Category: Issue Comments

The Canadian Press has reported:

The purchase of BCE Inc. (TSX: BCE.TO) by a group led by the Ontario Teachers’ Pension Plan hit a snag Wednesday after the Quebec Court of Appeal overturned a lower court’s decision to allow the largest corporate takeover in Canadian history.

The appeal court sided with the company’s bondholders in reversing Quebec Superior Court Justice Joel Silcoff’s decision to allow the takeover of the company in a deal worth $52 billion.

The bondholders had sought to block the proposed leveraged buyout of Canada’s largest telecom company that they say treats them unfairly because it loads the telecom giant up with debt and makes their bonds a much riskier investment.

“BCE never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debentureholders while at that same time it accords a substantial premium to the shareholders,” the five-judge panel ruled.
…
Mark Meland, one of the lead lawyers for the bondholders, said his clients were pleased by the court’s decision that was widely expected to side with the company.

“The chattering classes were virtually unanimous in stating incorrectly that we had no chance in being successful, but our group, the bondholders that I represent, we always believed we had a good case,” Meland said.

Mea culpa, mea culpa, mea maxima culpa, and profound apologies to Mr. Meland!

But congratulations … the plot thickens!

The last report on this deal was regarding sabre rattling by the banks.

BCE has the following preferred shares outstanding: BCE.PR.A, 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

I have no idea what’s going to happen … there are financing jitters and now some legal jitters … I have no expertise, special information or analytical advantage in either area. It’s all speculation.

Update: More on Bloomberg:

Today’s decision “rewrites Canadian law relating to the duty of Canadian boards of directors to maximize value for shareholders,” Martine Turcotte, BCE’s chief legal officer, said in the company’s statement.

Update: BCE is seeking leave to appeal to the Supreme Court.

Update: The Globe has published the court judgement. Kudos for them! What I’d really like to see is a decision by the relevant authorities that all paperwork filed in all court cases be made publicly available (via Internet) with no charge … but until that happy day, I’ll settle for the press occasionally publishing scraps.

R Split II Corporation has announced:

that it has called 23,250 Preferred Shares for cash redemption on May 30, 2008 (in accordance with the Company’s Articles) representing approximately 5.351% of the outstanding Preferred Shares as a result of the special annual retraction of 134,500 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 May 29, 2008 will have approximately 5.351% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $30.50 per share.

The last RBT.PR.A partial call was noted by PrefBlog last year.

RBT.PR.A is not tracked by HIMIPref™

B Split 2 Corporation has announced:

that it has called 84,808 Preferred Shares for cash redemption on May 30, 2008 (in accordance with the Company’s Articles) representing approximately 8.920% of the outstanding Preferred Shares as a result of the special annual retraction of 177,808 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 May 29, 2008 will have approximately 8.920% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $9.75 per share.

The last partial redemption of BXN.PR.B was noted by PrefBlog last May.

BXN.PR.B is not tracked by HIMIPref™

SNP Split Corp has announced:

that it has called 220,819 Preferred Shares for cash redemption on June 4, 2008 (in accordance with the Company’s Articles) representing approximately 12.091% of the outstanding Preferred Shares as a result of the special annual retraction of 578,638 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 June 3, 2008 will have approximately 12.091% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be US$10.25 per share.

SNP.PR.V is not tracked by HIMIPref™.

The New York Times has reported:

The $51.8 billion takeover of Bell Canada, the largest leveraged buyout ever proposed, appeared to be in trouble over the weekend as the Wall Street banks that committed to finance the deal sought to renegotiate the lending terms, people on both sides of the transaction said on Sunday.
…
The negotiations over the Bell Canada buyout began to fray late Friday, said people on both sides of the deal, who were in closed-door discussions all weekend.

The banks backing the deal, led by Citigroup, Deutsche Bank and the Royal Bank of Scotland, sent revised terms to the consortium of buyers. The new terms included higher interest rates, tighter loan restrictions and stronger protections for the banks, far exceeding the original terms, these people said.

Members of the buyers’ group — the Ontario Teachers Pension Plan; the buyout firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity; and Toronto-Dominion Bank — held several conference calls over the weekend to discuss their options. Among the possibilities is filing a lawsuit against the banks to force them to complete the deal on its original terms, these people said.

“It’s patently obvious that the banks have no intention of closing the deal,” one executive who read the revised terms said.

The story was picked up by the Globe & Mail and discussed on Financial Webring Forum.

In the day’s most predictable story:

The Ontario Teachers’ Pension Plan said Monday it expects its lenders to honour their commitments to finance the $35-billion takeover of BCE Inc. after the company’s share price tumbled almost 6 per cent on reports the lending group is pushing for new financing terms.
…
BCE spokesman Bill Fox would not comment on whether BCE has been informed about any talks between the company’s buyers and their lenders.

“We have an agreement,” Mr. Fox said. “And we have been working since the deal was signed on all aspects of getting the transaction closed, on the basis of the terms set out in the agreement.”

Desjardins has predicted a repricing of the deal five to 8.16% lower, as reported on PrefBlog May 14. Syndication of the deal has started; the last major development was the loss in court by bondholders challenging the deal.

I simply have no idea what is going to happen here. The Clear Channel precedent is sometimes cited as evidence that the deal will succeed (albeit at a lower price) but in that case, the buyers could threaten the financers with a Texas jury – notorious for awarding crippling damages against whoever has the deepest pockets in the courtroom. I will opine, however, that the deal no longer makes any sense for either the buyers or the financiers … for all their confident, lawsuit-avoiding words, they must be rather eager to pass the billion-dollar-break-fee hot potato to the banks and have done with it.

