Category: Issue Comments

BNS Split Corp. II has announced:

that it has called 293,090 Preferred Shares for cash redemption on September 22, 2008 (in accordance with the Company’s Articles) as a result of the special annual retraction of 1,033,050 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on September 19, 2008 will have approximately 12.294% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $20.83 per share.

Holders of 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 September 22, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on September 22, 2008. From and after September 22, 2008 the holders of 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.

There was a similar partial call last September.

BSC.PR.A is not tracked by HIMIPref™.

The companies, which share a common manager/sponsor have announced:

On Sunday the US federal government announced its intention to place government sponsored entities (“GSEs”) Fannie Mae and Freddie Mac (both rated AAA by Standard & Poor’s) under conservatorship. The government’s actions, taken through the Federal Housing Finance Agency, the US Department of the Treasury and the Federal Reserve, are intended to reduce risk in the mortgage financing market.

The use of a conservatorship as the vehicle by which to carry out the changes, however, has potential consequences for ROC Pref II Corp.(“ROC II”), ROC Pref III Corp. (“ROC III”), and Connor, Clark & Lunn ROC Pref Corp. (“ROC IV” and collectively “the ROCs”) which have exposure to both Fannie Mae and Freddie Mac in their respective Reference Portfolios. As discussed in greater detail below, based on current information, we believe the impact on ROC II and ROC IV will be minimal. The impact on ROC III, however, could be more significant.

In the credit default swap (“CDS”) market, contracts are written using standardized language as set out by the International Swaps and Derivatives Association (ISDA). The ROCs apply this standard set of terms. Under ISDA terms, conservatorship is included as part of the definition of a credit event and therefore the government’s actions could be construed as a credit event that would impact the ROCs. Most large investment banks who are ISDA members have disclosed to ISDA that they interpret the conservatorship to be a credit event under the ISDA definitions. ISDA has announced that, after consultation with industry participants, it will launch a protocol to facilitate settlement of credit derivative trades involving Fannie Mae and Freddie Mac. ISDA will publish further details in due course.

The net economic impact of the government’s actions was to decrease the risk of default on the senior debt of the GSEs and there are some differences between this circumstance and the actions of a typical conservatorship, therefore we believe that there will be substantial on-going discussions regarding the impact of these actions on the CDS market in general and the fixed recovery rate swaps in particular. As of the time of this release the ROCs have not received a credit event notice.

If the dealers who issued the credit linked notes pertaining to the ROCs interpret this event as a credit event, ROC II and ROC IV would likely experience minimal impact given the recovery rate is expected to be in the 95% to 100% range. ROC III [RPB.PR.A] however, has a fixed recovery rate feature which, in the case of a typical credit event, would limit the recovery rate to the fixed level of 40%. Fixed recovery rates were a feature that was commonly used in the CDS marketplace at the time that ROC III shares were issued. The rating agencies preferred the additional level of certainty that fixed recovery rate swaps provided investors by taking away the risk of very low recovery levels.

CDS Recovery Locks have been discussed on PrefBlog.

RPA.PR.A was last discussed on PrefBlog when it sustained a credit event from Quebecor World.

RPB.PR.A was placed on Credit-Watch Negative in June. In a development not reported by PrefBlog, it was taken off credit watch and affirmed at P-2(low) in August.

RPQ.PR.A was downgraded in May.

None of these issues are 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.

Energy Split Corp. has announced:

that it has called 24,300 Preferred Shares for cash redemption on September 16, 2008 (in accordance with the Company’s Articles) representing approximately 1.110% of the outstanding Preferred Shares as a result of the special annual retraction of 253,600 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on September 15, 2008 will have approximately 1.110% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $21.00 per share.

Holders of 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 September 16, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on September 16, 2008. From and after September 16, 2008 the holders of 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.

