Category: Issue Comments

DBRS has announced it:

has today upgraded the Deposits & Senior Debt rating of Laurentian Bank of Canada (Laurentian, LB or the Bank) to BBB (high), the Subordinated Debt to BBB and the Short-Term Instruments to R-1 (low) from BBB, BBB (low) and R-2 (high), respectively; all the trends are Stable.

The rating upgrades reflect the progress LB has made in improving its sustainable internal capital generation through improvement in its earnings profile. DBRS believes LB’s strategy to focus on its three core segments (Retail & SME Québec, B2B Trust and Real Estate & Commercial) and its improved operating efficiency have been instrumental in increasing the quality of earnings over the last several years. A more clearly defined target market, investment in technology, strengthened relations with its unionized workforce and incentive compensation programs contributed to this improvement.

The core strategy is expected to deliver further improvements in return on equity (ROE) and internal capital generation in the intermediate term, although these improvements will likely be hampered in the near term by the slowing regional economy and difficult operating environment for banks in general.

Over the longer term, material improvements in efficiency are required to eliminate the Bank’s competitive disadvantage in its cost structure. Further efficiency improvements are targeted by increasing revenues while holding expense growth to lower levels, which DBRS views as an appropriate strategy. Working with the unionized workforce and improving the sales culture of the organization are integral to this goal.

B2B Trust has been (and is expected to continue to be) a positive factor in Laurentian’s credit profile in terms of its contribution to profitability, as well as the beneficial effect it has on both business line and geographic diversification.

Under DBRS’s global rating methodology for banks, Laurentian’s long-term Deposits & Senior Debt rating has an Intrinsic Assessment of BBB (high) and a Support Assessment of SA3. The SA3 rating, which reflects the expectation of no timely external support, results in the final rating being equivalent to the Intrinsic Assessment.

Laurentian reported adjusted ROE and internal capital generation in the first half of 2008 of 10.9% and 7.1%, respectively. While still comparatively low and assisted by an outsized securitization gain, these results are the highest in the past six years. Relative to other Canadian banks, LB has benefited from its higher proportion of retail deposit funding over the past nine months of credit market instability. Asset quality has remained strong.

While not mentioned in the text of the press release, the summary shows the preferreds being upgraded to Pfd-3(high).

This is a welcome change in direction for the bank’s ratings:

Update: The preferreds continue to be rated P-3(high) by S&P, while the credit rating is BBB with a positive trend.

Update: See also previous commentary for LB.PR.D and LB.PR.E

Brompton Group has announced:

A special meeting of securityholders for the funds listed below (collectively, the “Funds”) was held today at which securityholders approved the extraordinary resolutions to reorganize the Funds, including the merger of certain funds.

According to the website, VIP.PR.A will come with the same terms as BDS.PR.A, although the Information Circular does not appear to make this clear. The original intent had been to redeem BDS.PR.A, but these plans were changed in April.

Scotiabank has announced:

that it has completed the domestic offering of 14 million, non-cumulative 5-year rate reset preferred shares Series 20 (the “Preferred Shares Series 20”) including the full exercise of the underwriters’ option, at a price of $25.00 per share. The gross proceeds of the offering were $350 million.
The offering was made through a syndicate of investment dealers led by Scotia Capital Inc. Following the successful sale of the initially announced 12 million Preferred Shares Series 20, the syndicate fully exercised the underwriters’ option to purchase an additional 2 million shares. The Preferred Shares Series 20 commence trading on the Toronto Stock Exchange today under the symbol BNS.PR.Q.

The issue traded 629,480 shares today in a range of 24.95-07, closing at 24.98-00, 4×156. The related BNS.PR.P (which resets at +205) closed at 25.41-50, 15×66. It would seem the market it placing a lot of faith in actually seeing those extra thirty-five beeps!

BNS.PR.Q was announced and analyzed on May 27.

Lawrence Asset Management continues to break new ground in the field of split-share corporation management.

Assiduous Readers will recall my post regarding the Annual Retraction Feature for these shares; the “equity” (ha-ha) shares are guaranteed a price well in excess of their value, while the “preferred” (ha-ha) shares will get a price that may be well below their NAV.

They have now announced:

it intends to hold a conference call at 10 a.m. EST on June 10, 2008, to discuss the outlook for HI PREFS (TSX:HPF.pr.a, HPF.pr.b).

Shareholders and Investment Advisors are invited to join the conference call.

The details are as follows:
Date: Tuesday, June 10, 2008
Time: 10:00 am EST
Dial in: 416-695-7806 / 1-888-789-9572
Passcode: 3267826
For More Information Contact:
Investor Relations
Catherine Stretch
416-362-6283
info@lawvest.com

I will be the first to admit that I don’t know everything there is to know about the financial world – but I can’t remember seeing any such announcement for a split-share corporation before, let alone one for a conference call with such a vague agenda.