I don’t have a clue what the implications for BCE’s preferred shares are. It’s possible that the deal could be proceed with the common repriced and the preferred shareholders taken out at the original price; it’s possible that the preferreds could be marked down proportionately to the common; it’s possible that the deal could proceed as a friendly takeover of the common only, leaving the preferred shares outstanding; it’s possible that the deal could collapse completely.

It’s all speculation, not investing, and I doubt whether any of the participants has any better idea than I do at this time.

BCE has the following preferred shares outstanding: BCE.PR.A, 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: There’s some calming commentary from the WSJ Deal Blog:

For weeks, chatter has held that, as goes the Clear Channel buyout, so will go the BCE deal. Insofar as both involve banks and money, that may be true.

But, now that some press outlets are reporting that the BCE deal is “in peril” because the banks are fighting on the lending terms, maybe we are all older and wiser enough to realize that asking for new terms — albeit tough terms — does not constitute the death of a deal. It may be time to look at key issues that will distinguish how BCE is different from Clear Channel.
…
It’s quite possible– and even probable — that BCE will play out just like Clear Channel, with a lot of huffing and puffing ending in a deal everyone can live with.

DBRS has announced:

has today confirmed the ratings on Great-West Lifeco (GWO or the Company) and its affiliated operating subsidiaries at current levels with Stable trends. The ratings on GWO are no longer Under Review with Developing Implications where they were placed on February 1, 2007 with the announcement that GWO was making a largely debt-financed US$3.9 billion acquisition of Putnam Investments Trust (Putnam).

Over the past year, the Company has made significant progress in reducing the debt incurred to acquire Putnam. Most notably, in November 2007, GWO announced the sale, which closed on April 1, of its U.S. health-care business with almost $1.6 billion in cash proceeds being made available to pay down outstanding credit facilities. In addition, the Company has also issued $1 billion of innovative subordinated debentures, the proceeds of which have been used to retire the bridge financing facilities. Giving some equity treatment to the hybrid subordinated debt issues, DBRS calculates a reported double leverage, pro forma the sale of the U.S. health care segment, which is not significantly higher than that of its peers. While Great-West Lifeco continues to be more aggressively capitalized than its peers at the holding company level, debt-service coverage remains adequate for the rating on a consolidated basis and on a cash flow basis at the holding company level. However, DBRS observes that the Company’s financial flexibility is currently impaired by relatively high financial leverage and the intense use of innovative debt instruments. Should financial leverage increase from current levels, the ratings on the Company are likely to come under downward pressure.

The existing ratings for the Company and its operating subsidiaries reflect the contribution from a diversified portfolio of businesses, including leading market shares across the Canadian insurance industry and attractive market niches in Europe, in the U.S. financial services market and in reinsurance. Although it accounts for a relatively small portion of the total earnings, Putnam should, in the long run, represent an attractive opportunity in the wealth management space given its entrenched distribution network of independent financial advisors, even though current market developments and lagging fund performance has recently reduced Putnam’s level of assets under management (AUM) and reduced prospects for an early recovery. DBRS believes that the Putnam acquisition has better strategic fit and is more complementary with the Company’s chosen strategy than the U.S. healthcare platform.

As an integral component of the Power Financial group of companies, the Company benefits from its parent’s implicit financial support and its strong governance and risk management controls and procedures.

The financing of the Putnam purchase has been previously discussed, as was the DBRS response to the purchase itself.

GWO has the following direct issues outstanding: GWO.PR.E, GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I & GWO.PR.X, all of which remain at Pfd-1(low). S&P has rated them P-1(low) all along.

Related issuers are POW, PWF & CL.

R Split III Corp, which recently had its rating confirmed at Pfd-2(low) by DBRS, has announced:

that it has called 2,032 Preferred Shares for cash redemption on May 30, 2008 (in accordance with the Company’s Articles) representing approximately 0.090% of the outstanding Preferred Shares as a result of the special annual retraction of 16,444 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 May 29, 2008 will have approximately 0.090% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $29.22 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 May 30, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on May 30, 2008. From and after May 30, 2008 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any rights in respect of such shares except to receive the amount due on redemption.

0.09%? So if you own 10,000 shares, 9 of them will be called? It’s certainly not the company’s fault, but this is more of a nuisance than anything else!

DBRS has:

today confirmed the Preferred Shares issued by R Split III Corp. (the Company) at Pfd-2 (low) with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.

In April 2007, the Company raised gross proceeds of $140 million by issuing 2.273 million Preferred Shares at $29.22 each and 4.546 million Capital Shares at $16.19 each. The net proceeds from the offering were invested in a portfolio of common shares (the RBC Shares) of Royal Bank of Canada (RBC). The initial split share structure provided downside protection of 50% to the Preferred Shares (net of issuance costs).

The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.5% per annum. The current yield on the RBC Shares provides dividend coverage of approximately 1.4 times. Excess dividends net of all expenses of the Company are paid as dividends on the Capital Shares.

The current downside protection available to the Preferred Shareholders is approximately 40% (as of May 8, 2008). The confirmation of the Preferred Shares is based on the current level of asset coverage available to cover the Preferred Shares principal, as well as the strong credit quality of RBC (rated AA by DBRS).

The redemption date for both classes of shares issued is May 31, 2012.

This follows announcement of the mass review of financial-based splits. RBS.PR.A is only the second issue to emerge unscathed; there have been seven downgrades with five issues still in review.

Downside protection of 40% equates to asset coverage of just under 1.7:1. As of May 8, Scotia Managed Companies reports asset coverage of … just under 1.7:1.

RBS.PR.A is not tracked by HIMIPref™.