Category: Issue Comments

BNS.PR.O, which caused a sharp downdraft when it was announced got off to a solid start today, trading 550,670 shares to close at 25.02-08, 48×20.

Not only that, but the greenshoe was fully exercised:

Scotiabank today announced that it completed the domestic offering of 9.2 million, 5.60% Non-cumulative Preferred Shares Series 17 (the “Preferred Shares Series 17”), including the full exercise of the over-allotment option, at a price of $25.00 per share. The gross proceeds of the offering were $230 million.
    The offering was made through a syndicate of investment dealers led by Scotia Capital Inc. Following the successful sale of the initially announced 8 million Preferred Shares Series 17, the syndicate fully exercised the over-allotment option to purchase an additional 1.2 million shares. The Preferred Shares Series 17 commence trading on the Toronto Stock Exchange today under the symbol BNS.PR.O.

More Later.

Later, More: Curve Price at the close 2008-1-31 was 25.26

SNP Health Split Corp. has announced:

that it has called 220,849 Preferred Shares for cash redemption on February 11, 2008 (in accordance with the Company’s Articles) representing approximately 19.162% of the outstanding Preferred Shares as a result of the special annual retraction of 571,698 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 February 8, 2008 will have approximately 19.162% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be US$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 February 11, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on February 11, 2008. From and after February 11, 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.

SNH.PR.U is not tracked by HIMIPref™.

Not content with suffering a 38% retraction of units, Charterhouse Preferred Share Index Corp. has announced:

that the Toronto Stock Exchange has accepted the Corporation’s Notice of Intention to make a normal course issuer bid. The Corporation will have the right to purchase under the bid up to a maximum of 137,182 Preferred Shares (representing 10% of the Corporation’s public float) commencing January 29, 2008. As at January 24, 2008, there were 1,380,276 Preferred Shares of the Corporation issued and outstanding and the Corporation’s public float was 1,371,826 Preferred Shares. In any 30 day period, no more than 27,605 Preferred Shares (representing 2% of the Corporation’s issued and outstanding Preferred Shares) may be purchased under this normal course issuer bid.

The purpose of the issuer bid is to enable the Corporation to acquire Preferred Shares at prices which are less than the net asset value per Preferred Share at the time of purchase. The Board of Directors believes that such purchases of Preferred Shares pursuant to the bid would be in the best interests of the Corporation. The Corporation will not purchase any Preferred Shares under the bid if the price of such shares would equal or exceed the net asset value per Preferred Share at such time.

I am probably a little dense, but I do not see any reporting of the NAVPS on the sponsor’s website.

They do, however, link to a rather tragic graph:

Their one-year performance (and it is not clear whether they measure performance by market price of PFD.PR.A or by its NAV) is -10.17% and the three-year annualized performance is -4.07%. I’ll stick to active management, thank you!

Allbanc Split Corp has announced:

that holders of its Class A Capital Shares have approved a share capital reorganization allowing holders of Class A Capital Shares, at their option, to retain their investment in the Company after the scheduled redemption date of March 10, 2008. The reorganization will permit holders of Class A Capital Shares to extend their investment in the Company beyond the redemption date of March 10, 2008 for up to an additional 5 years. The Class A Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions and have been called for redemption on March 10, 2008.

Holders of Class A Capital Shares who do not wish to continue their investment in the Company after March 10, 2008 must give notice that they wish to exercise their special retraction right and how they wish to be paid for their shares on or prior to February 15, 2008. Holders of Class A Capital Shares who retract their Class A Capital Shares will be paid on March 10, 2008.

The reorganization will involve the extension of the originally scheduled redemption date, a special retraction right to enable holders of Class A Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and the creation of a new class of shares to be known as the Class B Preferred Shares in order to provide continuing leverage for the Class A Capital Shares. The reorganization will become effective provided that holders of at least 180,000 Class A Capital Shares (before giving effect to the stock split) retain their Class A Capital Shares and do not exercise the special retraction right.

I see no indication as yet regarding the terms of the “Class B Preferred Shares”.

The redemption of ABK.PR.C has previously been announced.

Update, 2008-2-19: The company has announced:

today that the final condition required to extend the term of the Company for an additional five years to March 8, 2013, has been met. Holders of Class A Capital Shares previously approved the extension of the term of the Company subject to the condition that at least 180,000 Class A Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”). Under the Special Retraction Right, 66,684 Class A Capital Shares have been tendered to the Company for retraction on March 10, 2008. Holders of these shares will receive a retraction price equal to the amount if any, by which the Unit Value exceeds $60.80. Holders of the remaining 332,342 Class A Capital Shares (representing 83.3% of the currently issued and outstanding Class A Capital Shares) will continue to hold their investment in the Company. After giving effect to the four-for-one share subdivision, it is expected that 1,329,368 Class A Capital Shares will remain outstanding. The Class A Preferred Shares will be redeemed by the Company on March 10, 2008 in accordance with their terms at a price per share equal to the lesser of $60.80 and the Unit Value. In order to maintain the leveraged “split share” structure of the Company, the Company will offer new Class B Preferred Shares pursuant to a preliminary prospectus dated January 30, 2008.

