Category: Issue Comments

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 Additionally, DBRS has withdrawn its ratings of BCE Acquisition Inc.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.

BMO’s new issue of Fixed-Reset 6.50%+383 announced November 25 closed today without incident.

Volume was good at 343,071 shares in a range of 24.86-05. The closing quote was 25.00-01, 44×10.

The issue was relatively small, only $150-million, but there was a greenshoe for $100-million. I am unable to determine whether any of the greenshoe was exercised.

The issue is tracked by HIMIPref™ and has been added to the Fixed-Reset Index.

Update, 2009-6-9: The TSX reports six million shares outstanding; therefore the greenshoe was not exercised.

DBRS has announced that it:

has today downgraded its preferred share ratings of Nortel Network Limited to D from Pfd-5 (low). Nortel Networks Limited is a wholly owned subsidiary of Nortel Networks Corporation (collectively, Nortel or the Company). This rating action follows the Under Review with Negative Implications status, where the ratings were placed November 10, 2008 (see press release dated November 10, 2008). Nortel’s long-term debt remains Under Review with Negative Implications.

This rating action results from Nortel suspending its dividend payments on its preferred shares. This suspension begins with its November 2008 dividends, which will not be paid on December 12, 2008. The last dividend the Company paid was on November 12, 2008, on its Series 5 preferred shares (cumulative) and its Series 7 preferred shares (non-cumulative) as originally declared on July 31, 2008.

DBRS notes that on November 10, 2008 Nortel released its Q3 2008 results, which were below DBRS’s expectations, and lowered its outlook for the year. Additionally, Nortel announced the suspension of its preferred share dividends in an effort to preserve its liquidity. Shortly after this announcement, DBRS placed all of Nortel’s ratings Under Review with Negative Implications.

Notes:
DBRS’s ratings on technology companies are primarily based on factors such as the product suite, the base of customers, the competitive landscape, research and development initiatives, gross operating margins and the financial profile.

These issues were last discussed on PrefBlog when Nortel announced its intention to default.

NTL.PR.F & NTL.PR.G are tracked by HIMIPref™. They would be included in the “Ratchet” index, but have been relegated to “Scraps” on credit concerns.

BCE Acquisition has announced:

that the agreement to acquire BCE Inc. (TSX, NYSE: BCE) has been terminated in accordance with its terms.

Receipt of a solvency opinion from a nationally recognized valuation firm was included in the June 30, 2007 definitive agreement between the Purchaser and BCE as a mutual closing condition. The agreement of the Purchaser and BCE to both the selection of KPMG to serve as the valuation firm and the form of the solvency opinion was reflected in the July 4, 2008 amendment to the definitive agreement. Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied. Accordingly, the Purchaser terminated the agreement in accordance with its terms. Under these circumstances neither party owes a termination fee to the other.

There is no telling what will happen now. In an ideal world, we return to the status quo ante and the BCE Prefs retain their Pfd-2(low) / P-2(low) credit rating. But Bloomberg reports other ideas:

BCE Inc., the Canadian phone company that had been planning to go private for the past 18 months, may have to buy back shares or restore its dividend to placate investors now that its leveraged buyout has fallen apart.

But 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.

The last post in this saga was BCE Buyout in Trouble; Prefs Plunge.

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, 2008-12-11: BCE is desperately grandstanding:

BCE Inc. (TSX, NYSE: BCE) today announced that it received last evening from the Purchaser, a company formed by an investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity, a notice purporting to terminate the Definitive Agreement dated June 29, 2007, as amended. BCE disputes that the Purchaser was entitled to terminate the Definitive Agreement, as such notice was delivered prematurely, prior to the outside date for closing of the transaction, and therefore invalid. Given the Purchaser’s position, the BCE privatization
transaction will not proceed.

As previously announced, the closing of the privatization transaction is contingent upon the fulfillment of several closing conditions, including, pursuant to Section 8.1(f) of the Definitive Agreement, the receipt at the effective time of a positive solvency opinion from KPMG. Earlier this morning, KPMG confirmed that it would not be able to deliver an opinion that BCE would
meet, post transaction, the solvency tests set out in the Definitive Agreement.

In light of these developments, BCE will be terminating the Definitive Agreement in accordance with its terms, and will be demanding payment of the $1.2-billion break-up fee from the Purchaser. All closing conditions have been satisfied by BCE, other than the solvency opinion, a condition to closing that was to be satisfied by its nature at the effective time. Under such circumstances, the agreement provides that the break up fee will be owed to BCE by the Purchaser. The Purchaser has taken the position that it is not obligated to pay the break-up fee.

In addition, the BCE Board intends that immediately following termination of the Definitive Agreement in accordance with its terms, it will address a reinstatement of its common share dividend beginning with its fourth quarter common share dividend payable on January 15, 2009, and that it will return capital to its shareholders through a Normal Course Issuer Bid.

I would have a lot more confidence in the credit quality of the BCE Prefs if they indicated the size of the Normal Course Issuer Bid.

