Category: Issue Comments

DBRS:

has today downgraded the Preferred Shares issued by US Financial 15 Split Corp. (the Company) to Pfd-3 from Pfd-2 with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.
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There is a NAV test that prevents the Manager from paying out Class A Shares distributions if the NAV of the Portfolio is less than $15 per share.

The initial split share structure provided downside protection of 58% to the Preferred Shareholders (after expenses). Although the credit quality of the Portfolio is strong, the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry. In the last year, the NAV has dropped from $24.14 per share to $14.19 (as of April 15, 2008), a decline of about 41%. As a result, the current downside protection available to the Preferred Shareholders is approximately 30%.
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The redemption date for both classes of shares issued is December 1, 2012.

Downside protection of 30% equates to asset coverage of about 1.4:1.

This is part of DBRS’ mass review of financial splits which, I believe, marks an end (or at least an increased strictness) to what I perceive as their grandfathering of older, looser standards for split shares, discussed last fall.

The question of how to analyze FTU.PR.A has been discussed on PrefBlog, further to my comment in January that a downgrade looked likely. The issue is tracked by HIMIPref™ and comprises part of the SplitShare Index.

DBRS:

has today downgraded the Preferred Shares issued by Mulvihill Premium Canadian Bank (the Company) to Pfd-3 (high) from Pfd-2 with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.
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Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.75% per annum on the par value. The Company aims to provide holders of the Class A Shares with quarterly distributions of $0.20 per share, as well as the opportunity to receive special distributions based on performance of the Company. These distributions have the potential to grind down the net asset value (NAV) of the Portfolio over time.

Although the credit quality of the Banks is strong, the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry. In the last year, the NAV has dropped from $27.41 per share to $21.47, and the current downside protection available to the Preferred Shareholders is approximately 30%.
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The redemption date for both classes of shares issued is November 1, 2010.

Downside protection of 30% equates to asset coverage of about 1.4:1.

This is part of DBRS’ mass review of financial splits which, I believe, marks an end (or at least an increased strictness) to what I perceive as their grandfathering of older, looser standards for split shares, discussed last fall.

PIC.PR.A was added to the S&P/TSX Preferred Share Index in July, 2007 and removed in December. The issue is tracked by HIMIPref™ and comprises part of the SplitShare Index.

DBRS:

has today downgraded the Preferred Shares issued by Financial 15 Split Corp. II (the Company) to Pfd-2 (low) from Pfd-2 with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.
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There is a NAV test that prevents the Manager from paying out Class A Shares distributions if the NAV of the Portfolio is less than $15 per share.

The initial split share structure provided downside protection of 58% to the Preferred Shareholders (after expenses). Although the credit quality of the Portfolio is strong, the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial services industry. In the last year, the NAV has dropped from $26.35 per share to $19.27 (as of April 15, 2008), a decline of about 27%. As a result, the current downside protection available to the Preferred Shareholders is approximately 48%.

Downside protection of 48% equates to asset coverage of about 1.9:1.

This is part of DBRS’ mass review of financial splits which, I believe, marks an end (or at least an increased strictness) to what I perceive as their grandfathering of older, looser standards for split shares, discussed last fall.

FFN.PR.A holders approved a term extension about a year ago (and the capital unitholders, I’ll bet, wish they hadn’t!). The issue is tracked by HIMIPref™ and comprises part of the SplitShare Index.

DBRS has announced:

confirmed the rating for the Preferred Shares issued by BMONT Split 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.
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The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.5% per annum. The current yield on the BMO Shares provides dividend coverage of approximately 1.7 times. Excess dividends net of all expenses of the Company will be paid as dividends on the Capital Shares or re-invested by the Company in additional BMO Shares as determined by the board of directors of the Company.

The net asset value of the BMO Shares has experienced downward pressure, dropping from $62.49 per share to $46.74 in the last six months, a decline of 25%. The current downside protection available to the Preferred Shareholders is approximately 41%. 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 BMO (confirmed at AA by DBRS on April 17, 2008).

This is significant – it is the first of the fourteen reviewed financial splits to be confirmed; the other four completed reviews (GBA.PR.A, CBW.PR.A, CIR.PR.A and ASC.PR.A) have all been downgrades.

