Category: Issue Comments

DBRS has announced that it:

today downgraded the Preferred Shares issued by BMONT Split Corp. (the Company) to Pfd-4, with a Stable trend, from Pfd-2 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on December 19, 2008.

In August 2004, the Company raised gross proceeds of approximately $88 million by issuing 1.525 million Preferred Shares at $27.45 each and 3.05 million Capital Shares at $15.27 each, with a redemption date of August 5, 2009 (the Redemption Date) for both classes of shares. The net proceeds from the offering were invested in a portfolio of common shares (the BMO Shares) of Bank of Montreal (BMO). The initial split share structure provided downside protection of approximately 50% to the Preferred Shares.

The holders of the Preferred Shares receive fixed cumulative quarterly distributions yielding 4.5% per annum. The current dividend income from the BMO Shares provides dividend coverage of approximately 1.8 times. In the past, excess dividends net of all expenses of the Company have been paid as dividends to holders of the Capital Shares. On January 8, 2009, the Board of Directors of the Company announced that excess dividends would be invested in short-term debt securities or BMO Shares until the scheduled redemption of the Company’s shares on the Redemption Date.

The NAV of the BMO Shares has declined significantly, dropping from $54.89 per share to $30.77 in the last year, a decline of 44%. The current downside protection available to the Preferred Shareholders is approximately 11% (as of February 13, 2009). The downgrade of the Preferred Shares is primarily based on the lower level of asset coverage available to cover the Preferred Shares principal.

There are less than six months until the Redemption Date, which has limited the severity of the downgrade to the Preferred Shares. If the Redemption Date was to be extended past August 5, 2009, then negative rating action would likely be required.

BMT.PR.A is tracked by HIMIPref™. It was last mentioned on PrefBlog when the DBRS Mass Downgrade of Feb 13 left the issue under review and unresolved. It is included in the “Scraps” subIndex due to volume concerns – now there are two reasons!

DBRS has announced that it:

today downgraded the Preferred Shares issued by R Split III Corp. (the Company) to Pfd-4 (low), with a Stable trend, from Pfd-2 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on December 19, 2008.

In April 2007, the Company raised gross proceeds of $140 million by issuing 2.273 million Preferred Shares at $29.22 each and 4.546 million Capital Shares at $16.19 each, with a final redemption date of May 31, 2012 (the Redemption Date) for both classes of shares. The net proceeds from the offering were invested in a portfolio of common shares (the RBC Shares) of Royal Bank of Canada (RBC). The initial split share structure provided downside protection of approximately 50% to the Preferred Shares.

The holders of the Preferred Shares receive fixed cumulative quarterly distributions yielding 4.5% per annum. The current dividend income from the RBC Shares provides dividend coverage of approximately 1.4 times. The Company’s dividend policy is to pay holders of the Capital Shares the excess dividend income after paying Preferred Shares dividends and other Company expenses.

The NAV of the RBC Shares has declined significantly, dropping from $50.19 per share to $29.92 in the last year, a decline of more than 40%. The current downside protection available to the Preferred Shareholders is approximately 2% (as of February 13, 2009).

As a result of the large decline in asset coverage, DBRS has downgraded the rating of the Preferred Shares to Pfd-4 (low) with a Stable trend. A main constraint to the rating is that volatility of the common share price and changes in dividend policies of RBC may result in reductions in asset coverage or dividend coverage from time to time.

RBS.PR.A is not tracked by HIMIPref™. It was last mentioned on PrefBlog when the DBRS Mass Downgrade of Feb 13 left the issue under review and unresolved.

DBRS has announced that it:

today downgraded the Class B, Preferred Shares (the Preferred Shares) issued by Energy Split Corporation (the Company) to Pfd-4 (low) from Pfd-3 (high). The rating remains Under Review with Negative Implications, where it was placed on October 24, 2008.

Investors in the Company’s Preferred Shares and Capital Shares gain exposure to a portfolio of selected oil and gas royalty trusts (the Portfolio) through a forward purchase and sale agreement (the Forward Agreement) with the Bank of Nova Scotia (the Counterparty). The Counterparty pays the Corporation the economic return provided by the Portfolio, which is held by an underlying fund (the Royalty Fund). In return, a portfolio of common shares of Canadian public companies acquired from proceeds of the Company’s initial offering is pledged to the Counterparty. The Forward Agreement is structured to provide tax-efficient distributions to the Company’s shareholders based on the performance of the Portfolio.

The holders of the Preferred Shares receive fixed preferred tax-efficient quarterly distributions yielding 4.5% per annum. The holders of the Capital Shares are entitled to leveraged tax-efficient distributions that are in excess of distributions paid to the Preferred Shares and all operating expenses of the Corporation.

The NAV of the Company has declined significantly in the last six months, dropping from $39.56 per share to $20.93, a decline of 47%. As a result, all of the downside protection available to the Preferred Shares has been eroded. Based on the most recent NAV, holders of the Preferred Shares would experience a loss of approximately 0.3% 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. Due to the large amount of excess income available to the Company, the current policy allows for a very high level of payouts ($0.75 per Capital Share for each of the last two quarters) compared to what would be expected based on the current level of asset coverage available to the Preferred Shares. As a result, the Preferred Shares rating remains Under Review with Negative Implications.

