Category: Issue Comments

Financial 15 Corp has announced:

There will not be a distribution paid to the Class A shares for December 31, 2008 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 $15.00. The net asset value as of December 15, 2008 was $13.58.

This announcement was actually made the day prior to the DBRS announcement of a mass split share review including FTN.PR.A. I regret not having publicized this release earlier.

FTN.PR.A is tracked by HIMIPref™. It is included in the SplitShare sub-index.

According to the original 2004 prospectus:

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 BMO Shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses. Based on the current BMO Share dividends and estimated expenses of the Company, the Company expects to pay quarterly dividends of $0.0180 per Capital Share ($0.0720 per year or 0.47% of the Capital Share offering price).

The company has announced today:

that the Board has changed the dividend policy on the Capital Shares. As a result of the declining downside asset coverage on the Preferred Shares during the quarter, the Company has determined that any excess of the dividends received by the Company on the Bank of Montreal common shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses will be invested in short-term debt securities or Bank of Montreal common shares until the scheduled redemption of the Company’s Capital Shares and Preferred Shares on August 5, 2009.

The preferred shares have asset coverage of 1.2-:1 as of January 2. They were caught up in the DBRS Mass Review of Splits and are currently under Review-Negative. I suspect the change in policy was prompted by discussions of this review.

BMT.PR.A is tracked by HIMIPref™. It would normally be included in the SplitShare index but has been relegated to “Scraps” on volume concerns.

According to the original prospectus of July 2000:

It is not currently expected that holders of the Capital Shares will receive any dividends. If dividends on the Portfolio Shares exceed the amount of the fixed Preferred Share distributions and all expenses of the Company, the excess may be paid as dividends on the Capital Shares. In addition, if the Company realizes capital gains and would be liable to pay tax thereon, the Company may declare a capital gains dividend on the Capital Shares. Such dividend will minimize any tax payable by the Company and, as such, should benefit the Company and its shareholders. The Company expects to pay such dividend in Capital Shares rather than in cash. See ‘‘The Company – Distribution Policy’’.

In July 2006, following a refinancing of the preferred shares, the company announced:

In addition, the Board of Directors of the Company has declared a special dividend of $0.1290 per Capital Share payable on July 31, 2006 to holders of record at the close of business on July 28, 2006. The dividend on the Capital Shares represents the portfolio share dividends received in excess of the fixed Preferred Share dividends and forecasted expenses of the Company for its 2006 fiscal year.

… which was followed by regular quarterly dividends.

Today, the company announced:

Lifeco has determined to revise its Capital Share dividend policy so that to the extent the downside asset coverage on the Preferred Shares drops below 1.3 times at any time during the quarter, any excess of the 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.

… which is good news for the preferred shareholders! According to the company, asset coverage on January 2 was 1.5-:1.

LSC.PR.C has been caught up in the latest DBRS Mass Review of Split Shares … I suspect that such a policy change was a requirement of keeping their rating … if, in fact, they keep it.

LSC.PR.C is not tracked by HIMIPref™.

IAG.PR.C met a hostile reception when issued in November, closing at 23.80-90 on its opening day, but has since struggled back to today’s close 24.40-50, 9×225, on volume of 1,000 shares all at 24.50.

That was then. This is now.

The underwriters have announced an inventory blow-out sale at 23.50, to close January 14.

Many thanks to Assiduous Reader MP for providing me with proof that this is public, if not particularly well-publicized, knowledge!

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.

The December rankings are not as mysterious as the November rankings … three of the best performers are merely bouncing back from horrible performance last month, while the five worst performers are all BCE issues … reacting as one might expect to the death of the Teachers’ deal.

It is interesting to note that the BPP floaters – issued by BPO Properties, which never fails to irritate me – had a horrible month. Two of the three would have made the list had they been included in the indices (they are excluded on credit concerns) … and they are now trading roughly kinda call it even yield with the BAM floaters, ending (for now) the long-standing credit inversion. To continue the graphs given in that post:

• BAM.PR.B & BPP.PR.J: YTW
• BAM.PR.B & BPP.PR.J: YTW Difference
• BAM.PR.B & BPP.PR.J: Prices
• BAM.PR.B & BPP.PR.J: Price Difference

Was somebody saying something about efficient markets?

CIX Split Corp has announced:

that it has obtained approval from its shareholders to change the investment objectives, strategies and restrictions of the Corporation (the “Mandate Change”) to reflect that the Corporation will invest substantially all of its assets in common shares of the corporate successor (“CI Financial”) to CI Financial Income Fund (the “Income Fund”) after the Income Fund converts to a corporation. Currently, the Corporation has exposure to the trust units of the Income Fund.

The Mandate Change will become effective on or before January 1, 2009 and includes deleting from the Corporation’s investment objectives respecting its Class A Shares the reference to targeted monthly cash distributions. The Corporation also will complete the early settlement of the sale of its common share portfolio to the counterparty to its forward purchase and sale agreement and invest the proceeds thereof in additional common shares of CI Financial.