Downside protection of 41% equates to asset coverage of 1.7:1, which is where it is as of April 17, according to Scotia Managed Companies.. Presumably, the extremely healthy income coverage (also 1.7x) also played an important role in the decision.

BMT.PR.A is tracked by HIMIPref™. It is in the “Scraps” index, due to low volume.

Dividend 15 Spit Corp. has announced:

that it will issue rights (“Rights”), to all Class A Shareholders. Each Class A Shareholder will be entitled to receive one Right for each Class A Share held as of the record date of May 2, 2008. Four Rights will entitle the holder to purchase a Unit consisting of one Class A Share and one Preferred Share for $24.25. The Rights will expire at 4:00 p.m. (local time) on Monday June 30, 2008, the expiry date. If all the Rights are exercised the Company will issue approximately 2,549,967 Units and will receive net proceeds of $60,972,000. The net proceeds from the subscription of Units will be used to acquire additional securities in accordance with the Company’s Investment objectives. By raising additional cash through this offering it allows the Company to capitalize on certain attractive investment opportunities that may arise over the next few months.

The exercise price is set at a premium to the most recently published net asset value per Unit. On that basis, if the exercise price remains above the most recently published net asset value, the exercise of the rights would be accretive to existing shareholders on a net asset value basis. In addition, if the full subscription was exercised the offering could increase the trading liquidity of the Company and reduce the management expense ratio.

Both the Preferred Shares and Class A Shares trade on the Toronto Stock Exchange (the “TSX”) under the symbol “DFN.PR.A” and “DFN” respectively. The Rights will be listed on the TSX under the ticker symbol DFN.RT. It is expected that Rights will commence trading on May 2, 2008 and continue trading until 12:00 noon (EST) on June 30, 2008.

The Company was created to provide investors with a high quality portfolio of leading Canadian dividendyielding stocks. The Company invests in: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, CI Fund Management, BCE Inc., Dofasco Inc., Enbridge Inc., Falconbridge, TELUS Corporation, The Thomson Corporation, TransAlta Corporation, TransCanada Corporation. Shares held within the portfolio are expected to range between 4-8% in weight but may vary at any time. The Class A shareholders receive monthly distributions of $1.20 per share annually. The Preferred Share holder receives $0.525 per share annually. The company offers a low management fee and opportunity for growth in the net asset value.

The NAV of a DFN / DFN.PR.A Unit was $23.87 on April 15; DFN closed today on the TSX at 14.60-77, 10×3; DFN.PR.A closed at $10.18-30. The company is attempting to take advantage of the market premium!

This is similar to the Reopening of DFN.PR.A last June.

Brompton Group has announced:

The Manager is proposing that the new investment strategy be modelled after its successful Brompton VIP Income Fund (“VIP”), which is actively managed by MFC Global. VIP has generated compound total returns of approximately 15% per annum since inception of the fund in February 2002 to March 31, 2008 based on net asset value. During 2007, VIP generated an annual total return of 15.9% which compares favourably with the 6.6% total return attained by the S&P/TSX Income Trust Index over the same period. In order to address the potentially shrinking income trust sector, VIP’s investment universe will be broadened to include high dividend paying common shares, convertible debt instruments, preferred shares and other debt instruments.
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In order to effect the change in investment strategy, unitholders of EWI, BWI, BTH, BTF and BDS will be given the opportunity to merge with VIP. These mergers will provide unitholders with the opportunity to hold an investment in a fund with an established track record of providing high total returns for unitholders, access to a top-ranked portfolio management team and an investment mandate that is designed to continue to meet investor objectives of income and growth. The fund will also have a large market capitalization and as such has the potential for increased liquidity and lower general and administration costs per unit. Unitholders of BSR, which is already actively managed by MFC Global, will also be given the opportunity to merge with VIP. This merger addresses the same uncertainty concerning the future of income trusts and it is expected to result in significantly lower costs for BSR unitholders, as the management fee will be reduced, and VIP’s larger fund size will provide the potential for lower general and administration costs per unit and increased liquidity. As part of the reorganization, it is anticipated that the preferred securities issued by BDS will be called for redemption in June 2008.
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The special meetings of unitholders of the Funds have been called and will be held on June 9, 2008 for all Funds except BDS, which will have a special meeting date of July 2, 2008.

