Category: Issue Comments

BCE has announced:

the company has received a preliminary view from KPMG that, based on current market conditions, its analysis to date and the amount of indebtedness involved in the LBO financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE’s privatization, December 11,2008, an opinion that BCE would meet the solvency tests as defined in the definitive agreement, as amended. The receipt at the effective time of a positive solvency opinion is a condition to the closing of the transaction. At the same time, KPMG indicated that BCE would meet all solvency tests under its current capital structure.

“BCE today enjoys solid investment grade credit ratings, has $2.8 billion of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results,” said George Cope, President and CEO of BCE and Bell.

“We are disappointed with KPMG’s preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing. The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition,” said Siim Vanaselja, BCE’s Chief Financial Officer. The company continues to work with KPMG and the Purchaser to seek to satisfy all closing conditions. Should KPMG be unable to deliver a favourable opinion on December 11, 2008, however, the transaction is unlikely to proceed.

That gust of wind you just felt was a sigh of relief from the purchasers and financers. Bloomberg notes:

“The chances of any deal getting done are very low now,” said Sachin Shah, a merger arbitrage analyst with ICAP Corporates LLC in Jersey City, New Jersey. “Having BCE’s auditor call the deal insolvent is what’s surprising here. The market had been expecting that the banks would balk.”
…
Citigroup Inc., Deutsche Bank AG, Toronto-Dominion Bank and Royal Bank of Scotland Group Plc are on the hook for about $34 billion for BCE, according to regulatory filings. The banks have sold debt that backed buyouts at discounts to face value to get the debt off their books. In the case of BCE, it would cost billions of dollars.

The average high-yield, high-risk loan is trading at about 66.6 cents on the dollar, just shy of the record, according to Standard & Poor’s LCD. Prices have plummeted almost 9 cents since Nov. 6 and 28.3 cents this year as investors in the debt have been forced to liquidate funds.

Preferred shares have plunged on light volume. I have uploaded a noon evaluation of the FixedFloater index which, unfortunately, could be more accurately referred to as the BCE index.

BCE has the following preferred shares outstanding: BCE.PR.A, 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

The last dedicated post in this series was BCE / Teachers’ : A Giant Step Closer.

Update:DBRS has announced:

has today placed its ratings of BCE Acquisition Inc. (BAI), BCE Inc. and Bell Canada, a wholly owned subsidiary of BCE Inc. (BCE or the Company) Under Review with Developing Implications. This action follows BCE’s announcement today that based on preliminary indications it is unlikely that a condition – specifically, a positive solvency opinion – that was required upon closing the privatization of BCE on December 11, 2008, will be met.

DBRS notes that should the privatization not proceed as planned, DBRS expects to re-evaluate BCE and Bell Canada’s credit profiles and likely move the ratings of these entities to a strong investment-grade level.

Alternatively, should the privatization proceed as planned, DBRS’s current BB (low) issuer ratings on BAI and Bell Canada would remain in place. (See press release dated October 7, 2008.) However, should any element of the privatization change, DBRS would re-evaluate the appropriateness of these BB (low) issuer ratings.

DBRS notes that the $52 billion privatization of BCE was originally announced on June 30, 2007, and led by Ontario Teachers’ Pension Plan Board, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. Subsequently, Merrill Lynch took up an equity commitment as a principal investor. Collectively, as part of the agreement, as amended, the sponsors will invest approximately $7.75 billion in equity (possibly lower due to cash accumulation at BCE) to fund this privatization, with the remainder in debt.

Update: The agreement is available as a “Material Document” in the BCE filings on SEDAR, dated July 5, 2007.

“Solvent” when used with respect to the Company, means that, as of any date of determination (a) the amount of the “fair saleable value” of the assets of the Company will, as of such date, exceed (i) the value of all “liabilities of the Company, including contingent and other liabilities,” as of such date, as such quoted terms are generally determined in accordance with Applicable Laws governing determinations of the insolvency of debtors, and (ii) the amount that will be required to pay the probable liabilities of the Company on its existing debts (including contingent and other liabilities) as such debts become absolute and mature, (b) the Company will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses and
transactions in which it intends to engage or proposes to be engaged following the Effective Date, (c) the Company will be able to meet its obligations as they generally become due and to pay its liabilities, including contingent and other liabilities, as they mature, and (d) the aggregate of the property of the Company is, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would be sufficient, to enable payment of all its obligations, due and accruing due. For purposes of this definition, “not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged” and “able to pay its liabilities, including contingent and other liabilities, as they mature” means that the Company will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations as they become due;
…
[Section 8.1 “Mutual Conditions Precedent”, (f), emphasis added] the Purchaser and the Company shall have received an opinion at the Effective Time from a nationally recognized valuation firm engaged by the Purchaser and agreed to by the Company, acting reasonably to the effect that the Company will, subject to certain qualifications, be Solvent as of the Effective Time and immediately after the consummation of the transactions contemplated by the Plan of Arrangement.

