Category: Issue Comments

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.

… however, the previously scheduled end of the world was cancelled on July 17, and …

… so, after all the smoke has cleared …

Lawrence Asset Management has announced:

On July 31, 2008, holders of Preferred Shares are expected to be repaid $25.00 per Preferred Share from the proceeds of a forward agreement with Canadian Imperial Bank of Commerce. The Preferred Shares offer an attractive alternative to conventional preferred shares, bonds, money market and other income vehicles.

Equity Shares (TSX:PAY) On July 31, 2008, Equity Shareholders will receive the proceeds of the Managed Portfolio. Distributions to PAY holders were paid from the Fund’s inception to October 31, 2005. PAY does not currently have a distribution.

So the preferred shares will be paid in full; the equity shares will receive about $11.40, after having subscribed $20 in March 2002 … and, as noted by Lawrence Asset Management, not having received distributions for the past 2.75 years.

PAY.PR.A was last mentioned in February 2008.

C.A.Bancorp has announced:

that a preliminary prospectus had been filed with, and a receipt therefor issued by, the securities regulatory authorities in each of the provinces and territories of Canada.

The Corporation is offering (the “Offering”) 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 one Series 1, Preferred Share (the “Preferred Shares”). Prospective purchasers may purchase Units by (i) cash payment, or (ii) an exchange (the “Exchange Option”) of eligible securities of certain issuers (“Issuers”) at the applicable exchange ratio. The Offering is for a minimum of 2,000,000 Units ($20,000,000) and a maximum of 10,000,000 Units ($100,000,000).
…
C.A. Bancorp Ltd. (the “Manager”) views the Preferred Shares as a form of financial leverage to the Class A Shares as the Preferred Shares have a fixed term, fixed cash distributions and fixed maturity value.

The Manager uses the maturity value of the Preferred Shares issued and outstanding and compares that to the tangible net book value of the Class A Shares issued and outstanding as a measure of 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.
…
Each Warrant will entitle the holder to purchase one Preferred Share at a subscription price of $24.50 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.

Assiduous Readers will recall I hated this issue on announcement. At issue, the Leverage Ratio was about 8:1, so it would appear that so far in their short history, they’ve lost money … but this is just a guess, since their investment update, while lauding many attractive features of the fund, does not go so far as to provide even an estimated mark-to-market of the fund’s value. Fortunately, however, there is a prospectus for this capital raise on SEDAR (search the last six months for “Bancorp”):

EARNINGS COVERAGE RATIOS

The Preferred Shares’ distribution (interest) requirements, after giving effect of the issuance of Preferred Shares through the exercise of the maximum number of Warrants offered under this Offering would have been $19,473,273 per annum. The Corporation had a loss before interest of $1,870,240 (annualized from $666,113 for the 130 days ended June 30, 2008). An increase of $24,573,439 per annum in earnings would be necessary to produce an earnings coverage ratio of one to one for the annualized period ended June 30, 2008 which would have required a yield of 7.32% on any net proceeds received on a maximum Offering of Class A Shares and full exercise of all Warrants distributed under the Offering.

Well, it’s all very interesting, but I won’t be looking at this further. It’s a wonderful idea for a company, but I have great difficulty envisaging the preferred shares as investment grade. Mind you, RF.PR.A is currently quoted at 20.51-50, 4×1, so those with an appetite for junk might be interested.

Following the shareholder approval of the term extension, DBRS:

has today placed the rating of the Preferred Shares issued by Financial 15 Split Corp. (the Company) Under Review with Developing Implications.

An initial rating of Pfd-2 was assigned to the Preferred Shares in November 2003. The Preferred Shares had a scheduled final maturity date of December 1, 2008. On June 3, 2008, Quadravest Capital Management (the Manager) announced a proposal would be made to the Company’s shareholders to extend the mandatory termination date for the Company from December 1, 2008 to December 1, 2015.

On July 23, the Manager announced that the resolution to extend the final maturity was approved by the required percentage of Preferred Shareholders and Class A Shareholders. As a result of such developments, DBRS has placed the rating of the Preferred Shares Under Review with Developing Implications.

