Category: Issue Comments

Connor, Clark & Lunn has announced:

that its preferred shares have been placed on CreditWatch with negative implications as of today. The preferred shares are currently rated P-1 (low) by Standard & Poor’s (“S&P”). The move comes as the result of recent downgrades in the Reference Portfolio as well the removal of Residential Capital from the portfolio and its replacement with Tribune Corp, which was lower-rated 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 A- rating on the C$95,040,000 fixed-rate managed credit linked note issued by the Bank of Nova Scotia (the “CLN”). 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.

A similary CC&L structured instrument, RPA.PR.A, sustained a “credit event” in January, but there have been no developments since then for this issue.

RPQ.PR.A is not tracked by HIMIPref™.

TD.PR.R, announced March 3, settled today and was unable to trade above par, with volume of 771,292 in a range of 24.85-97. The closing quotation was 24.88-90, 29×2.

This is particularly surprising since the very similar TD.PR.Q (the only difference is a three month shift in redemption schedule and a long first coupon for TD.PR.R), which had been trading around 25.60 prior to the TD.PR.R announcement, closed at 25.10-15, 20×8 today.

Given the volume for TD.PR.R and the fact that the take-up of the greenshoe was announced on the day following the new issue announcement, I can only assume that the underwriting was a success but that, unfortunately for some, there were a great many players who decided that the new issue would instantly trade at a sixty-cent premium and resolved to subscribe to the issue and sell at the opening.

Too many cooks spoil the broth! We are now in the fairly unusual situation in which one member of a Preferred Pair is in the PerpetualDiscount index, and the other is a PerpetualPremium!

It is also noteworthy that the similar TD.PR.P, which pays a dividend of $1.3125 compared to $1.40 for the other two, closed at 24.40-44, 6×7, with a pre-tax bid-YTW of 5.45%.

Curve Prices (that is to say, fair values as estimated by HIMIPref™) were: TD.PR.P = 24.10; TD.PR.Q = 25.26; TD.PR.R = 25.14.

Assiduous Readers will recall that the redemption of ABK.PR.C was to be funded by a new issue.

Scotia Managed Companies has announced:

that it has completed its public offering of 1,329,368 Class B Preferred Shares, raising approximately $35.6 million. The Class B Preferred Shares were offered to the public by a syndicate of agents led by Scotia Capital Inc. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 66,684 of its Class A Capital Shares.

Holders of 332,342 Class A Capital Shares (before giving effect to the four-for-one share subdivision) did not retract their Class A Capital Shares pursuant to the special retraction right created in accordance with the capital reorganization approved by holders of the Class A Capital Shares on January 25, 2008 and, accordingly, 1,329,368 Class A Capital Shares remain outstanding after giving effect to the four-for-one share subdivision, which became effective as of March 10, 2008. The Class B Preferred Shares were offered in order to fund in part, the redemption of 66,684 Class A Capital Shares and all of the Class A Preferred Shares and to maintain the leveraged “split share” structure of the Company.

The prospectus for ABK.PR.B states:

Holders of Class B Preferred Shares will be entitled to receive quarterly fixed cumulative preferential distributions equal to $0.3344 per Class B Preferred Share. On an annualized basis, this would represent a yield on the offering price of the Class B Preferred Shares of approximately 5.00%. Based on the expected closing date of March 10, 2008, the initial dividend will be approximately $0.3344 per Class B Preferred Share and is expected to be payable on or about June 10, 2008. See ‘‘Details of the Offering — Certain Provisions of the Class B Preferred Shares’’.

The Class B Preferred Shares may be surrendered for retraction at any time and will be redeemed by the Company on March 8, 2013 (the ‘‘Redemption Date’’). In addition, the Class B Preferred Shares are redeemable at the option of the Company, at any time, in whole or in part, at a premium which declines to $26.75 in year five and may otherwise be redeemed by the Company prior to the Redemption Date in certain limited circumstances including on March 10 in each year or, where such day is not a business day, on the preceding business day, if there are any unmatched retractions of Class A Capital Shares. See ‘‘Description of Share Capital — Certain Provisions of the Class A Capital Shares’’.

It should be noted that these shares have the nasty provision of being callable at par annually, if there are unmatched capital unit retractions:

The Company may also redeem Class B Preferred Shares on March 10 of any year commencing in 2009 at a price per share equal to $26.75 to the extent that unmatched Class A Capital Shares have been tendered for retraction under a Special Annual Retraction. See ‘‘Details of the Offering — Certain Provisions of the Class B Preferred Shares — Redemption’’.

This issue will not be tracked by HIMIPref™. It’s too small and the annual redemption at par makes the risk/reward profile too asymmetric for my taste.

Update, 2008-3-11: DBRS has rated this issue Pfd-2(low):

the split share structure provides downside protection of 50% to the Class B Preferred Shares (after expenses). The redemption date for the Class B Preferred Shares and the Class A Capital Shares is March 8, 2013.
…
The Pfd-2 (low) rating of the Class B Preferred Shares is based on the downside protection available to the Preferred Shareholders, as well as the initial dividend coverage.

The primary constraints to the rating are the following:

(1) The downside protection available to holders of the Class B Preferred Shares depends completely on the value of the common shares of the Portfolio.

(2) The concentration of the entire portfolio in the financial services industry and the general exposure of the Canadian banks to the current credit cycle.

(3) Volatility of price and changes in dividend policies of the Portfolio’s underlying banks may result in reductions in downside protection from time to time.