Industrial Alliance has announced:

Industrial Alliance Insurance and Financial Services Inc. (“Industrial Alliance” or the “Company”) announced today the successful completion of a Canadian public offering of 4 million of Non-Cumulative 5-Year Rate Reset Class A Preferred Shares Series C (the “Series C Preferred Shares”) from Industrial Alliance for sale to the public at a price of $25.00 per preferred share, representing aggregate gross proceeds of $100 million.

The offering was underwritten by a syndicate of investment dealers led by Scotia Capital Inc. The Series C Preferred Shares commence trading on the Toronto Stock Exchange today under the symbol IAG.PR.C.

It would appear that no additional shares were sold by way of the greenshoe noted in the original announcement

The issue traded 115,300 shares in a range of 23.90-40, indicating that at least some of the issue made it off the underwriter’s shelves. It closed at 23.80-90, 100×4.

At the bid price, the YTW is 6.38% based on a Canada Five-Year rate of 2.57% and a limitMaturity. The “5-Year Yield” is 7.38%, based on a hoped for, but currently unlikely, call at par 2014-1-30.

The perpetual, IAG.PR.A, closed at 12.75-71 to yield 9.26% based on the bid price of 12.75 and a limitMaturity (yield from the ask is 8.54%). However you slice it, the spread vs. the straight is well over 200bp. Given that the 5-to-Long spread on Canadas is currently about 150bp I’d say the spreads between the straight perpetual yield and the Fixed-Reset’s Yield to Worst (not the five-year-call-yield) should be 100bp absolute maximum, and – I’m guessing, I can’t point to any analysis here and suspect that any such analysis would be … er … suspect – probably more like 60bp.

So, to me, these are still expensive. But I was saying that last spring and then look what happened!

M-Split Corp has announced (emphasis added):

Since the inception of the Company on April 18, 2007 the price of Manulife has declined 52% from $41.08 to $19.75 as of November 24, 2008. This sharp decline in Manulife has resulted in the Company’s net asset value being reduced significantly and as mentioned in the previous update, has required the Company to implement the Priority Equity Portfolio Protection Plan in accordance with the prospectus. The plan’s objective was to provide that the Priority Equity Share Repayment amount would be paid in full on the termination date (December 1, 2014). Due to the recent decline in Manulife’s share price of 20% during the week ended November 21, the Company has dramatically decreased its exposure to Manulife under the requirements of the plan.

The Company’s total net asset value is approximately $9.01 per unit as at November 24, 2008, consisting of $6.43 per unit in cash and permitted repayment securities (current value) and $2.58 in Manulife exposure per Unit. The permitted repayment securities have an estimated forward value of approximately $8.04 at maturity in 2014. The reduced exposure to Manulife will materially limit the future impact of price movements of Manulife shares on the net asset value of the Company and lower the ability of the Company to generate income from dividends and its covered call option writing program.

The combined trading prices of both classes of the Company’s shares are trading at a substantial discount to the current net asset value per unit. In addition, the significant price decline in Manulife shares since inception of the Company has made it difficult to achieve the original stated objectives for both classes of shares. As a result, the Company is reviewing options to maximize shareholder value that may include but not limited to establishing a normal course issuer’s bid and initiating proposals (subject to shareholder vote) to reorganize the Company.

The Company’s portfolio is continually rebalanced and adjusted based on market conditions to provide both security for Priority Equity shareholders and upside potential for Class A shareholders. The Company may buy or sell additional shares of Manulife, the permitted repayment securities, and or option positions based on market conditions and provided that the Company remains in compliance with the Priority Equity Protection Plan.

With respect to the net value of the firm, they have stroked the nail right on the button. XMF closed today at 0.91-1.15, 10×2. XMF.PR.A closed at 6.88-49, 51×28; which may be compared to “total net asset value is approximately $9.01 per unit as at November 24, 2008, consisting of $6.43 per unit in cash and permitted repayment securities (current value) and $2.58 in Manulife exposure per Unit.”. I confess I haven’t checked to see what retraction options there might be; nor have I looked at the effects of fees and expenses on NAV over time.