DBRS has announced that it:

has today placed the long-term and short-term ratings of George Weston Limited (Weston or the Company) – the Notes & Debentures at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high) – Under Review with Developing Implications.

The action follows Weston’s announcement today that its subsidiary, Dunedin Holdings S.a.r.l. (Dunedin), has entered into an agreement to sell its U.S. fresh bread and baked goods business to Grupo Bimbo for net proceeds of approximately US$2.5 billion. The completion of the transaction is subject to normal closing conditions, including regulatory approval; if the closing conditions are met, the parties expect the transaction to close in the first quarter of 2009.

Although the transaction represents an opportunity for Weston to realize a significant gain on the sale of this business, which it acquired in 2001, it will fundamentally alter the Company’s profile as the business to be sold represents more than half of Weston’s (ex-Loblaw Companies Limited (Loblaw)) operating income.

Dunedin contributed US$255 million of EBITDA to Weston’s consolidated results for the 52-weeks ended October 4, 2008. On this basis, DBRS estimates Weston’s pro forma (from continuing businesses) EBITDA for the same period to be approximately $175 million – this estimate also adjusts for the December 1, 2008 sale of Neilson Dairy (approximately $50 million of annual EBITDA) to Saputo Inc. for net proceeds of approximately $400 million.

The proposed divestiture of these assets would also have a meaningful impact on Weston’s financial risk profile. DBRS estimates the Company would have total cash and cash equivalents of more than $3.5 billion, after repaying $250 million of notes that come due in February 2009 and satisfying it current intention to redeem approximately $265 million of preferred shares in 2009. This cash and equivalent balance would compare to an estimated gross debt balance of $775 million (after February 2009) and preferred share balance of $835 million.

In its review, DBRS will focus on Weston’s intention with regards to its large cash and cash equivalent balance, its remaining operating business and its investment in Loblaw. DBRS believes that with an appropriate financial profile, Weston has the ability to remain placed in the BBB rating category with its continuing businesses (i.e., gross debt-to-pro forma EBITDA a maximum of 2.5 times).

The ratings for Loblaw (rated BBB and R-2 (middle) with Negative trends) remain unaffected at this point as DBRS believes the proposed transaction, in and of itself, does not impact the credit risk profile of Loblaw.

We’ll see what happens! Presumably the credit would be adversely affected if they use the excess cash to privatize Loblaws:

Speculation has swirled over what the company could do with its bulked up bank account.

Galen Weston said the company could look towards opportunities in either the United States or Canada, and the possibility of expanding its frozen bakery business.

There have also been suggestions that Weston is planning to buy out minority shareholders of Loblaw Cos. (TSX: L.TO), Canada’s largest supermarket operator. That would cost Weston about $3.5 billion at current stock values.
…
Galen Weston briefly addressed the rumours after an analyst question.

“The way we look at our position in the baking and supermarket business is there’s a lot more opportunity to come,” he said, without mentioning specifics.

Outstanding Weston issues are WN.PR.A, WN.PR.B, WN.PR.C, WN.PR.D and WN.PR.E. They were last mentioned on PrefBlog en masse when Loblaws was downgraded. All issues are tracked by HIMIPref™, but are incorporated in the Scraps index due to credit concerns.

Update: S&P is much more emphatic:

Standard & Poor’s Ratings Services today said it placed its ratings, including its ‘BBB’ long-term corporate credit rating, on Toronto-based George Weston Ltd. on CreditWatch with negative implications. This means that we could either lower or affirm the ratings after completion of our review.

“The CreditWatch placement follows the company’s announcement that its subsidiary, Dunedin Holdings SARL, is in discussions with Mexico-based Grupo Bimbo S.A.B. de C.V. about the possible divestment of George Weston’s U.S. fresh bread and baked goods business,” said Standard & Poor’s credit analyst Lori Harris. Although total estimated sales proceeds and their redeployment are currently unknown, there is market speculation about whether the proceeds will be used for the possible privatization of George Weston’s 62%-owned subsidiary Loblaw Companies Ltd. (BBB/Negative/–) or of George Weston itself.

“In Standard & Poor’s opinion, the deployment of potential sales proceeds for privatization or acquisitions, combined with the absence of the EBITDA for the U.S. fresh baked goods business, could lead to higher debt levels and weaker credit protection measures,” Ms. Harris added. With adjusted debt to EBITDA of about 4.4x for the 12 months ended Oct. 4, 2008, George Weston’s credit measures are already weak for the ratings in our view.

While the ratings on George Weston and Loblaw are currently the same, the rating relationship between the two remains one of linkage, not equalization, with each rating jointly influenced by the respective credit profiles. In the event of the sale, Standard & Poor’s would reevaluate the key parent-subsidiary relationship, including the strategic importance and ownership structure, to determine the rating links between George Weston and Loblaw. The ratings could become equalized should the relationship become significantly closer.

Standard & Poor’s will monitor current developments and meet with management to discuss the proposed divestment and use of proceeds. The resolution of the CreditWatch placement depends on the transaction closing and subsequent redeployment of funds, the revised capital structure, and George Weston’s future business and financial strategies.