Category: Issue Comments

Brompton Group has announced:

In accordance with its prospectus and the Class A Share Provisions, the regular, non-cumulative, monthly distribution for the month of December will not be paid on the class A shares of Life & Banc Split Corp. Under the prospectus, no cash distribution may be paid on the class A shares, if after payment of the distribution by the Fund, the net asset value per unit (consisting of one class A share and one preferred share) would be less than $15.00. The net asset value per unit as at December 11, 2008 was $12.86. The Fund will re-evaluate the payment of class A share distributions in each subsequent month with the expectation that normal monthly distributions will resume and a press release will be issued if the net asset value per unit is in excess of $15.00 prior to declaration.

LBS.PR.A has been placed on Review-Negative by DBRS … and Assiduous Reader lystgl asked the question:

LBS.PR.A is on the list of “about to be or may be” downgraded. I was just wanting, in terms I can understand, to know why.

My response is:

LBS.PR.A is backed by a portfolio of the Big 6 Banks and Big 4 Insurers. This is better than being backed by a single financial issuer, but is worse than the backing of a fully diversified portfolio.

Equity market declines have eroded the asset coverage of the portfolio to a mere 1.279:1 as of December 18. In DBRS terminology, thats “Downside Protection” of about 22% … in other words, if the portfolio declines by another 22%, then the Capital Units will have no intrinsic value (they will have option value) and the Preferred Shares will be fully exposed to further declines in portfolio value. Worse … when the NAV per Unit is $10, they have full downside exposure but no upside, as increases in the portfolio above that point will belong to the Capital Units.

The DBRS guideline (which is influenced by other factors, such as the nature of the underlying portfolio and income coverage) for a Pfd-2/Pfd-2(low) rating is downside protection of 40-50%. Since LBS.PR.A is currently below that figure, they’re reviewing it … and if there are no extenuating factors, they’ll cut the rating.

When we look at their most recent financial statements, we find that all the declared income looks sustainable – it’s nearly all dividends, with minor contributions from securities lending and interest income. There’s no one-off stuff in there, and no games-playing with “option income” or other crap. So we can estimate sustainable income going forward as $4.838-million per six-month period … dependent, of course, on none of their underlying holdings cutting the dividend.

Expenses were $1.189-million, which looks sustainable. Distributions on preferred shares were $2.980-million.

Thus, income coverage is 4.838/(1.189 + 2.980) = 1.16:1. This is a good number. They can cover their expenses and preferred share distribution with sustainable income (assuming no cuts in dividend receipts), which is a Good Thing and not the case for all split-shares (see Split Shares and the Credit Crunch).

There is a major drag on NAV of the Capital Unit distribution, which amounted to $6.818-million in the financial statements. Given that there were 11.363-million units outstanding, this amounts to a drag on NAV of $0.60 per unit per half, or $1.20 per year – which ties in admirably with the “8.0% targeted yield based on $15.00 issue price, paid monthly”. However, this drag has been eliminated due to:

No distributions will be paid on Class A shares if (i) distributions payable on the Preferred shares are in arrears or (ii) after the payment of the distributions by the Fund, the Published NAV per unit is less than $15.

Hurray!

So income and asset coverage both look reasonable especially when compared to the market price rather than to the obligation of $10. But to me, it doesn’t look good enough to warrant a Pfd-2/Pfd-2(low) rating and I expect a cut to maybe Pfd-3 / Pfd-3(high).

DBRS has announced that it:

has today placed the rating of certain structured preferred shares (Split Shares) Under Review with Negative Implications. 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 or securities (the Preferred Shares) and capital shares or units (the Capital Shares). The Preferred Shares benefit from a stable dividend yield and downside principal protection via the net asset value (NAV) of the Capital Shares against the percentage loss in the Portfolio’s NAV. Preferred Shares have experienced significant declines in downside protection during the past number of months due to volatility in the global equity markets. As a result, DBRS has placed the Preferred Shares listed below Under Review with Negative Implications. DBRS will take final rating action on these Preferred Shares once a longer-term trend has been established for the NAVs of the affected split share companies.