I don’t normally talk about junk paper in this blog, but Prefblog’s Prettiest Assiduous Reader writes in and points out that there’s some really strange behaviour going on.

NTL.PR.F closed today at 11.40-59, 10×7

NTL.PR.G closed today at 10.00-48, 15×10

These two issues constitute a “weak pair”, as defined in my article about Preferred Pairs. They’re “ratchet rate” floaters, currently paying 100% of prime on their par value of $25.00 – which comes to $1.3125 at today’s prime of 5.25%. In other words, an interest rate of over 11% on investment … although, mind you, you can only call it 11% if you actually get paid the money. DBRS rates the Nortel Preferreds at Pfd-5(low), which is their lowest ranking short of default, and Nortel’s senior unsecured debt at B(low), which isn’t exactly investment grade either.

But regardless of where the level should be for these issues, why is there a difference?

NTL.PR.F had a conversion option to fixed rate in 2006. NTL.PR.G has been mentioned on PrefBlog in a post about distressed preferreds.

BCE has announced:

that the Québec Superior Court has approved BCE’s plan of arrangement for the company’s privatization transaction and dismissed all claims asserted by or on behalf of certain holders of Bell Canada debentures.

“We are very pleased with the Superior Court’s decisions. On every point of contention, the Court ruled in favour of BCE,” said Martine Turcotte, Chief Legal Officer of BCE and Bell Canada. “The Court’s decisions affirm our long-standing position that the claims of these debentureholders are without merit and that BCE acted in accordance with its rights and obligations with respect to the debentureholders. We now look forward to closing the privatization transaction with the investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity,” added Martine Turcotte.

The remaining conditions to the closing of the privatization transaction include the required approvals of the Canadian Radio-television and Telecommunications Commission and Industry Canada. Subject to any appeal by the debentureholders and the timing and terms of such an appeal, BCE expects the transaction to close in the first part of the second quarter of 2008.

In the event the debentureholders decide to appeal the Québec Superior Court’s judgments, they have agreed the appeal must be filed with the Québec Court of Appeal by March 17, 2008.

The deal has been previously reviewed on PrefBlog.

I never considered the bondholders’ suit to be much of a threat to the deal. The two threats I consider paramount are:

• Teachers’ (and its partners) willingness to proceed with a deal – the risk/reward will definitely have changed since the agreement, and
• Availability of financing

We will see!

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

Middlefield (the sponsor of STW) has announced:

its intention to make a normal course issuer bid for its Capital Units and Preferred Securities through the facilities of the Toronto Stock Exchange (the “TSX”). This normal course issuer bid is intended to commence on March 10, 2008 and will terminate on March 9, 2009. In accordance with the Declaration of Trust by which STRATA is governed, market purchases pursuant to its normal course issuer bid may be effected by the Fund.
    The Fund had 8,499,344 Capital Units and 5,929,455 Preferred Securities issued and outstanding as at February 28, 2008. STRATA may, during the 12 month period commencing March 10, 2008 purchase on the TSX up to 849,034 Capital Units and 586,648 Preferred Securities, being 10% of the public floats of 8,490,344 Capital Units and 5,866,484 Preferred Securities, respectively, and may not, in any 30 day period, purchase more than 169,986 Capital Units and 118,589 Preferred Securities, being 2% of the respective securities issued and outstanding. As at February 28, 2008, STRATA has purchased 3,100 Capital Units at an average price of $7.91 per Capital Unit under its previously approved normal course issuer bid. STRATA believes that its Capital Units and Preferred Securities represent good value for the Fund and purchases under the normal course issuer bid may serve to enhance returns to securityholders.

It’s hard to take this bid very seriously, seeing as they spent less than $25,000 on the previous issuer bid, but you never know! The NAV of STW.UN is $8.08 as of February 28, so the market price of $7.30 is favourable for buy-backs.

STW.PR.A was last mentioned on PrefBlog in December, 2006, in connection with their stealth redemption.

Sixty-Split Corporation has announced:

it has called 181,733 Preferred Shares for cash redemption on March 14, 2008 (in accordance with the Company’s Articles) representing approximately 20.257% of the outstanding Preferred Shares as a result of the special annual retraction of 363,490 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 March 13, 2008 will have approximately 20.257% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.00 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 March 14, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on March 14, 2008. From and after March 14, 2008 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

SXT.PR.A is tracked by HIMIPref™ but is not currently included in the HIMIPref™ Indices due to low averageTradingValue. It was last moved to “Scraps” on the March 30, 2007 Rebalancing. 

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.

DBRS has announced that it:

today discontinued its ratings on the following preferred shares at the request of Quadravest Capital Management Inc. (the Promoter).

… followed by a list of the three captioned issues. These are all split-share corporations of that horrible form that includes a forward contract and a managed portfolio, like High Income Preferred Shares Corporation. I’m not going to look at the financials to see what I think of them; I’ll just report the NAV of the Managed Portfolio as reported by Quadravest and assume (assume! I can’t even be bothered to check my files!) that this is supposed to cover redemption of the indicated shares.

CGQ.E was downgraded to Pfd-5 on 2006-10-25. Par Value $15.00, Managed Portfolio NAV $12.44.

STQ.E was downgraded to Pfd-5 on 2008-1-7. Par Value $15.00, Managed Portfolio NAV $13.38.

STR.E was downgraded to Pfd-5(low) on 2005-10-25. Par Value $25.00, Managed Portfolio NAV $18.98.