BDS.PR.A is not tracked by HIMIPref™. According to the prospectus:

In addition, the Preferred Securities may be called by the Trust prior to the Maturity Date, at a price which until May 31, 2005 will be equal to $10.40 and which will decline by $0.10 each year thereafter to $10.00 after May 31, 2008, plus any accrued and unpaid interest thereon.

It closed today on the TSX at 10.04-17, 9×3. It is currently rated Pfd-2 by DBRS, with a 6.0% coupon (as interest) and asset coverage of 2.3:1 as of the Dec. 31/07 financials.

DBRS has announced that it:

DBRS has today downgraded the Preferred Shares issued by GlobalBanc Advantaged 8 Split Corp. (the Company) to Pfd-4 (high) from Pfd-3 (high) with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.

In June 2007, the Company raised gross proceeds of $54 million by issuing 2.7 million Preferred Shares (at $10 each) and an equal amount of Class A Shares (at $10 each) to provide downside protection of approximately 47% to the Preferred Shares (after issuance costs).

The net proceeds from the initial offering were used to purchase a portfolio of Canadian securities that were pledged to the National Bank of Canada (the Counterparty) to enter a forward agreement (the Forward Agreement) in order to gain exposure to a portfolio of common shares (the Bank Portfolio) issued by eight of the world’s largest banks – Citigroup Inc., Bank of America Corporation (DE), The Royal Bank of Scotland Group plc, UBS AG, Banco Santander SA, BNP Paribas, Société Générale and Deutsche Bank AG.

Holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.5% per annum. The Company provides Class A Shareholders with distributions of capital gains when declared by the board of directors. Since inception, the Capital Shareholders have received a total of $0.0485 per share, a return of less than 0.5% of the initial share price.

Based on the most recent dividends paid by its underlying companies, the Bank Portfolio can generate enough yield to pay the fixed preferred distributions and other annual expenses. However, changes in dividend policy by any of the banks included in the Bank Portfolio could cause a potential grind on the net asset value (NAV).

Since inception, the NAV has dropped from about $19 to $11.95 per share (as of April 15, 2008), a decline of 37%. As a result, the current downside protection available to the Preferred Shareholders is approximately 16%. The decline in NAV can be attributed to the Bank Portfolio’s 100% concentration in the international banking industry. In general, the valuations of the common shares of international banks have experienced significant volatility over the last year due to credit concerns and large writedowns.

The downgrade of the Preferred Shares is based on the lower level of asset coverage available to cover the Preferred Shares principal.

The redemption date for both classes of shares issued is December 15, 2012.

GBA.PR.A is not tracked by HIMIPref™. The DBRS mass review of financial splits was discussed on March 19. This action follows a downgrade from Pfd-2 on 2008-1-16. That was FAST!

DBRS has announced that it:

has today downgraded the Preferred Shares issued by Copernican World Banks Split Corp. (the Company) to Pfd-3 (low) from Pfd-2 (low) with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.

In November 2007, the Company raised gross proceeds of $96.1 million by issuing 4.805 million Preferred Shares (at $10 each) and an equal amount of Class A Shares (at $10 each). The initial structure provided downside protection of 50% to the Preferred Shares as all issuance costs were paid by AIC Investment Services Inc. (the Manager).

The net proceeds from the offering were used to invest in a portfolio of common shares (the Portfolio) issued by bank-based financial institutions with strong credit quality (World Banks). The Portfolio is actively managed by the Manager to invest in World Banks that have at least a US$1 billion market capitalization and exhibit the potential for attractive dividend yields and strong earnings growth momentum. It is expected that a minimum of 80% of all foreign content will be hedged back to the Canadian dollar at all times to mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.25% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum.

There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the NAV of the Portfolio is less than $15 after giving effect to such distributions. Since the Company’s NAV has decreased below $15, distributions to the Class A Shares are currently suspended, which greatly reduces the grind on the Portfolio going forward.
The credit quality of the Portfolio is strong and globally diversified, but the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry. Since inception, the NAV has dropped from $20 per share to $13.06 (as of April 11, 2008), a decline of about 35%. As a result, the current downside protection available to the Preferred Shareholders is approximately 23%.

