Category: Issue Comments

M-Split Corp. has announced:

due to the dramatic and volatile drop in the price of Manulife common shares, M Split Corp. (“the Company”) was required to sell the majority of its holdings in Manulife. The proceeds of these sales have been used to purchase fixed income securities under the Priority Equity Protection Plan as per the prospectus.
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the Company is recommending to shareholders that the Company be reorganized. The Company, subject to all necessary Board and regulatory approvals, expects to send out the full details of this proposal to all shareholders through a Management Information Circular sometime in January, 2009 with a shareholder vote to follow in February, 2009. The key aspects of the proposal are discussed below.

The Plan will recommend the fixed income instruments purchased under the Priority Equity Protection Plan be liquidated and the proceeds be re-invested in common shares of Manulife.

The Plan will propose that each Priority Equity share be exchanged for the following three securities: i) one new $5 preferred share to yield 7.5% per annum; ii) one $5 par value equity share that will receive dividends of 7.5% per annum if and when the Company’s net asset value exceeds $12.50; and also iii) one half warrant to purchase a full unit (consisting of one new preferred share, one new equity share and a Class A share) of the Company at a price of $10 at specified times during the first two years subsequent to the approval date. The warrant will effectively provide upside potential on the performance of Manulife shares. The Company believes that the proposed package of securities will provide Priority Equity shareholders with substantial value added compared to their existing investment.

The Class A shares will remain the same except that the threshold for reinstatement of dividends on the Class A shares will only occur if the net asset value per unit reaches $15.00 per unit (current threshold is $12.50 net asset value per unit.) Increases in the net asset value per unit above $10 (current net asset value per unit was $9.63 as at November 28, 2008) will continue to accrue to the Class A shareholder. The value of this opportunity is that it is similar to an option on Manulife and the Company believes this provides substantial shareholder value relative to Class A shareholders’ existing investment.

At first blush, this sounds like a pretty lousy option for the preferred shareholders. Right now their dividends are impaired – or soon will be impaired – but they have full ownership of a portfolio of fixed income securities worth $9.63. If they proceed with this exchange, they will be getting 3.75% (approx) on their money as a dividend because the new class of shares will only pay dividends if there is significant price appreciation.

The new class of share will be fully exposed to declines in the value of the underlying Manulife shares, but will participate in future capital gains only to the extent of the $0.37 current price difference. The new class won’t even get dividends until there’s been a 25%+ increase in capital value.

I am open to arguments based on the value of the option they are being granted – feel free to write in and analyze! – but it looks to me like they should probably VOTE NO!

XMF.PR.A was last mentioned on PrefBlog when the company announced it was mulling over plans to reorganize. XMF.PR.A is not tracked by HIMIPref™.

Update: After further thought, I have decided that I am not open to arguments based on the value of the option. The preferred shareholders – currently holding a perfectly good fixed-income portfolio – are being asked to provide all the funding for the new company, taking all the downside risk of the portfolio holdings and giving away, free, gratis and for nothing an option on a big chunk of the upside. VOTE NO!

MFC, after getting into trouble with imprudent stock speculation – and partially bailed out by OSFI – is issuing common stock:

Manulife Financial Corporation (MFC) will further strengthen its financial and capital position by issuing $2.125 billion in common equity which would raise its regulatory capital ratio to one of the highest levels in the Company’s history.
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On a pro forma basis, after giving effect to the $2.125 billion of common equity and the remaining $2 billion credit facility, and reflecting global equity market levels as of the end of November 2008, the consolidated capital ratio or MCCSR is estimated to be approximately 235%, one of the highest in the company’s history.
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MFC also provided an update on its expected earnings for 2008. Assuming global equity markets closed at the end of November 2008 levels, net income for the year is estimated to be approximately $900 million.

2008 earnings to the end of the third quarter had been reported as $2,485-million. Perhaps Manulife should have taken lessons from Portus Group, whose principal protection seems to have held up pretty well!

S&P announced:

it revised its outlook on Manulife Financial Corp. and all of its rated operating companies to negative from stable. In addition, Standard & Poor’s affirmed its ratings on Manulife Financial, including its ‘AA’ long-term counterparty credit rating and the ‘AAA’ financial strength ratings on its rated operating subsidiaries. Its key operating subsidiaries include: The Manufacturers Life Insurance Co., John Hancock Life Insurance Co., John Hancock Life Insurance Co. (U.S.A.), Manulife (International) Ltd., and Manulife Life Insurance Co. Ltd.