As a result of the significant decline in asset coverage, DBRS has downgraded the rating of the Preferred Shares to Pfd-4 (low). 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 is not tracked by HIMIPref™. It was last mentioned on PrefBlog when the DBRS Mass Downgrade of Feb 13 left the issue under review and unresolved.

DBRS has announced that it:

today downgraded the Preferred Securities issued by Multi Select Income Trust (the Trust) to Pfd-3 (high), with a Stable trend, from Pfd-2 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on December 19, 2008.

In September 2004, the Trust raised gross proceeds of approximately $144 million by issuing 7.2 million Preferred Securities at $10 each and an equal number of Capital Units at $10 each, with a final redemption date of September 30, 2009 (the Redemption Date) for the Trust. The net proceeds from the offering were invested in a broadly diversified portfolio of Canadian income trusts (the Portfolio). The initial split share structure provided downside protection of approximately 50% to the Preferred Securities.

The holders of the Preferred Securities receive fixed quarterly distributions yielding 6.5% per annum. There is a Preferred Security Test that does not permit any cash distributions to the Capital unitholders if the NAV of the portfolio is less than 1.5 times the repayment price for the Preferred Securities.

The NAV of the Portfolio has declined significantly, dropping from $19.51 per security to $13.99 in the last year, a decline of 28%. The current downside protection available to holders of the Preferred Securities is approximately 29% (as of February 12, 2009). The downgrade of the Preferred Securities is primarily based on the lower level of asset coverage available to cover the Preferred Securities principal.

There are less than eight months until the Redemption Date, which has limited the severity of the downgrade to the Preferred Securities. If the Redemption Date was to be extended past September 30, 2009, then negative rating action would likely be required.

MST.PR.A is tracked by HIMIPref™. It was last mentioned on PrefBlog when the DBRS Mass Downgrade of Feb. 13 left the issue under review and unresolved. It was moved from the InterestBearing subIndex to Scraps in February 2008 on volume concerns.

An Assiduous Reader points out that I have been scooped by Financial Webring, which points out a highly unusual situation in the taxation status of WN.PR.A dividends:

The other preferreds (WN.PR.B, WN.PR.C, WN.PR.D & WN.PR.E) have no such division.

The Weston preferreds were last mentioned on PrefBlog when they were placed on Review-Developing by DBRS, where they remain.

Standard & Poors has announced:

it placed its ratings, including its ‘AA-‘ counterparty credit rating, on Sun Life Financial Inc. (TSX: SLF; Sun Life Financial) and its insurance operating subsidiaries (Sun Life) on CreditWatch with negative implications. Its key insurance operating subsidiaries would include Sun Life Assurance Co. of Canada and Sun Life Assurance Co. of Canada (U.S.).

“The CreditWatch placement reflects the deteriorating business and macroeconomic conditions that in our opinion are putting increasing pressure on the group’s earnings, investments, and capital adequacy position,” said Standard & Poor’s credit analyst Donald Chu.
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While we believe that the sale of Sun Life Financial’s 37% stake in CI for C$2.3 billion has allowed it to strengthen its balance sheets at an opportune time, we believe that its fixed-charge coverage ratio is under pressure, and that it has limited room to issue debt or hybrids within the current rating category.

SunLife was recently downgraded by Moody’s following its 4Q08 Results.

SunLife has the following preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E.

Moody’s has announced:

Moody’s Investors Service downgraded the credit ratings of Sun Life Financial Inc. (SLF; TSX: SLF) and the insurance financial strength (IFS) ratings of its operating companies to Aa3 from Aa2, as well as the ratings of its other affiliates. As part of this action, preferred shares issued by the holding company, SLF, were downgraded to Baa2 from Baa1. The Aa3 IFS ratings apply to SLF’s primary operating companies — Sun Life Assurance Company of Canada (SLA) and Sun Life Assurance Company of Canada U.S. (Sun Life US). This action follows the release of the company’s fourth quarter 2008 results. The rating outlook for SLA and its affiliates has been returned to stable. The outlook on Sun Life US and its affiliates remains at negative.
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Regarding the future direction of SLF’s ratings, one or more of the following developments could lead to an additional downgrade: (1) SLA’s MCCSR ratio falls below 200% for a sustained period; (2) Sun Life US’s regulatory capital ratio (NAIC RBC) falls below 300% for a sustained period; (3) SLF’s financial leverage rises above 30%; or (4) SLF’s earnings coverage falls below 8x and cash coverage below 5x for a sustained period.

S&P has not commented on the 4Q08 Results; neither has DBRS.

SunLife has the following preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E.

At last! The DBRS mass reviews of Split-Share preferreds announced in October and December have been resolved. DBRS has announced:

today downgraded 26 ratings of structured Preferred Shares issued by various split share companies or trusts. Each of these split share companies or trusts has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – dividend-yielding preferred shares or securities (the Preferred Shares) and capital shares or units (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.