The previous mention of XMF.PR.A on PrefBlog noted the suspension of dividends on capital units. XMF.PR.A is not tracked by HIMIPref™.

Commerce Split Corp has announced (emphasis added):

Since the inception of the Company on February 16, 2007 the price of CIBC has declined 58% from $102.15 to $43.19 as of November 24, 2008. This sharp decline in CIBC has resulted in the Company’s net asset value being reduced significantly and as mentioned in previous updates, has required the Company to implement the Priority Equity Portfolio Protection Plan in accordance with the prospectus. The plan’s objective was to provide that the Priority Equity Share Repayment amount would be paid in full on the termination date (December 1, 2014). Due to the recent decline in CIBC’s share price of 21% during the week ended November 21, the Company has dramatically decreased its exposure to CIBC under the requirements of the plan.

The Company’s total net asset value is approximately $8.80 per unit as at November 24, 2008, consisting of $7.25 per unit in cash and permitted repayment securities (current value) and $1.55 in CIBC exposure per Unit. The permitted repayment securities have an estimated forward value of approximately $9.06 at maturity in 2014. The reduced exposure to CIBC will materially limit the future impact of price movements of CIBC shares on the net asset value of the Company and lower the ability of the Company to generate income from dividends and its covered call option writing program.

The combined trading prices of both classes of the Company’s shares are trading at a substantial discount to the current net asset value per unit. In addition, the significant price decline in CIBC shares since inception of the Fund has made it difficult to achieve the original stated objectives for both classes of shares. As a result, the Company is reviewing options to maximize shareholder value that may include but not limited to establishing a normal course issuer’s bid and initiating proposals (subject to shareholder vote) to reorganize the Company.

The Company’s portfolio is continually rebalanced and adjusted based on market conditions to provide both security for Priority Equity shareholders and upside potential for Class A shareholders. The Company may buy or sell additional shares of CIBC, the permitted repayment securities, and or option positions based on market conditions and provided that the Company remains in compliance with the Priority Equity Protection Plan.

They’re right, you know. XCM closed today with a quote of $1.11-29, 10×4; XCM.PR.A closed at $6.02-24, 5×3, compared to “total net asset value is approximately $8.80 per unit as at November 24, 2008, consisting of $7.25 per unit in cash and permitted repayment securities (current value) and $1.55 in CIBC exposure per Unit”

There are 8.667-million units outstanding, according to the TSX.

XCM.PR.A’s Protection-Plan Status has been previously reported on PrefBlog. XCM.PR.A is not tracked by HIMIPref™.

TDb Split Corp. has announced:

during the week ending November 21, 2008, the share price of TD Bank has declined by approximately 23% resulting in an overall total decrease in the share price of TD Bank of 38% since the inception date of the Company. TD Bank was $69.03 as at the inception date of the Company on August 7, 2007 and closed on November 24, 2008 at $42.90. This very sharp and accelerated decline in TD Bank has resulted in the Company’s net asset value being reduced significantly and has required the Company to implement the Priority Equity Portfolio Protection Plan in accordance with the prospectus. As detailed in the prospectus, this strategy is intended to provide that the Priority Equity Share Repayment amount will be paid in full to holders of the Priority Equity shares on the termination date on December 1, 2014.

The Priority Equity Portfolio Protection Plan provides that if the net asset value of the Company declines below a specified level, the Manager will liquidate a portion of the common shares of TD Bank held by the Company and use the net proceeds to acquire (i) qualifying debt securities or (ii) certain securities and enter into a forward agreement (collectively, the “Permitted Repayment Securities”) in order to cover the Preferred Share Repayment Amount in the event of further declines in the net asset value of the Company. Under the Priority Equity Portfolio Protection Plan, the amount of the Company’s net assets, if any, required to be allocated to Permitted Repayment Securities (the “Required Amount”) will be determined such that (i) the net asset value of the Company, less the value of the Permitted Repayment Securities held by the Company, is at least 125% of (ii) the Preferred Share Repayment Amount, less the amount anticipated to be received by the Company in respect of its Permitted Repayment Securities on the Termination Date.

The Company’s net asset value as at November 24, 2008 was $11.96 per unit which includes $8.84 per unit in shares of TD Bank and $3.12 per unit in cash and permitted repayment securities (current value). The permitted repayment securities have an estimated forward value of $3.90 per unit at maturity in 2014. This leaves the Priority Equity Shareholder exposed to $6.10 per share ($10.00 par value – $ 3.90 in cash and equivalent notional value of Permitted Repayment Securities) in TD Bank holdings.