FTN.PR.A had an asset coverage of just under 1.7:1 as of July 15, according to the company, with the note:

As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.

Shall we guess? Based on the downgrade of WFS.PR.A and the downgrade of FFN.PR.A, I’d call it 50-50 between a rating of Pfd-2(low) and Pfd-3(high) once the review has been completed.

The Toronto Stock Exchange has announced:

Pursuant to an Order issued on July 21, 2008 by the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act, the Company and its monitor in those proceedings, Ernst & Young Inc., have been authorized to consent to the delisting of Hollinger Inc’s Retractable Common Shares (Symbol: HLG.C) and Exchangeable Non-Voting Preference Shares Series II (Symbol: HLG.PR.B) (collectively the “Securities”). Accordingly, TSX will delist the Securities at the close of market on August 22, 2008 for failure to meet the continued listing requirements of TSX. The Securities of the Company are currently halted due to the imposition of a Cease Trade Order by the Ontario Securities Commission. In addition, the Securities have been suspended from trading by TSX effective immediately.

The same press release had further details regarding the Argus delisting previously discussed.

HLG.PR.B has not been tracked by HIMIPref™.

Update, 2008-8-22: The delisting has become effective:

Hollinger Inc. (the “Company”)(TSX:HLG.C)(TSX:HLG.PR.B) announced today that the Company’s common shares and Series II preference shares (collectively, the “Shares”) were delisted from the Toronto Stock Exchange (the “TSX”) effective as of the close of business today.

The Shares have been suspended from trading since the issuance of a cease trade order by the Ontario Securities Commission on July 23, 2008. The cease trade order was issued as a result of the Company’s determination, in the interests of reducing its costs for the benefit of its stakeholders, not to prepare and file annual audited financial statements and other annual disclosure documents in respect of the Company’s financial year ended March 31, 2008. Consequently, following June 30, 2008, the Company has been in default of its continuous disclosure filing requirements under Canadian securities laws.

On July 21, 2008, the Ontario Superior Court of Justice (the “Court”) issued an order authorizing the Company and Ernst & Young Inc., the Company’s court-appointed Monitor (the “Monitor”), to consent to the issuance of the cease trade order and the delisting of the Shares. The Company and the Monitor have provided such consent.

Pursuant to proceedings under the Companies’ Creditors Arrangement Act (Canada), the Company is conducting a claims process for the Company and its subsidiaries, Sugra Ltd. and 4322525 Canada Inc. (the “Applicants”), and will also do so for its non-Applicant subsidiaries as part of their winding-up. Retired justice John D. Ground has been appointed as Litigation Trustee to administer the Company’s litigation assets, assisted by an Advisory Committee and under the supervision of the Monitor and the Court.

Preliminary estimates prepared by the Company, in conjunction with the Monitor, indicate that there is a significant risk that there will not be adequate recoveries from the Company’s assets for there to be any residual value for the Series II preference or common shareholders of the Company.

Financial 15 Split Corp. has announced:

A special meeting of the shareholders of Financial 15 Split Corp. (“Financial 15”) was held on July 23, 2008.

Shareholders were asked to consider and, if thought advisable, to approve a special resolution to amend the articles of Financial 15 to extend the termination date of Financial 15 to December 1, 2015 and to provide holders of the Preferred Shares and the Class A Shares of Financial 15 with the Special Retraction Right as described in the Management Information Circular dated June 16, 2008.

Preferred Shareholders voted 79% in favour of the resolution and Class A Shareholders voted 97% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2015 and to provide holders with the Special Retraction Right was approved at the meeting held earlier today.

The Term Extension has been previously discussed on PrefBlog.

FTN.PR.A is incorporated in the HIMIPref™ SplitShare Index. There are currently 10.175-million shares outstanding, according to the TSX, with a par value of $10.00 – so it’s a nice size and would be good to keep on the board.

RSM Richter has announced:

that the Ontario Superior Court of Justice (Commercial List) ( the “Court”) issued an order authorizing the Receiver, on behalf of Argus, to consent to a cease trade order (the “Argus CTO”) to be issued by the Ontario Securities Commission (the “OSC”). The date upon which the Argus CTO will be issued has not yet been determined.

