Category: Issue Comments

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.

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.