On October 24, 2008, and on December 19, 2008, DBRS placed the Preferred Shares listed below (among others) Under Review with Negative Implications. Each of the Preferred Shares has experienced considerable declines in downside protection during the past number of months amidst tremendous volatility in global equity markets. DBRS has today taken final rating action on these 26 Preferred Shares ratings based on longer-term trends being established for the NAVs of the affected split share companies. Ratings assigned are also dependent on structural features benefiting the Preferred Shares and the credit quality and management of the Portfolios. For many of the split share companies listed below, distributions to holders of the Capital Shares are now suspended due to the failure of asset coverage tests. This feature ensures greater excess income for the Company and decreases the reliance on other income-generating methods such as option writing when downside protection has been significantly reduced.

In the future, DBRS will continue to closely monitor changes in the credit quality of these Preferred Shares. If the various Portfolios appreciate in value significantly, rating upgrades may be considered. However, any upward movement may be constrained depending on the possibility of increased distributions to the holders of the Capital Shares.

I have not yet reviewed the changes … more later.

Later:

Standard & Poors has announced:

it raised its long-term corporate credit ratings on Montreal-based telecommunications holding company BCE Inc. and its principal operating subsidiary, Bell Canada, three notches to ‘BBB+’ from ‘BB+’. At the same time, we removed the ratings from CreditWatch with positive implications where they were placed Dec. 12, 2008, following the company’s announcement that its leveraged buyout (LBO) will not proceed. The outlook is stable.

“The rating action affects about C$7.1 billion of combined debt at BCE and Bell Canada as well as C$2.77 billion of BCE preferred shares,” said Standard & Poor’s credit analyst Madhav Hari. Based on Standard & Poor’s criteria for notching investment-grade debt, we have raised the issue-level rating on C$6.2 billion of Bell Canada’s senior unsecured debt to ‘BBB+’ from ‘BB+’ and raised the issue-level ratings on C$275 million of Bell Canada’s subordinated debt to ‘BBB’ from ‘BB’. At the same time, given our notching criteria for holding-company debt, we have affirmed the ratings on BCE’s C$650 million senior unsecured notes due Oct. 30, 2009, at ‘BBB+’; we currently expect that these obligations will be repaid at maturity from substantial cash balances at BCE. Also consistent with our criteria, we have affirmed the Canadian scale ratings on BCE’s preferred shares at P-2 (Low).
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The stable outlook is based on our view of BCE’s expected low-single-digit revenue and EBITDA growth in the next few years, which we believe will allow the company to sustain conservative adjusted debt leverage at the 2x level, while maintaining a solid liquidity position. The stable outlook places significant emphasis on the company adhering to its publicly articulated financial policies. Given Standard & Poor’s concerns about increasing competition, and the potential for future shareholder-friendly
actions by the company, we believe it is currently less likely that we would revise the outlook to positive in the medium term. We could consider revising the outlook to negative should revenue and cash flow growth weaken, possibly from the combined effect of heightened competition and a prolonged economic downturn. We could also consider revising the outlook (or ratings) downward, if it became evident to us that BCE is considering a more aggressive shareholder-friendly policy.

DBRS has announced:

DBRS has today changed Bell Canada’s senior and subordinated debt ratings to A (low) and BBB, respectively, and assigned Bell Canada a short-term rating of R-1 (low). DBRS has also discontinued its Issuer Rating on Bell Canada. Additionally, with Bell Canada at A (low), DBRS has also changed its ratings on BCE Inc. (BCE or the Company) to BBB (high) and Pfd-3 (high) and assigned BCE Inc. a short-term rating of R-1 (low). All trends are Stable.

This rating action removes BCE and Bell Canada’s ratings from Under Review Developing and Positive implications, respectively. These reviews were initiated on December 11, 2008 following the termination of the privatization of BCE. DBRS had previously adjusted Bell Canada’s ratings in October 2008 under the assumption at that point that the privatization would close as planned.

DBRS’s ratings are driven by the credit profile of Bell Canada which is directly supported by the wireline, wireless and video operations of Bell Canada and its subsidiaries. BCE’s ratings reflect the structural subordination of its debt and preferred obligations relative to Bell Canada who supports these obligations. Bell Canada’s ratings are below its ratings prior to the privatization given a highly competitive operating environment for all of its services and execution risks centered on investing and repositioning Bell Canada to a more solid competitive footing. Despite this, Bell Canada’s A (low) rating reflects: (a) a good business risk profile; and (b) a reasonable financial risk profile which could improve incrementally over the next two years.

BCE preferreds were last mentioned on PrefBlog when DBRS put them on Review-Developing.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

Update: If I look at my records for, say, BCE.PR.S, I find the following DBRS credit rating history:

I’m not certain … but I think I detect a pattern!

This is kind of cool! Dominion Citrus has announced:

a dividend of $0.0759375 per preference share upon the outstanding Series A Preference Shares of the corporation be and the same is hereby declared to shareholders of record as at the close of business on February 20, 2009. This dividend while declared will not be paid until such time as the Directors feel appropriate. We estimate a payment date of October 15, 2009.

DMN.PR.A is not tracked by HIMIPref™.