The Argus CTO will apply to all securities of the Company but will contain carve-outs to permit trades in the Company’s securities that are made: (i) in connection with the Company’s Companies’ Creditors Arrangement Act (Canada) proceedings or receivership proceedings and as approved by the Court; (ii) for nominal consideration for the purpose of permitting a holder to crystallize a tax loss; or (iii) by or to an entity that qualifies as an “accredited investor” as that term is defined under applicable Canadian securities laws. Provided that with respect to (ii) and (iii) a copy of the Argus CTO is provided and the seller receives an acknowledgment that the Argus securities remain subject to the Argus CTO.

The Receiver is to maintain a transfer registry for exempt trades until January 31, 2010, which is to be funded from the Argus estate account maintained by the Receiver.

The Company has also been advised by the Toronto Stock Exchange (the “TSX”) that, provided the Argus CTO is granted, the TSX will initiate a process that will lead to the delisting of the Company’s Class A Preference Shares Series $2.50, Class A Preference Shares Series $2.60 and Cumulative Class B Preference Shares Series 1962 from the TSX following the issuance of the Argus CTO.

The Argus CTO is being issued as a result of the Company’s failure to (i) file audited annual financial statements, and other financial information for years ended December 31, 2005, 2006, and 2007; (ii) interim financial statements for the fiscal periods ended March 31 and June 30, 2008; and (iii) comply with other regulatory requirements. The Receiver also announced that in the interests of reducing costs for the benefit of its stakeholders, it would be discontinuing the preparation and filing on a bi-weekly basis the status reports required under the terms of the Management Cease Trade Order issued on June 1, 2004 by the OSC.

AR.PR.B was tracked by HIMIPref™ until the low price caused mechanical problems. AR.PR.A and AR.PR.D have not been tracked by HIMIPref™.

Update, 2008-7-23: The TSX has announced:

Pursuant to an Order issued on July 21, 2008 by the Ontario Superior Court of Justice (Commercial List) (the “Court”) the Company, by its receiver and manager, interim receiver and monitor, RSM Richter Inc., has been authorized by the Court to consent to the delisting of Argus Corporation Limited’s Class A Preference Shares Series $2.50 (Symbol: AR.PR.A), Class A Preference Shares Series $2.60 (Symbol: AR.PR.D) and Cumulative Class B Preference Shares Series 1962 (Symbol: AR.PR.B) (collectively the “Securities”). Accordingly, TSX will delist the Securities at the close of market on August 22, 2008 for failure to meet the continued listing requirements of TSX. The Securities of the Company are currently halted due to the imposition of a Cease Trade Order by the Ontario Securities Commission. In addition, the Securities have been suspended from trading by TSX effective immediately.

This is unlikely to be a major event, but … they did purchase some last year and they are trading at a discount to NAV so …

Mulvihill has announced:

that today, the Toronto Stock Exchange has accepted its Notice of Intention to make a normal course issuer bid. The Corporation will have the right to purchase under the bid up to a maximum of 458,470 Class A Shares and 458,470 Preferred Shares (representing approximately 10% of the Corporation’s public float), together in Units (each consisting of one Class A Share and one Preferred Share), commencing July 23, 2008. The Corporation may not purchase more than 91,694 of its Units (representing approximately 2% of the Corporation’s 4,584,700 issued and outstanding Class A Shares and approximately 2% of the Corporation’s 4,584,700 issued and outstanding Preferred Shares, both as of July 17, 2008) in any 30-day period under the bid. Purchases made pursuant to the normal course issuer bid will be made in the open market through the facilities of the Toronto Stock Exchange. The normal course issuer bid will remain in effect until the earlier of July 22, 2009, the termination of the bid by the Corporation or the Corporation purchasing the maximum number of Units permitted under the bid.

Class A Shares and Preferred Shares purchased by the Corporation pursuant to the issuer bid will be cancelled. During the previous year, the Corporation purchased 5,700 Class A Shares and 5,700 Preferred Shares at a weighted average price of $20.1899 per Unit pursuant to an issuer bid.

