Category: Issue Comments

Lifeco Split Corporation has announced:

In line with the Capital Share dividend policy, Lifeco has determined not to pay a Capital Share dividend this quarter, as a result of the downside asset coverage on the Preferred Shares falling below 1.3 times during the quarter. Any excess dividends received on the underlying portfolio securities minus the distributions payable on the Preferred Shares and all administrative and operating expenses will be reinvested in short-term debt securities or underlying portfolio securities.

Asset coverage is 1.1+:1 as of 2/26. PrefBlog reported the change in policy on January 8 … and now this policy has been applied.

LSC.PR.C was downgraded to Pfd-3 in the recent DBRS Mass Downgrade, which was the last mention of this issue on PrefBlog.

LSC.PR.C is not tracked by HIMIPref™.

Update, 2010-3-24: The dividend was reinstated in July, 2009.

DBRS has announced:

has today downgraded six ratings of structured Preferred Shares issued by various split share companies. Each of these split share companies has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – dividend-yielding preferred shares (the Preferred Shares) and capital shares (the Capital Shares). The Preferred Shares benefit from a stable dividend yield and downside protection on their principal via the net asset value (NAV) of the Capital Shares.

Each of the Preferred Shares has experienced considerable declines in downside protection during the past few months amidst tremendous volatility in global equity markets. Due to these declines in downside protection, the previous ratings assigned to these companies are no longer appropriate. DBRS has today taken rating action on these six Preferred Shares ratings based on lower levels of downside protection being established from lower NAVs of the affected split share companies. Some of the Preferred Shares have been assigned Pfd-5 (low) ratings with a Negative trend because the NAVs of their respective split share companies must now appreciate considerably in order for the Preferred Shares to receive full principal at maturity.

Downgrades are:

Manulife Financial has announced:

that it has completed its offering of 18 million Non-cumulative 5-Year Rate Reset Class A Shares, Series 4 (the “Series 4 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $450 million.

The offering was underwritten by a syndicate of investment dealers led by RBC Capital Markets and CIBC World Markets. The sale of 18 million Series 4 Preferred Shares included the exercise in full by the underwriters of their option to purchase four million shares. The Series 4 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.D.

The original size was 8-million shares plus 3-million greenshoe; the thing sold like hotcakes!

The issue traded 541,409 shares in a range of 24.65-78 before closing at 24.70-73, 12×45.

On interesting thing about this issue is that it is non-cumulative. There is no real reason for this; MFC is a holding company. It is, technically, an insurance company – but has no policy holders and is therefore not required to file MCCSR reports with OFSI. There is therefore no real need, from a regulatory perspective, to have this qualify as Tier 1 capital – it appears that the non-cumulativity has been chosen solely to help with the credit ratings; as a precautionary measure in case management ever wants to do something with MFC’s insurance license; and, perhaps, to hoodwink the gullible into believing that there is no difference between the holding company and operating company.

MFC.PR.D has been added to HIMIPref™ and is now part of the Fixed-Reset subindex.

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.

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.