ES.PR.B was last mentioned on PrefBlog in connection with DBRS’s downgrade to Pfd-3(high) at this time last year, when asset coverage was 1.52:1. Asset coverage is 1.92:1 as of August 28 according to Scotia.

ES.PR.B is not tracked by HIMIPref™.

Remember the old days, when retractible issues yielded less than perpetuals? That inspired one of my first articles, in which I examined the question of just how bad things had to get before the tortoise outpaced the hare.

And, Assiduous Readers will recall, BNA.PR.C often exhibits puzzling behavior.

These two concepts have now met, with (at the closing bid) BNA.PR.C priced below BAM.PR.N.

BNA.PR.C yields 9.37%, based on a bid of 16.83 and a hardMaturity 2019-1-10 at 25.00, while BAM.PR.N yields 7.13% based on a bid of 17.00 and a limitMaturity. The former issue is a split share based solely on BAM.A, with asset coverage of 3.3+:1 as of July 31, according to the company. As of March 31, 2008, there were 19,032,000 Units outstanding, each unit comprised of one capital share and one preferred share – each series of preferreds has a $25 liquidation value. The company owns 46,161,000 shares of BAM.A, so the BAM.A:Unit ratio is 2.4:1, so at today’s closing price of $31.52, asset coverage is a hair over 3.0:1. Give or take.

Now, one thing that makes the BNA issues intrinsically fascinating is the fact that they are so well covered by a relatively poor credit. I wish I could be as poor a credit as Brookfield, at Pfd-2(low) according to DBRS, but it’s still worse than the banks! This means that the credit rating of BNA is constrained by the rating of the BAM prefs – which makes all kinds of sense. As a rough approximation – for conceptual purposes only – we can say that BNA prefholders get hurt when the common is below $10, while the BAM prefholders get hurt when the common is below $0.

Anyway, the upshot is:

• the BNA prefs may be thought of as being junior to the BAM prefs, but
• the BNA prefs have a fixed maturity date, while the BAM perps are … perps

I invite criticism on this point, but I suggest that the two influences cancel out, leaving credit quality of the two issues approximately equal for investment purposes.

But the spread between these issues has varied all over the place:

• Yield-to-Worst
• Spread

The wideness of the current spread really is most peculiar. The fund has recently swapped its BAM.PR.N holding for BNA.PR.C … we shall see how well it works out!

Update, 2008-09-06: BAM.PR.N was recently affirmed at Pfd-2(low) by DBRS.

Trading in CXC.PR.A was halted at 9:40am today on pending news; trading resumed at 10:30am.

The cause for the halt was “pending news” – CI Financial has announced:

At the request of the Investment Industry Regulatory Organization of Canada, on behalf of the Toronto Stock Exchange, CI Financial Income Fund (“CI”) today confirmed that over the past several months, CI has had discussions with a number of parties concerning possible strategic combinations involving CI and its subsidiaries. At the present time, there is no certainty that any transaction will be completed. As per company policy, CI will not comment further on rumours and speculation.

Amazing timing! There’s a story on Bloomberg today about what a lousy time it is to sell asset managers:

Their timing couldn’t be worse as prices for fund companies have fallen to the lowest in six years.
…
The market’s weakness can be measured by the ratio of stock prices to earnings of publicly traded asset managers such as BlackRock Inc. and Legg Mason Inc. A basket of 50 companies worldwide traded at an average of 11 times earnings in the second quarter, meaning investors were willing to pay $11 for each $1 of operating profit. That’s down from 17.7 times in the second quarter of 2003, according to data compiled by the Putnam Lovell unit of New York-based Jefferies Group Inc.

It’s the lowest valuation for the group since 2002, driven by a 17 percent decline in world stock prices since Jan. 1, as tracked by the MSCI World Index. Also dragging prices lower has been a selloff of publicly traded hedge funds, buyout firms and managers based outside of the U.S.

