Category: Issue Comments

Brompton Group has announced it:

is proposing a meeting of YEARS Financial Trust (“YTU”) to consider the merger of YTU into Dividend Growth Split Corp. (“DGS”). The merger is being proposed to address the economic inefficiencies of operating a small investment fund like YTU and to provide investors with a high quality portfolio at a low cost. Due to its smaller size, YTU’s annual general and administration costs currently represent 0.66% of its net asset value and YTU is becoming too small to operate on its own.

DGS invests on an equally weighted basis in a portfolio of 20 large capitalization Canadian equities that have among the highest dividend growth rates on the TSX and utilizes a split share structure. Over 60% of DGS’s portfolio is invested in Canadian financial equities and it includes nine of the eleven equities currently held in YTU. In addition, Highstreet Asset Management, which acts as portfolio manager of YTU, invests DGS’s assets, rebalances its portfolio and selectively writes covered options to generate additional income for DGS. As such, the Manager considers DGS to be a similar investment to YTU.

DGS had $30-million in assets as of January 31, 2008, while YTU had $23-million as of August 31.

DGS.PR.A is not tracked by HIMIPref™. The issue was announced last November.

The new issue announced September 8 settled today. Oddly, the ticker symbol is RY.PR.I, although the issue is Series AJ. It’s a shame, because they have been doing so well with series AA through AH of keeping the series designation congruent with the ticker … no telling how many trading errors that will cause over the life of the issue! Well, it solidifies PrefInfo‘s status as a useful site, anyway!

Royal announced on September 8:

as a result of strong investor demand for its domestic public offering of Non-Cumulative, 5 year rate reset Preferred Shares Series AJ (the “Preferred Shares Series AJ”), the size of the offering has been increased to 14 million shares. The gross proceeds of the offering will now be $350 million. In addition, the bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series AJ at a price of $25 per share.

This was a significant increase, given that the original issue size was announced as 9-million shares (=$225-million) + greenshoe.

I see nothing on Royal’s website or on SEDAR regarding exercise or expiry of the greenshoe.

The issue traded 611,570 shares today in a range of 24.90-00. The closing quote was 24.95-98.

RY.PR.I is tracked by HIMIPref™. It has been added to the FixedReset Index.

There was a host of temporary trading halts and related announcements from CC&L Group today regarding their structured-note-derivative-preferreds.

Lehman’s bankruptcy announcement constitutes a credit event and brings them all a little bit closer to the brink … I will leave my Assiduous Readers to judge whether they are dangerously close to the brink or not, I’m not taking a view.

Connor, Clark & Lunn will host a conference call to discuss the implications of recent events on Tuesday September 16, 2008 at 9:00 AM EST. The conference call number is (416) 644-3415 or 1 (800) 733-7571 and the replay number is (416) 640-1917 or 1 (877) 289-8525. The pass code is 21283536#.

The previous post on these issues was RPA.PR.A / RPB.PR.A / RPQ.PR.A Hit by FannieFreddieFiasco. There is no prior PrefBlog post for PRF.PR.A.

None of these issues is tracked by HIMIPref™.

I recently had a contest about ACO.PR.A which has been won by Assiduous Reader adrian2.

The question was:

So: here’s the question … how might a rational investor reason that paying $27.00 for this issue has enough chance of at least a half-way decent return to make it worth while? This investor knows that the yield to worst is negative and that he’s taking a chance … why might he buy it anyway?

ACO.PR.A closed at 26.62-75 on Friday, so the situation isn’t quite as dramatic as it was when the bid was $27.00. However, the portfolio of possibilities for this issue on Friday, according to HIMIPref™ was:

Call 2008-12-31 YTM: -1.78 % [Restricted: -0.54 %] (Prob: 40.10 %)
Call 2009-12-31 YTM: 2.35 % [Restricted: 2.35 %] (Prob: 1.01 %)
Soft Maturity 2011-11-30 YTM: 3.68 % [Restricted: 3.68 %] (Prob: 58.89 %)

So the YTW was -1.78%.

Why would an investor pay such a rich price for the issue? Well, there was a hint of the answer buried in my article about retractible preferreds and bonds:

One may sometimes make a reasonable argument that YTW is not the most appropriate method of calculating yields. Say, for instance, that a company has the ability to issue preferreds that pay $1.25 p.a. and has an issue outstanding that pays $1.40 and is currently callable at $26.00, with this price declining by $0.25 annually for the next four years. If the issue is trading above $26.00, the YTW scenario will almost certainly be an immediate call. However, since the company can save $0.25 by delaying redemption, the net cost to the company of leaving the shares outstanding for another year is the dividend less the saving, or $1.15 (during the declining call-price period). Since this is less than the rate it would pay on a new issue, the company may well prefer to wait.

