Category: Issue Comments

DBRS has:

today downgraded the Class A Shares issued by Mulvihill Pro-AMS RSP Split Share Corp. (the Company) to Pfd-5 from Pfd-4; the trend is Negative.

In March 2002, the Company issued six million Class A Shares at $10 per share and six million Class B Shares at $20 per share, both with a redemption date of December 31, 2013 (the Termination Date). The Company invested approximately 34.5% of the gross proceeds in a portfolio of Canadian equity securities to enter into a forward agreement with Royal Bank of Canada (the Counterparty) to provide for the full capital repayment of the Class B Shares on the Termination Date.

The rest of the net proceeds from the initial offering were invested in a diversified portfolio of Canadian and U.S. equities (the Managed Portfolio). After offering expenses, the Managed Portfolio provided asset coverage of approximately 1.8 times to the Class A Shares (downside protection of about 44%). In addition to providing principal protection for the Class A Shares, the Managed Portfolio is used to make distributions to the Class A Shares equal to 6.5% per annum and pay annual fees and expenses. Also, the Company has been making semi-annual contributions of $0.43 per Class A Share from the Managed Portfolio to an account (the Class A Forward Account), which was used to enter a forward agreement with the Counterparty for the repayment of the Class A Shares principal on the Termination Date.

The Managed Portfolio has a current value of $2.65 per share (as of May 8, 2008), a decrease of nearly 85% since inception. About one-third of the decline has resulted from the semi-annual contributions to the Class A Forward Account. The present value of the Class A Forward Account is $6.53, and the future value is $8.08, meaning 80.8% of the Class A Shares principal is now guaranteed by the Counterparty on the Termination Date. In order for the Company to return the $10 principal to each Class A Shareholder on the Termination Date, the Company would still need to contribute approximately $1.54 (present value) to the Class A Forward Account today in order to secure the remaining $1.92 (future value) of required principal protection. Consequently, the Company will find it challenging to meet its annual expenses and monthly dividend payments to the Class A Shareholders.

SPL.A is tracked by HIMIPref™ with a securityCode of A43400. The creditRatings table of the permanentDatabase has been updated to reflect the new information. It was included in the SplitShare Index until the 2002-10-31 rebalancing, when it was transferred to “Scraps” on volume concerns.

This issue was downgraded to Pfd-4 in October, 2007. The rating history is:

Further information is available via the Mulvihill website.

RY.PR.H, which closed on April 29, appears to have had some of its underwriters’ greenshoe exercised.

According to the prospectus:

The underwriters have been granted an option (the “Option”) to purchase up to an additional 2,000,000 Series AH Preferred Shares (the “Option Shares”) at the offering price exercisable at any time up to 48 hours prior to closing of the offering. This prospectus qualifies both the grant of the Option and the distribution of the Option Shares that will be issued if the Option is exercised. If the underwriters purchase all such Option Shares, the price to the public, the underwriters’ fee and net proceeds to the Bank will be $250,000,0000, $7,500,000 and $242,500,000, respectively, assuming no Series AH Preferred Shares are sold to the institutions referred to in Note (2) below. See “Plan of Distribution”.

According to the TSX, there are now 8.5-million shares outstanding, which implies that 500,000 shares were taken up on a greenshoe.

I am unable to find any issuer disclosure of this, either on the RBC Press Release page or on SEDAR.

DBRS has announced:

confirmed the following ratings of TransCanada PipeLines Limited (TCPL or the Company): Unsecured Debentures & Notes at A, Preferred Shares – cumulative at Pfd-2 (low) and Junior Subordinated Notes at BBB (high), all with Stable trends.
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The rating confirmations conclude DBRS’s review of the acquisition and reflect the Company’s prudent balancing of financial and business risk factors as demonstrated by today’s announcement of a $1.1 billion common equity issuance with a 15% over-allotment. This will result in a more conservative capital structure than originally envisaged when the proposal was announced on April 1. Most debt issuance should be at the TCPL level, eliminating structural subordination issues. DBRS expects similar prudence will be exercised in any transactions of this nature. DBRS also expects proforma credit metrics to slightly improve from levels achieved at December 31, 2007 (debt to capital of 60% and cash flow to debt of 0.17 times respectively), which should position the Company well for higher capital spending anticipated in the next three to four years associated with its major projects (such as Bruce Power Restart and Keystone). It is noteworthy that most of the Company’s projects are supported by long-term contracts with creditworthy counterparties, providing stability of earnings and cash flow, once completed.

According to TransCanada’s announcement of the equity issue:

it has entered into an agreement with a syndicate of underwriters, led by BMO Capital Markets, RBC Capital Markets, and TD Securities Inc. under which they have agreed to purchase from TransCanada and sell to the public 30,200,000 Common Shares.

The purchase price of $36.50 per Common Share will result in gross proceeds of approximately $1.1 billion. The net proceeds of the offering will be used by TransCanada to partially fund acquisitions and capital projects of the Corporation including, amongst others, the acquisition of the Ravenswood Generating Facility, the construction of the Keystone Oil Pipeline, and for general corporate purposes.

The Common Shares will be offered to the public in Canada and the U.S. through the underwriters or their affiliates. TransCanada has also granted the underwriters an option to purchase up to an additional 4,530,000 Common Shares at a price of $36.50 per Common Share at any time up to 30 days after closing of the offering.

The credit review was previously discussed on PrefBlog.

TCA.PR.Y & TCA.PR.X are both tracked by HIMIPref™ and are included in the PerpetualDiscount index.

