophizing “NAVs”. Break-even.

The NAVs in question are from December and January:

The NAV of the Capital Units is $1.08 as of February 17.

FIG.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-5 in the DBRS Mass Downgrade of February 13. It is currently tracked by HIMIPref™ as part of the InterestBearing subIndex, but will (almost certainly) be moved to Scraps at month-end on credit concerns.