Lawrence Asset Management has announced:

On June 30, 2008, HI PREFS has its annual redemption feature. Investors who wish to participate must notify their broker of their intentions to do so at least five business days in advance of the redemption date. Proceeds from the redemption will be paid within ten business days into a shareholders brokerage account. For more details on how the annual and monthly redemption values are calculated for each of HPF.pr.a and HPF.pr.b, please click through to the next page.

Tendering HPF.pr.a to the Annual Redemption

The annual redemption value for the Series 1 share (HPF.pr.a) is calculated as the lowest of:

a) $25.00 per Series 1 Share
b) the Equivalent Canada Bond Value
c) the Net Asset Value per Unit determined as of the relevant Redemption Date after deducting the cost to the Company of the purchase for cancellation of one Series 2 Share and one Equity Share.

Based on calculations as of May 21, 2008, it is expected that the lowest of these three for the purposes of the annual redemption value calculation will be a) $25.00 per Series 1 Share. Therefore at this time, shareholders of HPF.pr.a are expected to receive $25.00 per share if they choose to redeem on June 30th, 2008. This is an estimate only to assist Series 1 Shareholders in deciding if they wish to tender to the redemption and may change between now and the annual redemption date.

There is also a monthly redemption feature on months other than the annual redemption date on which a redeemer would receive 95% of the annual redemption calculation. The monthly redemption value for redemptions received on April 30th, 2008 was $23.75.

Tendering HPF.pr.b to the Annual Redemption

The annual redemption value for the Series 2 share (HPF.pr.b) is calculated as the lowest of:

a) $14.70 per Series 2 Share
b) the Equivalent Canada Bond Value
c) the Net Asset Value per Unit determined as of the relevant Redemption Date after deducting the cost to the Company of the purchase for cancellation of one Series 1 Share and one Equity Share.

Based on calculations as of May 21, 2008, it is expected that the lowest of these three for the purposes of the annual redemption value calculation will be c) the Net Asset Value per Unit determined as of the relevant Redemption Date after deducting the cost to the Company of the purchase for cancellation of one Series 1 Share and one Equity Share. The NAV of the Unit is calculated by adding the NAV of the Series 1 Share ($25.00) plus the NAV of the Series 2 Share ($14.36 as at May 21, 2008). The cost to the Company to purchase for cancellation one Series 1 Share includes the cost to purchase the Series 1 Share on the TSX (currently trading at $24.00) plus commission of $0.04 and the fee that the Company pays to cancel the forward contract related to that Series 1 Share (approximately $0.50). As per the Prospectus, for the purposes of the redemption calculation the cost of the Equity share is deemed to be $3.54. Therefore at this time, shareholders of HPF.pr.b would be projected to receive approximately $11.28 per share if they choose to redeem on June 30th, 2008. This is an estimate only to assist Series 2 Shareholders in deciding if they wish to tender to the redemption and will change between now and the annual redemption date as the calculation is subject to market values that fluctuate daily.

It seems very odd that HPF.PR.A should be quoted today at 24.00-50, 5×7; the quote for HPF.PR.B makes a lot more sense at 10.00 – 12.00 (nice little $2 spread there!), 62×2. The NAVs are touted as $25.00 and $14.05 respectively, as of May 30.

However, nothing about this particular vehicle makes any sense at all; I’ve puzzled over it many times over the years, most recently in HPF.PR.A / HPF.PR.B : DBRS Affirms Ratings Despite Dividend Suspension.

Update: PrefBlog’s Department of Things that Make No Sense has discovered that the prospectus does not have any mechanism whereby holders can submit a unit – that is, HPF.PR.A & HPF.PR.B – and get the Unit Value. This is partly because Equity Shares are all held by the manager:

HI PREFS capital structure consists of Series 1 Shares (HPF.PR.A) and Series 2 Shares (HPF.PR.B) owned by the public and Equity Shares owned by Lawrence Asset Management Inc. (“the Manager”)

and – this is the best part (emphasis added):

In the event that any Series 1 Shares, Series 2 Shares or Equity Shares are tendered for redemption on a Redemption Date, the Company will purchase in the market for cancellation Series 1 Shares, Series 2 Shares and/or Equity Shares, as applicable, (or if the Equity Shares are not traded on a public market, redeem Equity Shares at an amount per share equal to the greater of the Net Asset Value per Equity Share and $3.54) in order that, to the extent practicable, the ratio of outstanding securities of each class remains constant.

I guess it’s the price guarantee that makes them “Equity Shares”!

So, potentially, you could buy a big block of HPF.PR.A at – say – $24.00, tender for retraction with the expectation of getting $25.00 … but then find that everybody else had done the same thing and the manager had bought a matching number of HPF.PR.B at – say – $16.00 (a high price due to forced buying … and what do they care anyway?), so you would get Unit Value of (May 30) $39.13 less Redemption price of Equity Share to Manager $3.54 less cost of buying HPF.PR.B (nasty assumption) $16.00 … and get not $25.00 but rather $19.59. Ouch!

