Category: Issue Comments

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™.

SNP Health Split Corp. has announced:

that the redemption prices for all outstanding Capital Shares and Preferred Shares to be paid on February 11, 2009 are as follows:

Redemption Price per Preferred Share = US$25.00

Redemption Price per Capital Share = US$2.6507

Holders of 250,730 Capital Shares requested delivery of and will receive their pro rata share of the portfolio securities in payment for their Capital Shares.

The intent to proceed with the maturity has been discussed on PrefBlog.

SNH.PR.U is not tracked by HIMIPref™.

DBRS has announced that it:

placed its rating of the Preferred Units issued by Kingsway Linked Return of Capital Trust, rated at Pfd-3, Under Review with Negative Implications. This action is a result of DBRS placing the ratings of Kingsway Financial Services Inc. and affiliates (the Company) Under Review with Negative Implications on February 9, 2009. This rating action followed the Company’s pre-release of Q4 2008 results.

KSP.UN was issued back in the good old days, when you could issue anything. The prospectus states:

LROC Preferred Unit distributions will consist primarily of returns of capital (which are generally tax-deferred and reduce a Holder’s cost base in the LROC Preferred Units for tax purposes), and may, in certain circumstances, include capital gains distributions.

In order to achieve its investment objectives, the Trust will use the net proceeds of this Offering to subscribe for and purchase all of the limited partnership units (the ‘‘LP Units’’) of KL Limited Partnership (‘‘KL LP’’), a newly created limited partnership organized under the laws of the Province of Ontario, which will, in turn, use the proceeds of such subscription to pre-pay its purchase obligations under a forward securities purchase agreement (the ‘‘Purchase Agreement’’) with The Bank of Nova Scotia, a Canadian chartered bank, the long-term debt of which is currently rated AA- by S&P and AA (low) by DBRS (‘‘BNS’’ or the ‘‘Counterparty’’). The Purchase Agreement will provide exposure to a note (the ‘‘Kingsway Note’’) issued by Kingsway ROC GP, a newly created general partnership organized under the laws of the State of Delaware (‘‘Kingsway ROCGP’’) and unconditionally guaranteed as to payments of principal, interest and other amounts by Kingsway Financial Services Inc. (‘‘Kingsway’’), a corporation incorporated under the laws of the Province of Ontario, and by Kingsway America Inc., a corporation incorporated under the laws of the State of Delaware and a wholly-owned subsidiary of Kingsway (‘‘Kingsway America’’). The longterm debt of Kingsway and Kingsway America is currently rated BBB-by S&P and BBB by DBRS. The Kingsway Note will be owned by Kingsway Note Trust, a newly created investment trust established under the laws of the Province of Ontario (‘‘KN Trust’’). The initial holder of all of the outstanding units of KN Trust will be the Counterparty or an affiliate of the Counterparty.

I will hazard a guess that the Toronto Stock Exchange refused to issue it a “.PR.” symbol due to confusion regarding what it was preferred to; but it got a “Preferred Scale” rating from both DBRS and S&P.

S&P has announced that today it:

lowered its ratings on the linked return of capital (LROC) preferred units issued by Kingsway Linked Return of Capital Trust (see list).

The lowering of these ratings mirrors today’s downgrade of Kingsway ROCGP’s senior unsecured 10-year note, which is linked to the LROC preferred
units.

It’s now rated P-4 by S&P.

KSP.UN was last mentioned on PrefBlog when it was downgraded to Pfd-3 by DBRS.

KSP.UN is not tracked by HIMIPref™.

Brookfield Investment Funds Management has announced:

as manager of Brascan SoundVest Rising Distribution Split Trust (TSX: BSD.UN and BSD.PR.A) (the “Trust”), announced today that the Toronto Stock Exchange has accepted its Notice of Intention to make a normal course issuer bid. The Trust will have the right under the bid to purchase for cancellation up to 284,127 of its Capital Units and 284,127 of its Preferred Securities (collectively, the “Shares”), representing 5% of the 5,682,543 Capital Units and 5,682,543 Preferred Securities issued and outstanding as at January 29, 2009.
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The Manager is of the opinion that Capital Units and Preferred Securities of the Trust may become available during the proposed purchase period at prices that would make such purchases in the best interests of the Trust and its securityholders. The Trust has not previously purchased its Capital Units or Preferred Securities under a normal course issuer bid.