They note that analysis will be performed according to the methodology of 2007

They do not explicitly list the affected splits in the main text, but they do have a list of related issues. On the assumption that there is a one-to-one relationship, the following table may be prepared.

The previous DBRS Review of Splits has not yet been completed. All these are new.

Globalbanc Advantaged 8 Split Corp. has announced:

a distribution of $0.07 per Preferred Share for the quarter ending December 31, 2008. The distribution will be paid on January 13, 2009 to holders of record on December 31, 2008. No distribution will be paid on the Class A Shares for the quarter ending December 31, 2008.

The Company has determined that, as a result of anticipated changes in the dividend payments to be paid by the banks included in the Bank Portfolio, future dividend payments to be received by the Company may not generate sufficient yield to pay in full the fixed cumulative quarterly dividends in the amount of $0.1125 per Preferred Share (as established by the share conditions relating to the Preferred Shares) and the expenses of the Company. Accordingly, the Company has determined to pay during 2009 a quarterly dividend amount of one-quarter of the Bloomberg Dividend Forecast of the dividends to be paid by the banks comprising the Bank Portfolio in the upcoming 12 months, less an estimate of the expenses of the Company. The Board of Directors will monitor these estimates and may revise the amount of dividends paid on the Preferred Shares in the future, up or down, to take in to account changes in these estimates and changes in the Company’s expenses.

Assuming dividends are paid by the Bank Portfolio at least consistent with these estimates over the coming 12 months, the Company will maintain sufficient cash flow to make dividend payments in accordance with the revised dividend policy and to fund current operating expenses. If the Company were to pay dividends and incur operating expenses in excess of these cash flows it may be necessary to dispose of a portion of the securities comprising the Bank Portfolio. The Board of Directors believes it is in the best interests of the Company to pay dividends at a level which avoids a sale of assets at this time.

The shortfall below the prescribed amount of the Preferred Share dividend will accumulate and, in accordance with the terms of the Preferred Shares and the Class A Shares, will be paid in priority to any payments on the Class A Shares.

In response, DBRS announced:

has today placed the Preferred Shares issued by GlobalBanc Advantaged 8 Split Corp. (the Company) Under Review with Negative Implications following the Company’s announcement of a revised dividend policy.

The Preferred Shares are entitled to fixed cumulative quarterly dividend payments of $0.1125 per share, yielding 4.5% per annum on the initial share price of $10. The Company has reduced the December 31 distribution to $0.07 per Preferred Share. For 2009, the Company plans to pay a quarterly dividend amount of one-quarter of the forecasted dividends to be received by the Company less an estimate of the expenses of the Company, in order for the Company to avoid a sale of assets to pay Preferred Share distributions.

As a result of the deterioration of the Company NAV and the decision by the Company to reduce the Preferred Shares dividend, DBRS has placed its rating of Pfd-5 (low) on the Preferred Shares Under Review with Negative Implications.

Asset coverage is 0.5+:1 as of December 18, according to the company.

GBA.PR.A was last mentioned on PrefBlog when DBRS downgraded it to Pfd-5(low). GBA.PR.A is not tracked by HIMIPref™.

Big 8 Split Inc. has announced:

that it has completed its public offering of 1,204,980 Class B Preferred Shares, Series 1 (“Class B Preferred Shares”) raising approximately $14.5 million. The Class B Preferred Shares were offered to the public by a syndicate of agents led by TD Securities Inc and Scotia Capital Inc., and including BMO Nesbitt Burns Inc., National Bank Financial Inc. and Dundee Securities Corporation. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 1,052,334 of its Class A Capital Shares. Holders of 1,204,980 Class A Capital Shares did not retract their Class A Capital Shares pursuant to the special retraction right created in accordance with the capital reorganization approved by holders of the Class A Capital Shares on November 21, 2008.