Is there anything about this issue that is not wierd?

Financial 15 Split Corp. has announced:

that a special meeting of the holders of the Company’s Preferred Shares and Class A Shares will be held at 10:00 a.m. (Eastern standard time) on Wednesday, July 23, 2008. The purpose of the meeting is to consider a special resolution to extend the mandatory termination date for the Company from December 1, 2008 to December 1, 2015. Shareholders of record at the close of business on June 16, 2008 will be provided with the notice of meeting and management information circular in respect of the meeting and will be entitled to vote at the meeting.

If the extension is approved, Class A Shareholders and Preferred Shareholders will be provided with a Special Retraction right which is designed to provide Shareholders with an opportunity to retract their Shares and receive a retraction price that is calculated in the same way that such price would be calculated if the Company were to terminate on December 1, 2008 as originally contemplated.

A term extension would be a good thing for the preferred shareholders; there is good asset coverage with this issue and a coupon of 5.25%. Unfortunately, the capital units are now valued below their issue price, implying that tax consequences to the capital unit-holders for a termination won’t be all that terrible. The ABK.PR.C exchange/extension was a much easier call for those capital unitholders, given the enormous unrealized capital gains they had.

FTN.PR.A is incorporated in the HIMIPref™ SplitShare Index. There are currently 10,174,941 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.

Update: Assiduous Reader cowboylutrell reminds me in the comments that this is a second attempt to extend term. The prior attempt was denied in April 2007 while term extensions for FFN.PR.A and DFN.PR.A were approved.

Update: See also previous commentary for FTN.PR.A

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.

BCE issues did very poorly on the month, presumably on fears that the Teachers’ deal will not proceed as contemplated.

The two BAM floaters did extremely well – probably a combination of their having been oversold in the first place and a widening consensus that perhaps Canada Prime is not on a one-way march to zero.

Quebecor World has announced:

that it has determined the final conversion rate applicable to the 517,184 Series 5 Cumulative Redeemable First Preferred Shares (TSX: IQW.PR.C) (the “Series 5 Preferred Shares”) that will be converted into Subordinate Voting Shares effective as of June 1, 2008. Taking into account all accrued and unpaid dividends on the Series 5 Preferred Shares up to and including June 1, 2008, Quebecor World has determined that, in accordance with the provisions governing the Series 5 Preferred Shares, each Series 5 Preferred Share will be converted on June 1, 2008 into 13.146875 Subordinate Voting Shares. Registered holders of Series 5 Preferred Shares who submitted notices of conversion on or prior to March 27, 2008 will receive in the coming days from Quebecor World’s transfer agent and registrar, Computershare Investor Services Inc., certificates representing their Subordinate Voting Shares resulting from the conversion. Approximately 6.8 million new Subordinate Voting Shares will thus be issued by Quebecor World to holders of Series 5 Preferred Shares on June 1, 2008.

There are currently 3,024,337 IQW.PR.C outstanding, according to the TSX – thus, just over a sixth of the shares are being converted. The notice of conversion was reported on PrefBlog. The preferred shares are in default.

IQW currently has a negative net worth and is in creditor protection.

Royal Bank has announced:

that on August 22, 2008, it will redeem all of its issued and outstanding Non-Cumulative First Preferred Shares Series N (the “Series N shares”) for cash at a redemption price of $25.00 per share.

There are 12,000,000 shares of Series N outstanding, representing $300 million of capital. The redemption of the Series N shares will be financed out of the general corporate funds of Royal Bank of Canada.

Separately from the redemption price, the final quarterly dividend of $0.29375 per share for the Series N shares will be paid in the usual manner on August 22, 2008 to shareholders of record on July 24, 2008.

RY.PR.K has been a member of the HIMIPref™ Operating Retractible Index continuously since it was issued 1998-4-27. It’s habit of trading with a low or negative Yield-to-Worst has been an annoyance for quite some time!

XTM eXchange Split Corp. has announced:

that the deadline for investors to deposit securities of TSX Group Inc. in connection with the purchase of Units, consisting of Priority Equity Shares and Class A Shares, of the Company pursuant to the Exchange Option, as outlined in the preliminary prospectus of the Company dated April 30, 2008, has been extended to 5:00 p.m. (Toronto time) on June 11, 2008. The applicable exchange ratio will now be based on the volume-weighted average trading price of the common Shares of TSX Group Inc. on the TSX during the three consecutive trading days ending on June 11, 2008.

Prospective purchasers pursuant to the exchange option may acquire (i) Units (one Class A Share and one Priority Equity Share) or (ii) Class A Shares of XTM eXchange Split Corp. Prospective purchasers may also continue to acquire Class A Shares and/or Priority Equity Shares and pay the purchase price in cash.

I noted this potential new issue in a post written on May 5. I haven’t heard anything concrete … and I don’t know what the original closing date was supposed to be … but an extension of the closing date is not usually considered to be a Good Sign.