The Corporation’s Class A Shares and Priority Equity Shares are listed on the Toronto Stock Exchange under the symbols CXC and CXC.PR.A, respectively.

When reporting the notice of meeting, I recommended a “No” vote. This would have led to the early wind-up of the company and – given a closing NAV of $10 or more – full repayment to the Preferred Shareholders.

It would appear, however, that they would rather retain their preferred shares, which closed today at 7.70-89, 10×2, with full downside exposure to the underlying portfolio and no upside from the probable closing out price. Zip, Zero, Zilch. Morons.

The NAV of the Preferred and Capital Units combined was 10.58 at today’s close. CXC.PR.A is not tracked by HIMIPref™.

DBRS has announced that it:

has today downgraded the Preferred Shares issued by NB Split Corp. (the Company) to Pfd-4 (low) from Pfd-2 (low), with a Stable trend. The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In February and March of 2007, the Company raised gross proceeds of approximately $106 million by issuing 1.521 million Preferred Shares (at $32.72 each) and 3.043 million Capital Shares (at $18.45 each). The initial split share structure provided downside protection of 50% to the Preferred Shares (after expenses).

The net proceeds from the initial offering were invested in a portfolio of common shares (the NB Shares) of National Bank of Canada (National Bank). Dividends received from the NB Shares are used to pay a fixed, cumulative quarterly dividend to the holders of the Preferred Shares yielding 4.75% annually. Excess dividends net of all expenses of the Company may be paid as dividends on the Capital Shares. The current dividend income on the NB Shares less administration fees and other Company expenses is sufficient to fully cover the cost of the Preferred Shares distributions.

The value of the NB Shares has declined significantly since inception. From February 22, 2007, to December 22, 2008, the net asset value (NAV) of the Company dropped from $67.20 to $31.06, a decline of about 54%. As a result, all of the downside protection available to the Preferred Shares at inception has been eroded. Based on the most recent NAV, holders of the Preferred Shares would experience a loss of approximately 5% of their initial issuance price if the NB Shares were liquidated and proceeds distributed. However, the credit quality of National Bank remains strong as DBRS confirmed its senior debt rating at AA (low) with a Stable trend on November 26, 2008.

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 National Bank may result in reductions in asset coverage or dividend coverage from time to time.

The redemption date for both classes of shares issued is February 15, 2012.

The NAV for NBF.PR.A is posted on its website, as $31.06 on December 22; the issue price of the preferreds was $32.72. The preferreds closed today at 25.50-27.99 (!) 43×1. Based on the NAV and the ask price of the capital shares of $2.19, the monthly retraction (with formula R=95%NAV – 2C – 0.40) was $24.73 and hence not supportive.

NBF.PR.A was mentioned on PrefBlog in conncection with the DBRS March Review (not resolved) and the DBRS October Review. NBF.PR.A is not tracked by HIMIPref™.

ROC Pref II Corp has announced:

that Standard & Poor’s (“S&P”) lowered its ratings on ROC II’s Preferred Shares from P-2 to P-3 and the Preferred Shares remain on CreditWatch with negative implications. S&P expects to resolve the CreditWatch placement within a period of 90 days and update its opinion. As announced in a press release dated December 8, the move comes as a result of the Tribune Company credit event as well as several downgrades of companies held in the Reference Portfolio.

ROC Pref II Corp.’s Preferred Shares pay a fixed quarterly coupon of 4.65% on their $25.00 principal value and will mature on or about December 31, 2009. The Standard & Poor’s rating addresses the likelihood of full payment of distributions and payment of $25.00 principal value per Preferred Share on the maturity date. The Preferred Shares are listed for trading on the Toronto Stock Exchange under the symbol RPA.PR.A.

The effect of the Tribune credit event was reported on PrefBlog.

RPA.PR.A is not tracked by HIMIPref™.

ROC Pref Corp has announced:

that Standard & Poor’s (“S&P”) lowered its ratings on the Company’s Preferred Shares from P-1 to P-2 (high) and the Preferred Shares remain on CreditWatch with negative implications. S&P expects to resolve the CreditWatch placement within a period of 90 days and update its opinion. As announced in a press release dated December 8, the move comes as a result of the Tribune Company credit event as well as several downgrades of companies held in the Reference Portfolio.

ROC Pref Corp.’s Preferred Shares pay a fixed quarterly coupon of 4.30% on their $25.00 principal value and will mature on or about September 30, 2009. The Standard & Poor’s rating addresses the likelihood of full payment of distributions and payment of $25.00 principal value per Preferred Share on the maturity date. The Preferred Shares are listed for trading on the Toronto Stock Exchange under the symbol PRF.PR.A.

The effect of the Tribune credit event was reported on PrefBlog.

PRF.PR.A is not tracked by HIMIPref™.