An announcement of a bid of this nature is not normally considered newsworthy unless the company has a history of actually putting some money on the table. In this case, however, the company suspended retraction rights prior to being downgraded to Pfd-5 by DBRS in December. The suspension of retractions was permitted by the prospectus, but was not mandatory, and remains in effect.

The Preferred Securities remain underwater: the February 6 combined NAV of $8.61 may be expressed as an asset coverage of 0.9-:1.

BSD.PR.A closed today at 5.90-00, 3×5, after trading 6,636 shares in a range of 5.70-93. The capital units, BSD.UN, traded 1,000 shares at $0.50 before closing at 0.50-73, 9×4. At these levels, an issuer bid will indeed be incremental to NAV; but I consider it an absolute disgrace that capital unitholders will be getting so much as a nickel from the company through management fiat while the preferreds are underwater.

NewGrowth Corp has announced:

that its Board of Directors has retained Scotia Capital to advise the Company on a possible extension and reorganization of the Company. There is no guarantee that after such review an extension will be proposed or if proposed, will be approved by shareholders.

NewGrowth Corp. is a mutual fund corporation whose investment portfolio consists of publicly-listed securities of selected Canadian chartered banks and utility issuers. The Capital Shares and Preferred Shares of NewGrowth Corp. are both listed for trading on The Toronto Stock Exchange under the symbols NEW.A and NEW.PR.B respectively.

The preferreds currently have asset coverage of 1.9+:1 as of February 5, according to Scotia and are scheduled for full redemption June 26, 2009. There was a tiny call for redemption in June 2008, at which date there was a face value of $42.5-million in preferreds outstanding

NEW.PR.B is not tracked by HIMIPref™.

Bravo!

Commerce Split Corp. has announced:

Commerce Split Corp. (the “Company”) held a meeting today, Thursday February 5, 2009 to vote on the special resolution of the proposed reorganization of the Company. The vote has not been carried, and therefore the proposed capital reorganization will not be implemented. Management thanks all shareholders for considering the proposed reorganization.

PrefBlog had recommended defeat of the proposal, on the grounds Preferred Shareholders were giving a gift to the wiped-out capital unitholders. NAVPU was 9.05 as of January 30, according to the company.

XCM.PR.A is not tracked by HIMIPref™.

Bravo!

M-Split Corp. has announced:

M Split Corp. (the “Company”) held a meeting today, Thursday February 5, 2009 to vote on the special resolution of the proposed reorganization of the Company. The vote has not been carried, and therefore the proposed capital reorganization will not be implemented. Management thanks all shareholders for considering the proposed reorganization.

PrefBlog had recommended defeat of the proposal, on the grounds Preferred Shareholders were giving a gift to the wiped-out capital unitholders. NAVPU was 9.25 as of January 30, according to the company.

XMF.PR.A is not tracked by HIMIPref™.

Allbanc Split Corp. II has announced:

The Company has determined to revise its Capital Share dividend policy to not pay a dividend on the Capital Shares if the Net Asset Value at the time of declaration, after giving effect to the dividend, is less than or equal to the par value of the Preferred Shares. Any excess dividends received on the underlying portfolio securities minus the dividends payable on the Preferred Shares and all administrative and operating expenses will be reinvested in short-term debt securities or underlying portfolio securities

That’s nice, eh? They’ll paying dividends on the capital units until the preferred shareholders are actually under water. Still, it’s better than the distribution policy outlined in the prospectus which had no asset coverage test:

It will be the policy of the Board of Directors to declare and pay quarterly distributions on the Capital Shares in an amount equal to the dividends received by the Company on the Portfolio Shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses.

Asset coverage is 1.1+:1 as of January 29, according to Scotia. ALB.PR.A is currently under Review-Negative by DBRS – the mass review announced October 24 has not yet come to resolution … on October 23 the NAVPU was $38.10; it is now $27.76 covering a $25 pref.

ALB.PR.A is currently included in the HIMIPref™ SplitShare index, somewhat to my chagrin.