The outlook revision reflects our opinion of the reduced level of financial flexibility that the group has with its ‘AAA’ financial strength ratings given the decline and volatility of the global equity markets and the resultant impact on earnings and capital, utilization of its bank term facility, and plans to complete a C$2.125 billion common equity issue.
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While the negative outlook on Manulife Financial and its rated subsidiaries reflects our view of the group’s reduced level of financial flexibility, we believe that Manulife is likely to continue to maintain its solid operating performance, business franchise, and capital adequacy position. From our analysis, it has a higher risk business profile compared with other ‘AAA’ rated insurers. Standard & Poor’s ratings anticipate that the firm will maintain its current enterprise risk management practices, although we will continue to monitor how the company assesses its appetite for equity risk retention. Our ratings also reflect our expectations that the investment portfolio likely will remain well diversified with minimal asset quality issues, and revenue growth and financial leverage are expected to remain at levels that are in line with the current ratings. We could revise the outlook to stable if management actions remain responsive, the business franchise continues to show resilience through these challenging times by displaying very strong core operating performance, and the equity markets begin to show signs of recovery and the pressure on VA reserve and capital requirements diminish. We expect that the ratings could be lowered by one notch if there is any evidence of deterioration in one or more of the above metrics, or if the global equity markets remain in a deep and permanent decline.

These issues were last highlighted on PrefBlog when DBRS changed the trend from positive to stable.

Energy Split Corp. II has announced:

it has called 26,750 ROC Preferred Shares for cash redemption on December 16, 2008 (in accordance with the Company’s Articles) representing approximately 2.655% of the outstanding ROC Preferred Shares as a result of the special annual retraction of 403,700 Capital Yield Shares by the holders thereof. The ROC Preferred Shares shall be redeemed on a pro rata basis, so that each holder of ROC Preferred Shares of record on December 15, 2008 will have approximately 2.655% of their ROC Preferred Shares redeemed. The redemption price for the ROC Preferred Shares will be $13.74 per share.

Holders of ROC Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including December 16, 2008.

Payment of the amount due to holders of ROC Preferred Shares will be made by the Company on December 16, 2008. From and after December 16, 2008 the holders of ROC Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

EN.PR.A was last mentioned on HIMIPref™ when they were subdivided to reflect differing rates of retraction when the term was extended last year.

EN.PR.A is tracked by HIMIPref™. It is incorporated in the “Scraps” sub-index rather than “SplitShare” due to volume concerns.

Union Gas has announced:

that it will not proceed with a proposed preference share redemption, planned for January 1, 2009. The share redemption, which received Board of Directors approval last September, was under consideration as part of a potential conversion of Union Gas into an unlimited liability company which will not proceed.

It’s rather odd. A “Material Change Report” filed on SEDAR states:

On September 11, 2008, the Corporation issued a news release through the facilities of Marketwire.

… and appends the press release in question …

Union Gas Limited announced today that it has received Board of Directors approval to initiate the redemption of all preference shares Union Gas has issued and outstanding. This share redemption would be effective January 1, 2009. The redemption would be undertaken in order to implement a new corporate legal structure that achieves financial benefits which far exceed share redemption expenses.

Union Gas will require approval from the Ontario Energy Board in connection with an internal share transfer that, together with the share redemption, would ultimately lead to the conversion of Union Gas into an unlimited liability company.

Union Gas reserves the right to not proceed with the redemption of the preference shares or the other reorganization actions. Should Union Gas determine to proceed with the redemption, it will issue a formal notice of redemption to the holders of preference shares in accordance with the preference share rights and restrictions.

Union Gas currently has the following classes of preference shares issued and outstanding:
1. 47,672 5.5% Cumulative Redeemable Class A Preference Shares, Series A;
2. 90,000 6% Cumulative Redeemable Class A Preference Shares, Series B;
3. 49,500 5% Cumulative Redeemable Class A Preference Shares, Series C; and
4. 4,000,000 4.79% Cumulative Redeemable Convertible Class B Preference Shares, Series 11.

… but there are no press releases data Sept. 11 for Union Gas on Marketwire. It’s on CNW … and somehow I missed it at the time.

UNG.PR.C & UNG.PR.D are not tracked by HIMIPref™.

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.

Just as in August 2007, BAM issues are over-represented in the poor performers’ list … and I am just as unable to find a convincing rationale for this.

Power Financial has announced:

the successful completion and closing of an offering of 7,000,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series M (the “Series M Shares”), priced at $25.00 per share to raise gross proceeds of $175 million.

The issue was bought by an underwriting group led by BMO Capital Markets and Scotia Capital Inc. Following the successful sale of the initially announced 6,000,000 Series M Shares, the underwriters exercised an option to purchase an additional 1,000,000 Series M Shares.

The Series M Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “PWF.PR.M”. Proceeds from the issue will be used to supplement Power Financial’s financial resources and for general corporate purposes.

The greenshoe noted in the initial announcement was therefore 50% subscribed.

Sadly for the buyers, however, the issue is trading more as a perpetual than a retractible. closing at 23.83-98, 10×19, after trading 125,030 shares in a range of 23.75-20. The yield until the limitMaturity is 6.18%, while the yield to the first call is 7.13%.

The issue has been added to the FixedReset Index.

I have uploaded an evaluation of the FixedReset subIndex.