The portfolio is continually rebalanced and adjusted based on market conditions to provide both security for Priority Equity shareholders and upside potential for Class A shareholders. The Company may buy or sell additional shares of TD Bank, the Permitted Repayment Securities, and/or option positions based on market conditions and provided that the Company remains in compliance with the Priority Equity Portfolio Protection Plan.

XTD.PR.A is a small issue, with only 1.75-million shares outstanding, according to the TSX. This is the first mention of this issue on PrefBlog. XTD.PR.A is not tracked by HIMIPref™.

Big 8 Split Inc. has announced:

that its Board of Directors has approved a proposal to reorganize the Company. The reorganization will permit holders of Class A Capital Shares to extend their investment in the Company beyond the redemption date of December 15, 2008 for up to an additional 5 years. The Class A Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions.

Holders of Class A Capital Shares who do not wish to extend their investment and all holders of Class A Preferred Shares will have their shares redeemed on December 15, 2008. The Board has retained TD Securities Inc. to provide financial advice to the Company in this regard.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Class A Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the creation of new preferred shares to be known as the Class B Preferred Shares, Series 1 in order to provide continuing leverage for the Class A Capital Shares. The reorganization will be subject to receipt of all necessary regulatory approvals.

A special meeting of holders of Class A Capital Shares has been called and will be held on November 21, 2008 to consider and vote upon the reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Class A Capital Shares in connection with the special meeting.

Big 8 Split was established to generate dividend income for the Preferred Shares while providing holders of the Capital Shares with a leveraged opportunity to participate in capital appreciation from a portfolio of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation, and Sun Life Financial Inc. Information concerning Big 8 Split Inc. is available on our website at www.tdsponsoredcompanies.com.

The Capital Shares and Preferred Shares of Big 8 Split are listed on the Toronto Stock Exchange
under the symbols BIG.A and BIG.pr.A respectively.

The preliminary prospectus on SEDAR has all the interesting parts – like dividend rate – left blank.

The NAVPU has declined from $72.98 on 2008-1-3 to $41.80 on 2008-11-13, which means the capital unit NAV has gone from $47.98 to $16.80. Ouch! About 4.3% of outstanding units were retracted in 2007 … they were the lucky ones!

BIG.PR.A has not been tracked by HIMIPref™.

Update, 2008-11-24: Reorganization approved.

Faircourt Asset Management has announced:

that due to recent market conditions, it has decided to cancel its previously announced rights offering. Due to the current market conditions it was determined by the Manager, not to be in the best interests of Unitholders to proceed with the proposed rights
offering.

The Rights offering was finalized and discussed on PrefBlog on November 18 which, if my calender is still working, was TWO DAYS AGO! This is an epic crash, to be sure.

As of November 19, NAV per Capital Unit was $2.46 according to Faircourt and at 0.71 Capital Units per Pref, asset coverage of the prefs was – yesterday – 1.2-:1.

Canadian Utilities & Financials Split Corp. has announced:

The leveraging and de-leveraging mechanism offers the ability to increase leverage when the Company’s portfolio appreciates in value and reduce leverage when the portfolio declines in value. Leverage is actively managed by RBC Dominion Securities Inc. (“RBC”) in its capacity as the Company’s Leverage Agent. The value of the Company’s portfolio has declined significantly in recent months, a period characterized by extreme and unprecedented market conditions and economic weakness, and has declined by more than 34% since its inception. As a result, under the terms of the prospectus, RBC is required to sell portfolio securities and invest the proceeds in cash or cash equivalents in order to provide additional assurance that the Company’s objective to repay the $10.00 issue price of the Preferred Shares at maturity will be met and that the Preferred Shares continue to have a high rating from DBRS. Following the sale of portfolio securities, the Class A Shares will continue to have exposure to the portfolio on a non-leveraged basis and distributions on the Class A Shares will be suspended beginning in December. Should the portfolio continue to decline in value, the removal of leverage will lessen the impact of any further decline on the performance of the Class A Shares.

The Company has the ability to re-establish leverage as the portfolio’s value increases. If the remaining portfolio subsequently appreciates in value and the net asset value per Class A Share grew to approximately $7.37, RBC will be instructed to re-invest the cash raised in securities of the portfolio which will restore leverage on the Class A Shares and likely result in the resumption of distributions to holders of Class A Shares.

CFS.PR.A is tracked by HIMIPref™, but is a tiny issue. It was moved from the SplitShare index to Scraps in August 2007 on volume concerns.