The downgrade of the Preferred Shares is based on the greatly reduced asset coverage available to cover repayment of principal.

The redemption date for both classes of shares issued is December 2, 2013.

CBW.PR.A is not tracked by HIMIPref™. The DBRS mass review of financial split shares has been previously discussed.

Update: Financial statements and other information is available on the fund’s website.

DBRS has announced that it:

has today downgraded the Preferred Shares issued by Copernican International Financial Split Corp. (the Company) to Pfd-3 from Pfd-2 (low) with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.

In March 2007, the Company raised gross proceeds of $150 million by issuing 7.5 million Preferred Shares (at $10 each) and an equal amount of Class A Shares (at $10 each). The initial structure provided downside protection of 50% to the Preferred Shares as all issuance costs were paid by AIC Investment Services Inc. (the Manager).

The net proceeds from the offering were used to invest in a portfolio of common shares (the Portfolio) issued by international financial institutions (IFS) with strong credit quality. The Portfolio is actively managed by the Manager to invest in IFS that have at least a US$1 billion market capitalization and exhibit the potential for attractive dividend yields and strong earnings growth momentum. It is expected that a minimum of 80% of all foreign content will be hedged back to the Canadian dollar at all times to mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.0% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum.

There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the NAV of the Portfolio is less than $16.50 after giving effect to such distributions. Furthermore, the Company cannot make special distributions to the Class A Shares if the NAV drops to less than $20, unless the distribution is required to eliminate tax on net capital gains. Since the Company’s NAV has decreased below $16.50, distributions to the Class A Shares are currently suspended, which greatly reduces the grind on the Portfolio going forward.

The credit quality of the Portfolio is strong and globally diversified, but the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry. Since inception, the NAV has dropped from $20 per share to $13.81 (as of April 11, 2008), a decline of more than 30%. As a result, the current downside protection available to the Preferred Shareholders is approximately 28%.

The downgrade of the Preferred Shares is based on the greatly reduced asset coverage available to cover repayment of principal.

The redemption date for both classes of shares issued is December 2, 2013

CIR.PR.A is not tracked by HIMIPref™. The DBRS mass review of financial splitshares has been reported on PrefBlog.

DBRS has announced:

has today downgraded the Preferred Shares issued by AIC Global Financial Split Corp. (the Company) to Pfd-2 (low) from Pfd-2 (high) with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.

In 2004, the Company issued 1.6 million Preferred Shares at $10 each and 1.6 million of Class A Shares at $15 each. The initial structure provided downside protection of approximately 58% (net of expenses).

The net proceeds from the offering were invested in a portfolio (the Portfolio) that included common equities selected from leading bank-based, insurance-based and investment management–based financial services companies with strong credit ratings. The Portfolio is actively managed by AIC Investment Services (the Manager) to invest in companies that have at least a US$1 billion market capitalization. The weighted-average credit rating of the Portfolio will be at least equivalent to “A” at all times. To mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation, it is expected that a minimum of 90% of all foreign content will be hedged back to the Canadian dollar for the life of the transaction.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.25% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum.

There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the net asset value (NAV) of the Portfolio is less than $15 after giving effect to such distributions. Since the NAV has been greater than $15 since inception, the Class A Shareholders have received a consistent dividend on their investment. As a result, the Company requires greater returns from capital appreciation to maintain the current NAV of the Company.

In December 2006, when the Preferred Shares were upgraded to Pfd-2 (high), the NAV was $27.50, providing downside protection of about 64%. Since then, the NAV has declined 33% to $18.45, and the current downside protection available to the Preferred Shares is approximately 46%. The credit quality of the Portfolio is strong and globally diversified, but the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry.

The downgrade of the Preferred Shares is based on the reduced asset coverage available to cover repayment of principal.

The redemption date for both classes of shares issued is May 31, 2011.

The mass review of Financial Split-Shares was discussed on Prefblog on March 19. The 2-notch downgrade of this issue – with asset coverage of 1.8+:1 and only 3 years (and a bit) to maturity signals a new get-tough attitude by DBRS.

ASC.PR.A is tracked by HIMIPref™; it was removed from the SplitShares index at the end of April 2007, due to volume concerns. It had been upgraded to Pfd-2(high) in late 2006.