The Class B Preferred Shares were offered in order to fund in part, the redemption of Class A Capital Shares tendered under the special retraction right and all of the Class A Preferred Shares and to maintain the leveraged “split share” structure of the Company.

BIG.PR.B will not be tracked by HIMIPref™ due to the issue’s small size. The issuance and related redemption of BIG.PR.A has been previously discussed on PrefBlog.

Cyclical Split NT Corp has announced that it:

today redeemed all of its outstanding Capital Shares and Preferred Shares as previously disclosed. The redemption price for the Preferred Shares is $25.00 per Preferred Share, and the redemption price for the Capital Shares is $118.36821 per Capital Share for those holders of Capital Shares who elected a cash redemption rather than an in-kind redemption.

The Company’s Capital Shares and Preferred Shares were delisted from the TSX following the redemption.

The last mention of CYC.PR.A was in conncection with last year’s partial redemption. CYC.PR.A was not tracked by HIMIPref™.

DBRS has announced:

has today placed its ratings of Bell Canada Under Review with Positive Implications and maintained its ratings of BCE Inc. (BCE or the Company) Under Review with Developing Implications. Additionally, DBRS has withdrawn its ratings of BCE Acquisition Inc.
…
DBRS’s review will focus on a re-evaluation of the credit profiles of BCE and Bell Canada. This will include the current business and financial risk profile of Bell Canada and any expected changes to these factors in the near to medium term now that the privatization of its parent, BCE, is not proceeding. This review will include DBRS’s view of the potential for further events over the near term.

In addition to the above, BCE announced that the BCE board will immediately following the termination of its Definitive Agreement address (1) a reinstatement of its common dividend (beginning with declaring its Q4 2008 dividend payable January 15, 2009) and (2) a return of capital to its shareholders through a normal course issuer bid (NCIB). DBRS was largely anticipating the reinstatement of its common dividend, although it is difficult to qualify the magnitude of its NCIB at this stage.

Should there be no significant changes in strategy, business mix or Bell Canada’s capital structure, DBRS believe its ratings could be moved to the A (low) to “A” range given its businesses that generate strong EBITDA margins (at or above 40%) and reasonable leverage with gross debt-to-EBITDA at 2.0 times or below. Concurrently, DBRS plans to remove its recovery ratings on Bell Canada, which will no longer apply. The long-term debt rating of Bell Canada is expected to serve as a reference for BCE’s long-term rating, which could be either one notch lower than Bell Canada’s due to structural subordination or possibly the same.

The NCIB was quantified somewhat in the BCE press release:

BCE will return capital to shareholders in the form of a Normal Course Issuer Bid (NCIB). To that end, BCE will repurchase up to approximately 5% of outstanding common shares, or about 40 million common shares. The NCIB is subject to approval by the Toronto Stock Exchange (TSX) and will be carried out in accordance with the requirements of the TSX and applicable laws.

“A share buyback is the most efficient method of distributing capital to our shareholders, particularly given the current valuation metrics of the Company,” said Siim Vanaselja, Chief Financial Officer of BCE. “The share buyback will be accretive to earnings per share and cash flow. Our improving operational progress provides the Company with confidence in our ability to return value to shareholders now and into the future.”

I noted in the post regarding the death of the deal:

I’m afraid that in the absence of strong, credible statements from BCE regarding their capital structure going forward, BCE prefs remain rather more speculative than I like.

So I share DBRS’ caution! I will say, however, that the absence of dramatic moves by the board to support the stock price – a massive dividend, a massive buy-back – gives comforat and I now consider it more likely than not that BCE will retain its Pfd-2(low) rating.

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

BNS.PR.S is the new issue of BNS Fixed-Resets, 6.25%+384 that Scotia issued to SunLife as partial payment for CI.

Today Scotia had this to say:

Scotiabank (TSX/NYSE: BNS) today announced it has closed the Bank’s 37 per cent strategic investment in CI Financial Income Fund (“CI”; TSX: CIX.UN) and become CI’s largest single shareholder.