M-Split Corp. has announced:

its regular monthly distribution $0.04375 for each Preferred share ($0.525 annually). Distributions are payable December 10, 2008 to shareholders on record as of November 28, 2008. There will not be a distribution paid to M-Split Class A Shares for November 28, 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 $12.50. The Net Asset Value as of November 14, 2008 was $10.13.

Since inception (April 18, 2007) Class A shareholders have received a total of $0.90 per share and Preferred shareholders have received a total of $0.85 per share inclusive of this distribution, for a combined total of $1.75 per share.

M-Split invests in common shares of Manulife Financial Corporation, the largest life insurer in Canada offering financial products and wealth management services.

The prospectus gives details of the Monthly Retraction option:

Priority Equity Shares may be surrendered at any time for retraction and will be retracted on a monthly basis on the last business day of each month (a ‘‘Retraction Date’’), provided such Priority Equity Shares are surrendered for retraction not less than 20 business days prior to the Retraction Date. Payment for any Priority Equity Shares so retracted will be made within 15 business days of the applicable Retraction Date.

Holders retracting a Priority Equity Share will be entitled to receive an amount per Priority Equity Share equal to the lesser of (i) $10.00; and (ii) 96% of the net asset value per Unit determined as of the Retraction Date less the cost to the Company of the purchase of a Class A Share in the market for cancellation. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share and commissions and costs, if any, related to the liquidation of any portion of the assets of the Company to fund the purchase of the Class A Share (to a maximum of 1% of the net asset value per Unit).

It isn’t clear to me whether

R = 96% (NAV-C)
or
R = (96%NAV) – C

Interested Assiduous Readers will have to call the company! Whatever it is, Capital Units closed today at 1.41-50, 50×30 and Preferreds closed at 7.23-50, 50×120. On the November 14th NAV date, MFC closed at 23.08 and it closed today at 20.97, implying a November 19 NAV of about
10.13 * 20.97 / 23.08 = 9.20 … so the Monthly Retraction is

R = (96%NAV) – C …. [guessing at the proper form of the equation]
= (96%*9.20) – 1.50
= 8.83 – 1.50
= 7.33

So the preferreds are trading around estimated retraction price.

XMF.PR.A was last mentioned on PrefBlog when it entered the Protection Plan.

XMF.PR.A is not tracked by HIMIPref™.

First Asset has announced:

Global 45 Split Corp. (TSX:GFV) the “Company”) announces that it will not pay a monthly distribution on its Class A Shares for the month-ended November 30, 2008.

As set out in the Company’s articles of incorporation, the Company may not pay a distribution on the Class A Shares if, after the payment of the distribution by the Company, the Net Asset Value per Unit would be less than $15.00.

The Manager will assess the ability to pay distributions, and the amount thereof, on a monthly basis.

GFV.PR.A had asset coverage of 1.5+:1 as of November 13. The issue has a monthly retraction feature:

Preferred Shares may be surrendered at any time for retraction by the Company and will be retracted on a monthly basis on the second last business day of each month (a “Valuation Date”). Preferred Shares surrendered for retraction by a holder of Preferred Shares at least ten business days prior to a Valuation Date will be retracted on such Valuation Date and payment of proceeds will be made on or before the tenth business day following such Valuation Date. Except in the case
of the Annual Concurrent Retraction described below, holders retracting a Preferred Share will be entitled to receive an amount per Preferred Share equal to the lesser of: (i) 96% of the Net Asset Value per Unit (as defined herein) determined as of the relevant Valuation Date less the cost to the Company of the purchase of a Class A Share in the market for cancellation; and (ii) $10.00. The cost of the purchase of a Class A Share will include the purchase price of the Class A Share, commission and such other costs, if any, related to the liquidation of any portion of the Portfolio required to fund such purchase (not exceeding 1% of Net Asset Value per Unit). See “Details of the Offering – Certain Provisions of the Preferred Shares – Retraction
Privileges”.

The Annual Concurrent Retraction is in September.

The first trade of the Capital Units after the November 13 NAV was on Nov. 17, when they closed at 5.01. The Preferred Shares closed at $8.75 on November 14.

The estimated monthly retraction price using the last valuation data is:
R = 96% (NAV – C)
R = 96% (15.42 – 5.01)
R = 96% (10) … [Maximum Value]
R = $9.60

The monthly retraction feature is supportive … but mind you, the capital units closed today at 4.95-65, 62×2 and presumably the NAV is now below $15.00. The Preferreds closed at 8.86-54, 7×5.

GFV.PR.A was last mentioned on PrefBlog in the report that it had been caught up in the DBRS Mass Review of Splits. GFV.PR.A is not tracked by HIMIPref™.