Connor Clark & Lunn ROC Pref Corp has announced:

that Standard & Poor’s (“S&P”) lowered its rating on the preferred shares of the Company today by one notch from P-1 (low) to P-2 (high) and removed the preferred shares from CreditWatch with negative implications, where they were placed on March 14, 2008. The move comes as the result of recent downgrades in the Reference Portfolio as well as the removal of Residential Capital Corp. and its replacement with Tribune Corp., which had a lower rating at the time of the replacement. There have been no defaults in the Reference Portfolio since its launch in February 2006.

The rating on the preferred shares reflects the rating on the C$95,040,000 fixed-rate managed credit linked note (the “CLN”) issued by the Bank of Nova Scotia which was also lowered by S&P from A- to BBB+. The return on the CLN, and thus on the preferred shares, is linked to the credit performance of a portfolio of 127 companies (the “Reference Portfolio”). The Reference Portfolio is actively managed by Connor, Clark & Lunn Investment Management Ltd. The CLN benefits from subordination of 2.82% of the Reference Portfolio as well as a trading reserve account which would currently buy an additional 0.07% of subordination. As a result, if there are less than seven defaults in the next three and a quarter years, investors will continue to receive scheduled quarterly distributions as well as the full $25 par value at maturity.

CC&L ROC Pref Corp. matures in June 2011. The S&P rating speaks to the product’s ability to pay all of its dividends and to return the full $25 par value at maturity. CC&L remains confident that CC&L ROC Pref Corp. will meet its investment objectives.

This follows an earlier announcement of the review. RPQ.PR.A is not 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.

Gatehouse Capital Inc. has announced:

Standard & Poor’s Ratings Services lowered the rating of Global Credit Pref Corp.’s (TSX:GPA.PR.A) preferred shares on April 29 to P-4. The rating on the preferred shares of Global Credit Pref Corp. mirrors the lowering of the rating on the $48,031,000 fixed-rate static portfolio credit linked note issued by The Toronto-Dominion Bank to B.

The Company has exposure to the credit linked note issued by The Toronto-Dominion Bank and held by Global Credit Trust, the return on which is linked to the credit performance of 127 reference entities.

This follows the April 11 Watch Negative and the March 17 downgrade to P-4(high).

Par value is $25.00. The sponsor claims that the NAVPS is $12.27. They closed on the TSX today at 10.11-55, 3×4. Ouch!

There are 1.6+ million shares outstanding. GPA.PR.A is not tracked by HIMIPref™.

DBRS:

has today downgraded the long-term ratings of Loblaw Companies Limited (Loblaw or the Company) to BBB from BBB (high), maintaining the Negative trend. At the same time, DBRS has downgraded the Company’s short-term rating to R-2 (middle) from R-2 (high) and has changed the trend to Negative from Stable.
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The status of the Company’s turnaround plan and most recent operating performance leads DBRS to the conclusion that stabilization of performance at a level that is commensurate with a BBB (high) rating over the course of this year is improbable.
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The deteriorating operating performance, combined with the longer time period and mounting risks associated with changes to the turnaround plan and management team, result in a credit risk profile that is no longer consistent with a BBB (high) rating from DBRS.

In terms of outlook, DBRS has placed the trend at Negative as we believe a meaningful recovery will remain challenging, since Loblaw is expected to continue investing in pricing within an increasingly competitive environment.
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DBRS’s ratings for George Weston Limited remain unchanged following the rating actions on Loblaw.

They weren’t impressed by the profit increase!

Assiduous Readers will doubtless remember their comment at the time of the Weston downgrade:

With the downgrade of Loblaw’s ratings to BBB (high) and R-2 (high), the ratings for Weston at BBB and R-2 (high) reflect more its operating businesses and less the support from the Loblaw rating. As such, if there is any further deterioration in Loblaw’s long-term rating, it will not necessarily affect the long-term rating of Weston.

Loblaw is currently rated BBB by S&P.

Weston has the following issues outstanding: WN.PR.A WN.PR.B WN.PR.C WN.PR.D WN.PR.E

RY.PR.H commenced trading today after being announced last week and did better than I had expected, trading 587,260 shares in a range of 24.65-78, closing at 24.69-74, 10×12.

Some comparables:

Note that “Curve Price” is a static calculation – it assumes that the yield curve will not change in the future. Convexity effects decrease the value of near-par-by-curve-price issues

Those comparing prices with those on announcement date should recall that RY went ex-dividend on April 22, the day after announcement. Cynics might speculate that the announcement of the new issue was actually timed in this manner, to make the calculated current yields of the extant issues lower than otherwise, which would make the calculated current yield of the new issue at issue price look relatively better … so it’s a good thing that PrefBlog readers aren’t cynics, isn’t it?

Brompton Group has announced:

BG Income + Growth Split Trust (the “Trust”) announces that the special unitholder meeting previously described in the press release on April 18, 2008 has been advanced to June 9, 2008 to coincide with the meeting date for all other funds contemplated in the fund reorganization. In addition, the preferred securities will not be called in June 2008 as previously announced, but rather holders of the preferred securities will be asked at a meeting of such holders to be held on June 9, 2008 to authorize the exchange of the preferred security into an equivalent security with the same terms in the continuing fund. By exchanging the preferred securities of the Trust into preferred securities of the continuing fund having the same maturity date, coupon and other terms, holders thereof will obtain greater asset coverage as the continuing fund will comprise assets of up to seven funds managed by Brompton. In addition, holders of preferred securities who do not wish to exchange will be given the opportunity to redeem their preferred securities and receive $10.00 therefor.

The previous plan anticipated a forced redemption.