CIX recently announced:

Net income (adjusted for equity-based compensation) for the quarter ended June 30, 2008 was $135.8 million, down 11% from the three-month period ended June 30, 2007. On a per unit basis, adjusted earnings for the quarter were $0.49, down from $0.54 per unit for the three months ended June 30, 2007.

CIX.UN closed today at 22.11, up $1.14. The 52-week high/low is 28.49 / 19.20.

CXC.PR.A had asset coverage of 1.7+:1 as of August 21, according to CI Investments.

CXC.PR.A is not tracked by HIMIPref™

C.A.Bancorp has announced:

a change to the exercise price of the warrants being offered under a preliminary prospectus dated July 21, 2008.
…
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. Previously, as filed in the preliminary prospectus, the subscription price was set at $24.50. The revised subscription price will be changed to $23.75 upon filing of the final prospectus.

The offering has been previously noted on PrefBlog. It would appear that they’re having a little difficulty selling it!

DBRS has announced that it:

has today discontinued its ratings coverage of Quebecor World Inc. (Quebecor World).

Quebecor World’s North American subsidiaries have been operating under the Companies’ Creditors Arrangement Act in Canada and under Chapter 11 of the United States Bankruptcy Code in the United States since January 21, 2008.

Short and sweet, eh? S&P withdrew their ratings on June 10. Moody’s withdrew theirs on February 6.

Quebecor World was last mentioned on PrefBlog in connection with the continuing conversion of IQW.PR.C to common.

JovFunds Management Inc. has announced:

at the special meeting of the preferred shareholders of Charterhouse held today, preferred shareholders voted:

a. Against a proposed resolution to approve an amendment of the articles of incorporation of Charterhouse to permit Charterhouse to redeem all outstanding preferred shares on a merger of Charterhouse into the Fairway Diversified Income and Growth Trust; and

b. For a proposed resolution to approve an amendment to the articles of incorporation of Charterhouse to permit the Corporation to redeem all outstanding preferred shares prior the scheduled redemption date. [sic]

The meeting was previously discussed on PrefBlog.

Morgan Meighan has announced that:

Canadian General Investments, Limited (the “Company”) today announced that it has provided notice to holders of its $60,000,000 5.40% Cumulative Redeemable Class A Preference Shares, Series 1 that the Company will redeem all of such Shares on October6, 2008 for the redemption price of $25.00 per share plus accrued and unpaid dividends (from and including the last scheduled dividend payment date, September15, 2008, to but excluding the date of redemption, and being in the amount of $0.07767 per share), less any required withholding tax.

This is the first date that the issue becomes retractible, according to the prospectus:

On and after October 5, 2008, Canadian General Investments, Limited (“CGI” or the “Corporation”) may, on not less than 30 nor more than 60 days’ notice, redeem for cash the Series 1 Shares in whole or in part, at the Corporation’s option, at $25.00 per share together with all accrued and unpaid dividends to the date of redemption. On and after October 5, 2003 the Corporation may, on not less than 30 nor more than 60 days’ notice redeem for cash all but not less than all of the Series 1 Shares upon payment of a redemption price equal to the higher of the Yield Price (as defined) and $25.00 per share together with accrued and unpaid dividends to the date of redemption. On and after October 5, 2008, the Series 1 Shares will be redeemable for cash, at the option of the holder, for $25.00 per share, plus accrued and unpaid dividends to the date of retraction.

CGI.PR.A is tracked by HIMIPref™. I consider it to be a SplitShare but it is in the “Scraps” index due to volume concerns.

Update: Morgan Meighan has issued a press release:

Canadian General Investments, Limited (the “Company”) today completed the previously announced redemption of its $60,000,000 5.40% Cumulative Redeemable Class A Preference Shares, Series 1. This redemption is in accordance with the terms of the governing short form prospectus. The aggregate amount of $60,186,480 (including accrued and unpaid dividends from September 15, 2008) was funded through the sale of portfolio securities.

… but the TMX website continues to report trading. I don’t know what the story on this one’s all about!