Scotiabank bought Sun Life Financial’s (“Sun Life” TSX/NYSE:SLF) stake of 104,609,895 CI trust units for $1.55 billion in cash, $500 million in common shares at $34.60 per share and $250 million in 6.25 per cent five year rate reset preferred shares. Going forward, Sun Life will continue its strong distribution arrangement with CI.

And SunLife chimed in with:

Sun Life Financial Inc. (TSX/NYSE: SLF) today announced that the previously announced sale of its 37% interest in CI Financial Income Fund to Scotiabank has closed. $1.55 billion of the $2.3 billion (Canadian) purchase price was paid in cash. The balance was paid in a combination of common and preferred shares of Scotiabank

Stockwatch advises:

2008-12-10 18:09 ET – Prospectus Approved

TSX bulletin 2008-1429

An application has been granted for the listing of 10 million non-cumulative, five-year rate reset preferred shares, Series 24, of the Bank of Nova Scotia.

The preferred shares, Series 24, are to be distributed at a price of $25 per share pursuant to the terms of a prospectus supplement dated Dec. 9, 2008, to the short form base shelf prospectus dated April 16, 2008, as amended by amendment No. 1 dated Dec. 3, 2008. The closing of the prospectus offering is expected to occur prior to the open on Dec. 12, 2008. In anticipation of such closing, the preferred shares, Series 24, will be listed at 5:01 p.m. on Dec. 11, 2008, and will be posted for trading at the open on Dec. 12, 2008.

Symbol: BNS.PR.S

Cusip No.: 064149 13 1

Trading currency: Canadian dollars

I have obtained data from the TSX confirming the symbol and that it is listed for trading today, 2008-12-12. I also have a quote: 25.00 bid, no offer; and volume: 0.

Accordingly, the issue has been added to the HIMIPref™ database and incorporated into the Fixed-Reset sub-index. But I really wish one of the players would announce what happens next … bought deal? exchange offering? distribution to SLF shareholders? Who knows?

High Income Preferred Shares Corporation has announced:

that HI PREFS has commenced a normal course issuer bid to purchase a portion of the outstanding Series 1 Preferred Shares (TSX: HPF.PR.A) and Series 2 Preferred Shares (TSX: HPF.PR.B) on the TSX. Under the normal course issuer bid, HI PREFS intends to purchase up to 37,680 Series 1 Preferred Shares, representing approximately 10% of the public float and up to 65,396 Series 2 Preferred Shares, representing approximately 10% of the public float.

These purchases will be made in accordance with applicable regulations over a maximum period of 12 months commencing on December 16, 2008 and ending on the earlier of December 15, 2009 or on such date as HI PREFS completes its purchase under the normal course issuer bid or on such date as HI PREFS may otherwise determine. Series 1 Preferred Shares and Series 2 Preferred Shares purchased will be cancelled. Within the preceding 12 month period, HI PREFS
purchased 18,500 Series 1 Preferred Shares and 77,100 Series 2 Preferred Shares for cancellation. HI PREFS had 376,806 Series 1 Preferred Shares and 653,962 Series 2 Preferred Shares issued and outstanding as at December 5, 2008. HI PREFS will not purchase in any given 30 day period, in the aggregate more than 7,536 Series 1 Preferred Shares, being 2% of the issued and outstanding Series 1 Preferred Shares as at December 5, 2008 and in the aggregate more than 13,079 Series 2 Preferred Shares, being 2% of the issued and outstanding Series 2 Preferred Shares as at December 5, 2008.

PrefBlog has an informal policy of reporting Normal Course Issuer Bids only if they are highly accretive to NAV (e.g., when a SplitShare trades well below its NAV) or if the previous one has been executed to a meaningful extent.

HPF.PR.A & HPF.PR.B are tracked by HIMIPref™ and are included in the “Scraps” sub-index (rather than SplitShare) due to volume and credit concerns, respectively. HPF.PR.A & HPF.PR.B were mentioned on PrefBlog most recently in connection the DBRS affirmation and downgrade, respectively.