Category: Issue Comments

Standard & Poor’s has announced:

it revised its outlook on IGM Financial Inc. (IGM) to negative from stable. At the same time, Standard & Poor’s affirmed its ratings on IGM, including the ‘A+/A-1’ long- and short-term counterparty credit ratings.
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The negative outlook is based on our view of continuing uncertainties in 2009 that could lead to lower AUM and as such, to a lower basis for recurring revenues. We could lower the ratings if additional events during 2009 result in further, significant reductions in AUM, such as ongoing weak equity market performance or increased customer redemptions. We could revise the outlook to stable if there is evidence that markets (and as such, levels of AUM) stabilize at current levels or even improve. We believe that IGM’s strong balance sheet and prudent management still provide it with strong financial flexibility and mitigate the currently reduced levels of AUM and revenues. A
negative outlook is not necessarily a precursor to a downgrade or a CreditWatch placement. A negative outlook means that we consider there to be at least a one-in-three probability of a downward movement in a long-term counterparty credit rating over the intermediate term.

IGM.PR.A is tracked by HIMIPref™. It is incorporated in the OperatingRetractible sub-index.

The TD 6.25%+415bp Fixed-Reset announced last week has settled, with a 3-million share greenshoe exercise added to the initial announcement of 8-million shares.

The issue did not choose the best of all possible days to commence trading, but traded an eminently respectable 452,475 shares in a range of 24.72-89 before closing at 24.85-87, 64×20.

TD.PR.I is tracked by HIMIPref™. It has been added to the Fixed-Reset subIndex.

CIBC has announced:

that it completed the offering of 8 million non-cumulative Rate Reset Class A Preferred Shares Series 37 (the “Series 37 Shares”) priced at $25.00 per share to raise gross proceeds of $200 million.

The offering was made through a syndicate of underwriters led by CIBC World Markets Inc. The Series 37 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.M.

The Series 37 Shares will yield 6.5% per annum, payable quarterly, for an initial period ending July 31, 2014. On July 31, 2014, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 4.33%.

As noted in the new issue announcement, the size was the 8-million shares announced above, plus a 3-million share greenshoe.

The issue cannot be labelled a complete failure, however, as it traded 262,889 shares in a range of 24.60-78 before closing at 24.62-71, 10×20.

CM.PR.M is tracked by HIMIPref™ and is included in the Fixed-Reset subindex.

STRATA Income Fund has announced:

its intention to make a normal course issuer bid for its Capital Units and Preferred Securities through the facilities of the Toronto Stock Exchange (the “TSX”). This normal course issuer bid is intended to commence on March 10, 2009 and will terminate on March 9, 2010. In accordance with the Declaration of Trust by which STRATA is governed, market purchases pursuant to its normal course issuer bid may be effected by the Fund.

The Fund had 7,637,608 Capital Units and 3,843,054 Preferred Securities issued and outstanding as at February 27, 2009. STRATA may, during the 12 month period commencing March 10, 2009 purchase on the TSX up to 763,760 Capital Units and 364,498 Preferred Securities, being 10% of the public floats of 7,637,608 Capital Units and 3,644,980 Preferred Securities, respectively, and may not, in any 30 day period, purchase more than 152,752 Capital Units and 76,861 Preferred Securities, being 2% of the respective securities issued and outstanding. STRATA will hold in treasury for resale all capital units and preferred securities purchased pursuant to the bid. As at February 27, 2009, STRATA had purchased 55,600 Capital Units and 48,900 Preferred Securities at an average price of $2.92 per Capital Unit and $9.04 per Preferred Security under its previously approved normal course issuer bid.

The quoted figures imply that there are 1.99 Capital Units per Preferred Security. The Capital Unit NAV was $2.37 on February 26, implying asset coverage of 1.5-:1 as of that date.

The capital units closed at 1.49-70, 4×3 today, while the preferreds were at 9.35-74, 1×7. It would appear that the NCIB is, in fact, beneficial to unitholders of both types.

STW.PR.A was last mentioned on PrefBlog when the Capital Units’ distribution was reduced.

STW.PR.A is tracked by HIMIPref™ and included in the Interest-Bearing sub-index.

Standard & Poor’s has announced that it has:

lowered its ratings on Toronto-based Sun Life Financial Inc. (TSX: SLF; Sun Life Financial) and its rated Canadian and U.S. operating companies by one notch. These operating subsidiaries now have long-term counterparty credit and financial strength ratings of ‘AA’ and include: Sun Life Assurance Co. of Canada; Sun Life Assurance Co. of Canada (U.S.); and Sun Life Insurance & Annuity Co. of New York (collectively known as Sun Life). The long- and short-term counterparty credit ratings on Sun Life Financial are ‘A+/A-1’. At the same time, we removed the ratings from CreditWatch with negative implications, where they were placed Feb. 17, 2009. The outlook is negative. The ratings and outlook on Sun Life’s Hong Kong subsidiary, Sun Life Hong Kong Ltd. (A+/Stable/–) remain unchanged.

“The downgrade reflects our assessment of the deteriorating business and macroeconomic conditions that in our opinion have placed increased pressure on Sun Life Financial’s earnings, investments, and capital adequacy position,” said Standard & Poor’s credit analyst Donald Chu. More specifically, we expect the deterioration within the global equity and credit markets will likely result in a lower level of fee generation by Sun Life Financial’s significant wealth management and asset management operations, increased hedging and borrowing cost, and added pressure on the investment portfolio in the next 12-18 months.
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The negative outlook reflects our view that further deterioration could occur within the group’s investment portfolio. We could lower the ratings if our assessment of the company’s investment portfolio and its ability to absorb future losses within its existing capital cushion weakens, if improvement is not seen within the U.S. operations and/or if the global equity markets remain in a deep and prolonged decline. We could revise the outlook to stable if we believe that the group’s core after-tax operating earnings are likely to remain above C$1.75 billion on a normal run rate basis, the fixed charge ratio is likely to remain better than 8x, and asset quality issues will be less significant than its North American peers

The SunLife preferreds outstanding (SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E) were downgraded to A- on the bond scale (from A), which did not change their quality as measured on the preferred scale, where it remains at P-1(low).

All the outstanding SunLife preferreds are tracked by HIMIPref™ and included in the PerpetualDiscount sub-index.

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™.