Greatwest Lifeco has announced:

the closing of its previously announced offering of Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series J (the “Series J Shares”) priced at $25.00 per share. Following the successful sale of the initially announced offering of 8,000,000 Series J Shares, the underwriters of the offering exercised their over-allotment option to purchase an additional 1,200,000 Series J Shares, resulting in the Company issuing today 9,200,000 Series J Shares to raise gross proceeds of $230 million. The net proceeds will be used by the Company for general corporate purposes and to augment Lifeco’s current liquidity position.

The offering was made through a syndicate of underwriters led by BMO Nesbitt Burns Inc. and Scotia Capital Inc. The shares will be posted for trading on the Toronto Stock Exchange under the symbol “GWO.PR.J”.

The greenshoe noted in the initial announcement was therefore fully subscribed.

Sadly for the buyers, however, the issue is trading more as a perpetual than a retractible. closing at 24.25-35 on volume of 358,750 shares. The yield until the limitMaturity is 5.97%, while the yield to the first call is 6.73%.

The issue has been added to the FixedReset Index.

I have uploaded an evaluation of the FixedReset subIndex

Ordinarily this wouldn’t be worth a post. A split-share company starts up, they get a cheque from the underwriters, they put it to work. Big deal.

On this occasion, however, the announcement from First Asset had a certain Wow! factor:

When the preliminary prospectus was filed on September 10, 2008, the approximate dividend yield on the Portfolio would have been approximately 4.74% with the Preferred Shares having initial dividend coverage of 172%. As a result of the sell off prior to and during the investing period, the yield of the acquired Portfolio is 6.06% with dividend coverage of the Preferred Shares of 218% with approximately $0.25/Unit per annum of initial excess cash flow after deducting expenses. Any such excess cash flow will contribute to the growth of the Net Asset Value of the Company.

The closing of this issue was reported on PrefBlog. CBU.PR.A will not be tracked by HIMIPref™. It’s a shame, given the fat coupon and the 2.5:1 asset coverage, but it’s just too small to trade efficiently.

First Asset has announced:

acceptance by the Toronto Stock Exchange (the “TSX”) of the Trust’s Notice of Intention to make a Normal Course Issuer Bid (the “NCIB”) to permit the Trust to acquire its Preferred Securities and Capital Units (collectively, the “Securities”).

Pursuant to the NCIB, the Trust proposes to purchase through the facilities of the TSX, from time to time, if it is considered advisable, up to 396,485 Preferred Securities and up to 396,485 Capital Units of the Trust, representing approximately 10% of the public float which is the same number as the Trust’s issued and outstanding Securities, being 3,964,850 Preferred Securities and 3,964,850 Capital Units as of the date hereof. The Trust will not purchase in any given 30-day period, in the aggregate, more than 79,297 Preferred Securities and 79,297 Capital Units, being 2% of the issued and outstanding Units as of the date hereof. Purchases of Units under the NCIB may commence on November 28, 2008. The Board of Directors of First Asset Funds Inc., the manager of the Trust, believes that such purchases are in the best interests of the Trust and are a desirable use of the Trust’s funds. All purchases will be made through the facilities of the TSX in accordance with its rules and policies. All Securities purchased by the Trust pursuant to the NCIB will not be cancelled and will be held for resale. The NCIB will expire on November 27, 2009.

On November 26, 2007, the Trust announced that it was making a Normal Course Issuer Bid, which commenced November 28, 2007, to purchase up to 461,420 Preferred Securities and up to 461,420 Capital Units through the facilities of the TSX. No Securities were repurchased under the bid, which expires on November 27, 2008.

UST.PR.A is not tracked by HIMIPref™.

Assiduous Reader liketoretire gives me a well-deserved kick for not reporting yesterday’s announcement from Morgan Meighan:

as a result of market conditions and a dividend payment restriction contained in its Class A, Series 2 and Series 3 Preference Share provisions, it was not certain at today’s date whether the Company would be permitted to pay the $0.06 per common share dividend declared on October 15, 2008 to shareholders of record on November 28, 2008 and payable on December 15, 2008. The common shares will commence trading on the Toronto Stock Exchange (TSX) on an “ex dividend” basis at the opening of trading on Wednesday, November 26, 2008.

The dividend payment restriction provides that the Company shall not pay a dividend on its common shares unless after giving effect thereto, the ratio of its Assets to Obligations (both as defined in the Preference Share provisions) exceeds 2.5 times. As at the close of business on November 24, 2008, such ratio was approximately 2.6 times.
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The restriction does not affect the scheduled payment of dividends on the Series 2 and Series 3 Preference Shares on December 15, 2008, which will proceed as previously announced.

The two series of preferreds are of high quality, as might be deduced from the very high level of asset coverage required in order to maintain the common dividend.

At one point I was greater consternated to find that I had classified some of the CGI preferred issues as SplitShares and others as OperatingRetractibles. After some thought, I decided they were split shares – they don’t have an actual business, after all, and they’re backed by a portfolio of investments … ergo, SplitShares. There was one Assiduous Reader who strongly disagreed, but I held firm.

CGI.PR.A was redeemed.

CGI.PR.B & CGI.PR.C are both in the “Scraps” index, due to volume concerns.