The question of what to believe is a complex question—complex enough, in fact, that I am currently devoting a great deal of time to researching the matter. Most investors will be well advised to rely on YTW.

In other words, Atco (the issuer of ACO.PR.A) may look at the issue on 2008-12-1 and say – ‘well, this issue pays $1.4375 annually, or 5.75% of par (as dividends, which costs more than interest) … we’d better redeem.’

But according to the redemption schedule, they can save $0.50 off the redemption price every year by waiting! If we were going to analyze this precisely, we would look at the situation from their point of view as a loan of $26.00 which amortizes down to a $25.00 balloon payment on 2010-12-1 (the first date they can redeem at $25.00) via quarterly blended payments that include principal. But from a back-of-an-envelope, conceptual perspective, we can say that it’s a loan of $25.50 with an cost of $1.4375 dividend LESS the decrease of $0.50 in redemption price, for an all-in cost of $0.9375 … which comes to about 3.67%, a financing cost calculated to bring smiles to the most hardened CFO, even if it as expensive dividends.

These calculations will be incorporated into the next release of HIMIPref™ – yes, I am working on it, albeit slowly – as “Yield to Issuer Best”. To select YTIB from the table of possibilities, I will be determining the disparity of each redemption option from the yield curve – that is, cash flows for the instrument will be discounted by the self-consistent yield curve to arrive at a net present value for each option. The lowest NPV will determine the YTIB. I do not know, at this point, how influential in the valuation YTIB will be relative to YTW … but hey, it’s worth looking at!

Incidentally, ACO.PR.A was added to the TXPR index in the last rebalancing, despite what might be considered to be relatively low average trading value (HIMIPref™ indicates $18,374 worth of shares daily, TMXMoney calculated 1,600 shares (the difference doesn’t bother me; HIMIPref™ is an adjusted exponential moving average; I believe that TMXMoney is an unadjusted rolling average, virtually guaranteed to show a higher result). A large part of ACO.PR.A’s current price may well be buying from indexers.

The following graphs regarding ACO.PR.A have been prepared and uploaded:

• Yield to Worst
• Average Volume
• Daily Volume

TD Bank has announced:

that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 2 million non-cumulative 5-Year Reset Preferred Shares, Series AA (the “Series AA Shares”) carrying a face value of $25.00 per share. This brings the total issue announced on September 2, 2008, and expected to close September 12, 2008, to 10 million shares and gross proceeds raised under the offering to $250 million. TDBFG has filed in Canada a prospectus supplement to its January 11, 2007 short form base shelf
prospectus in respect of this issue.

Details of this issue were reported when the issue was announced on September 2.

So – another greenshoe fully exercised for a fixed-reset issue! They’re clearly easy to sell, despite various reservations.

TD.PR.A traded 908,645 shares today in a range of 25.00-15, closing at 25.10-12, 10×6. It has been added to the HIMIPref™ database and Fixed-Reset Index.

C. A. Bancorp has announced:

the Corporation has closed a public offering today (the “Offering”). The Corporation offered units (the “Units”) at a price of $10.00 per Unit. Each Unit consists of one Class A Share and one warrant (a “Warrant”) to purchase a Series 1, Preferred Share (a “Preferred Share”).

At the closing, the Corporation issued 2,700,000 Units for aggregate gross proceeds of $27,000,000. The gross proceeds consisted of $23,181,260 in cash and $3,818,740 in publicly listed Canadian common shares and investment grade securities received under the exchange option of the Offering.

The agents for the Offering have been granted an over-allotment option to purchase up to 405,500 Units at any time during the next 30 days.

The securities forming a Unit will trade together on the Toronto Stock Exchange (“TSX”) under the symbol RF.UN as a Unit and cannot be transferred except as part of a Unit and the Warrants may not be exercised for the first 30 days after the date hereof. Thereafter, the Class A Shares and the Warrants will trade separately on the TSX under the symbols RF.A and RF.WT, respectively.
…
Each Warrant will entitle the holder to purchase one Preferred Share at a subscription price of $23.75 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.
…
The Manager uses the maturity value of the aggregate number of Preferred Shares issued and outstanding and compares that value to the tangible net book value of the aggregate number of Class A Shares issued and outstanding as a measure of the debt (the Preferred Shares) to equity (the Class A Shares) ratio of the Corporation (the “Leverage Ratio”). As at June 30, 2008, the Leverage Ratio was 8.8 to 1.

The Offering caused the debt to equity ratio or the Leverage Ratio of the Corporation to decrease. As at the date hereof, the Leverage Ratio is approximately 1.2 to 1.

As previously reported on PrefBlog, there was a 2-million unit minimum on the offering.

RF.PR.A is not tracked by HIMIPref™

The nice thing about holding Charterhouse Preferred Share Index Corporation is that you get invited to a lot of meetings.