The units are currently trading at a discount of approximately 10% to NAV, according to Mulvihill’s July 10 NAV and current prices of SBN, SBN.PR.A and BNS closing price history.

SBN.PR.A is tracked by HIMIPref™. PrefBlog’s last comment was regarding the DBRS rating of Pfd-2(low).

11-Sigma? As reported on July 17, it has been claimed that US Financials recently experienced an eleven-standard-deviation price move; not just a black swan, but a black-hole swan!

Perhaps not surprisingly, US Financial 15 Split Corp has made a slight adjustment to their standard valuation page, namely a Fund Update dated July 18:

A myriad of issues have affected the financial markets and have had a dramatic impact on the Company’s portfolio. Overall financial markets continue to be adversely impacted by the confluence of record high commodity prices and the continuing credit related problems originating from the US sub prime lending market. These conditions have caused economic growth to slow considerably in both Canada and the United States while at the same time high commodity prices are beginning to lead to a marked increase in inflationary pressures. In particular, the dramatic increase in oil prices has become a large obstacle for economic recovery. The US Financial Services sector is down approx. 34% year to date and in the last month closed at its lowest level since 1997 (over 11 years).

The combined effect of the market declines and the monthly distributions paid since inception has resulted in a decline in the net asset value of the Company to $9.25 as at July 15, 2008. The recent two day rally in the market has improved the net asset value of the Company by approximately 25% as at July 17, 2008.

One of their core holdings is Merrill Lynch, which got whacked today because of their writedowns, but let’s assume that the portfolio as a whole performed equally to the US S&P 500 Financials index, which is up another 3.05%

So, we’ll estimate the current net asset value of FTU units as 9.25 * 1.28 = $11.84.

Now, this asset coverage of slightly under 1.2:1 isn’t going to reverse the recent downgrade to Pfd-3. But just for fun, suppose we don’t need no stinking credit ratings. The prefs, FTU.PR.A, closed at 7.55-75, 15×10 today, after trading 800 – count ’em, 800 – shares in a range of 7.51-52.

So, say we can put on a huge position at $8.00. Our investment has asset coverage of just under 1.5:1 – not particularly good, but it’s not too long ago that issues were routinely given Pfd-2 credit ratings with this level of coverage – and it pays $0.525 annually until maturity 2012-12-1. That’s a yield of 6.56% on 4.5-year paper with asset coverage of 1.5-ish to 1. Which ain’t bad. And there’s the possibility of a bonus 25% being paid at the end of these 4.5-years if the units can avoid losing more than ~15% of their value over this time.

Which is kind of cool.

On the other hand, there’s some competition … the very ominously named “Mulvihill World Financial Split Corp” had asset coverage of just under 1.6:1 as of July 10, with no jiggery-pokery about market-value / par-value. It was downgraded recently to Pfd-2(low). It closed today at 8.80-85, 20×5, after trading 10,100 shares in a range of 8.77-87. At the closing bid, it yields 10.24%, way more than the Split Share Index … but remember, there is no bonus here – the yield calculation assumes full repayment of the $10 principal at maturity on 2011-6-30. Over 10% as a dividend on three-year paper is normally considered a good deal … but careful investors might wish to check the quarterly list of holdings to see if there have been any little accidents.

Update, 2010-08-05: See also Why Banks Failed the Stress Test.

There are some surprising strangenesses in prices as of the close today. For instance, remember the RY.PR.W / RY.PR.F inversion? At today’s closing bid of 20.27, RY.PR.W yields 6.16% while RY.PR.F yields 6.21% at $18.26. The price difference of almost exactly $2 can be compared with the difference of about $3.50 (= 22.23 – 18.74) on June 27 when I wrote that post.

And remember the CM issues from June 26?

The CM curve is extraordinarily flat … one would expect relative flatness, given that all the issues have a long way to go before calls become a concern, but one expects a lot of things in this world that don’t happen.

How about the PWF Perpetuals from July 8?:

… which isn’t quite exactly 100% as well behaved as the CM curve.

Do with it what you will! My brain hurts.