JovFunds Management has announced:

Charterhouse Preferred Share Index Corporation (“Charterhouse”), Fairway Diversified Income and Growth Trust (“Fairway Diversified”), Deans Knight Income and Growth Fund (“Deans Knight”) and Long Reserve Life Resource Fund (“Long Reserve”)(collectively, the “Funds”) announce that they will hold special meetings of the shareholders of Charterhouse and unitholders of Fairway Diversified, Deans Knight and Long Reserve (collectively, the “Securityholders”) on October 20, 2008. JovFunds Management Inc. (“JovFunds”) is the manager of each of these products.

At the meetings, Securityholders will be asked to consider and vote on various proposals relating to the Funds in order to be consistent across the Funds and with market practices, and to improve administrative and operational efficiencies that will be fully described in the management information circulars to be provided to Securityholders in advance of the meetings. Securityholders of record on September 19, 2008, will be entitled to receive notice of and vote at the meetings.

I have seen more informative press releases! The result of the August meeting has been discussed on PrefBlog.

PFD.PR.A is not tracked by HIMIPref™.

Following the shareholder approval of the term extension and during the DBRS Credit Review-Developing, Financial 15 Split Corp. has announced:

a Class A share consolidation for all Class A shareholders of record on September 12, 2008.

The purpose of the share consolidation is to maintain an equal number of Class A shares and Preferred shares outstanding.

As a result of the successful vote to extend the termination date of Financial 15 to December 1, 2015 at the recent Special Meeting of Shareholders held on July 23, 2008, both Class A shareholders and Preferred shareholders were given a special retraction right. This special retraction right allowed both classes of shareholders to tender one or both classes of shares and receive a retraction price based on the August 29 net asset value per unit. In aggregate, there were more Preferred shares tendered for retraction than Class A shares. Since Financial 15 is required to maintain an equal number of shares outstanding for each Class as per the prospectus, the Company must reduce the Class A shares proportionate to the reduction in the Preferred shares.

Immediately after the special retraction payment on September 12, 2008, there would be 7,788,104 Preferred shares and 9,791,021 Class A shares outstanding. In order to restore an equal amount of shares outstanding for each Class, Class A shareholders will have each Class A share consolidated into 0.795432879 Class A shares. In addition the monthly Class A share dividend will be increased from 10 cents per share ($1.20 per annum) to 12.57 cents per share ($1.5084 per annum) in order to maintain the same pre consolidation dividend rate.

The consolidation of the Class A shares has no impact on the intrinsic value of the Class A shares since the net asset value per unit attributable to the Class A shares would increase proportionate to the reduction in the number of Class A shares.
…
The impact of the share consolidation will be reflected in the next reported net asset value per unit as at September 15, 2008.

This implies that the August 29 asset coverage of about 2.0:1 will increase to about 2.5:1.

The Canadian Imperial Bank of Commerce has announced:

it completed the offering of 12 million non-cumulative Rate Reset Class A Preferred Shares Series 33 (the “Series 33 Shares”) priced at $25.00 per share to raise gross proceeds of $300 million.

The offering was made through a syndicate of underwriters led by CIBC World Markets Inc. Following the successful sale of the initially announced 9 million Series 33 Shares, the underwriters exercised an option to purchase an additional 3 million shares. The Series 33 Shares commence trading on the Toronto Stock Exchange today under the ticket symbol CM.PR.K.

This issue was announced on August 27.

I must say, it looks like these things are easy to sell, despite the various doubts (which include my own!), given that the $75-million greenshoe was fully exercised.

The issue traded 390,289 shares today in a range of 24.80-00, closing at 24.95-97, 30×8.

CM.PR.K has been added to the HIMIPref™ Fixed-Reset Index.

Scotiabank has announced:

that it has completed the domestic offering of 12 million, non-cumulative 5-year rate reset preferred shares Series 22 (the “Preferred Shares Series 22”) at a price of $25.00 per share. The gross proceeds of the offering were $300 million.

The offering was made through a syndicate of investment dealers led by Scotia Capital Inc. The Preferred Shares Series 22 commence trading on the Toronto Stock Exchange today under the symbol BNS.PR.R.

I was somewhat surprised to see that the issue size was $300-million, since the original announcement was for $200-million with a $50-million greenshoe, but SEDAR reveals (“Bank of Nova Scotia, The”, “August 27, 2008”, “Underwriting or Agency Agreement”):

The Bank now wishes to offer to the Underwriters, and the Underwriters now wish to purchase from the Bank, an additional 4,000,000 Preferred Shares Series 22 at a price of $25.00 per Preferred Share Series 22.

So it would appear they had no trouble at all getting it off the shelf!

The issue traded 782,940 shares today in a range of 24.86-00, closing at 24.97-99, 100×400.

BNS.PR.R has been added to the HIMIPref™ Fixed-Reset Index.