The preliminary prospectus has been published on SEDAR, but all of the interesting parts have been left blank.

I’m not sure how long FTU.PR.A will be able to hang on to its Pfd-2 rating from DBRS.

As of January 15, Asset Coverage was 1.59:1, according to the company. The S&P 500 Financials Price sub-index was 360.73 on January 15; declining to 342.03 on January 18. Given the shock and horror experienced since then, let’s just chop another 10% off that, just for fun to see what happens. This is by no means a crazy estimate for the value of this index at the close tomorrow, January 22 … and will mean a price level of 307.8.

Such a drop would be a 14.7% decline in market value from the time of the last NAV for FTU.PR.A, which in turn implies a projected asset coverage of under 1.4:1. On the positive side (for the pref holders!) is the declaration in the prospectus:

No dividends will be paid in any year on the Class A Shares so long as any dividends on the Preferred Shares are then in arrears or so long as the Net Asset Value per Unit is equal to or less than $15.00 (calculated as described under ‘‘Details of the Offering — Valuation of Assets’’). Additionally, no special year-end dividends will be paid if after payment of such a special dividend the Net Asset Value per Unit (calculated as described under ‘‘Details of the Offering — Valuation of Assets’’) would be less than $25.00.

We shall see! I consider it somewhat astounding that the capital units, symbol FTU, closed at $5.97 today, above their January 15 asset value. I will admit that my rough valuation above does not consider differences between the underlying portfolio and the sub-index; ignores short calls that are now more likely to expire worthless; and takes a rather gloomy view of tomorrow’s market action …. but $5.97? Really?

Update, 2008-01-22: Well – so much for market-timing! The emergency 75bp Fed cut to 3.50% averted disaster, and the S&P500-Financials closed at 342.03 today.

That’s down 5.18% from the January 15 level, which implies an estimated asset coverage of 1.51:1 … but that’s still looking a little fragile!

Update, 2008-1-23: S&P Financials closed at 373.33 today, which puts them up 3.49% from the January 15 level, which implies an estimated asset coverage of about 1.65:1. Remember this, next time I make a market prediction!

ROC Pref Corp. II has announced:

that it expects to be notified by HSBC Bank Canada of a Credit Event on Quebecor World Inc. as a result of the company filing a petition in Quebec Superior Court for creditor protection under the Companies’ Creditors Arrangement Act.

The exposure of ROC Pref II Corp. Preferred Shareholders to Quebecor World is up to 0.71% of the Reference Portfolio. The ROC Pref II Corp. Preferred Shares benefit from from the protection of a first loss tranche equal to 3.43% of the Reference Portfolio. Therefore, ROC Pref II Corp.’s ability to meet its investment objectives of paying Preferred Shareholders $25.00 per Preferred Share on December 31, 2009 and quarterly distributions at a rate of 4.65% or $0.290625 per Preferred Share will not be affected by this Credit Event. Since its inception on October 1, 2004, the Preferred Shares have been rated P‐1(low) by Standard & Poor’s.

Prior to this Credit Event, ROC Pref II Corp. had the ability sustain approximately 8 Credit Events, assuming an estimated average recovery rate of 40%, which represents approximately 5.0 times the average and 2.1 times the worst cumulative historical default level experienced in a portfolio with the same credit rating distribution over rolling two year periods, being equal to the time to maturity of ROC Pref II Corp. since during the 25‐year period ending in 2006.

RPA.PR.A was removed from the S&P/TSX Preferred Share Index as of the close on January 18.

The default of Quebecor World has been discussed elsewhere.

Update, 2008-01-23: The company has announced:

that it does not expect Quebecor World Inc’s recent filing for creditor protection to result in a downgrade to the Company’s preferred shares (the “Preferred Shares”). Standard & Poor’s, which rates the Company’s Preferred Shares P-1 (low), confirmed yesterday that the Preferred Shares will not be placed on credit watch negative. Since the Company’s inception on October 1, 2004, the Preferred Shares have been rated P-1 (low) by Standard & Poor’s.

The exposure of ROC Pref II Corp.’s Preferred Shares to Quebecor World is up to 0.71% of the reference portfolio, with the actual level being dependent on the recovery rate that is realized on Quebecor World’s senior unsecured bonds. The Preferred Shares benefit from the protection of a first loss tranche equal to 3.43% of the reference portfolio. Therefore, the Company’s ability to meet its investment objectives of paying Preferred Share holders $25.00 per Preferred Share on December 31, 2009 and quarterly distributions at a rate of 4.65% or $0.290625 per Preferred Share will not be affected by this credit event.

After giving effect to this, the first credit event to affect ROC Pref II Corp, the Company has the ability to sustain approximately 7 further credit events, assuming an estimated average recovery rate of 40% as well as a 40% recovery rate for Quebecor World Inc. The ability to sustain 7 credit events represents approximately 5.5 times the average and 2.1 times the worst cumulative historical default level experienced in a portfolio with the same
credit rating distribution over rolling two year periods during the 25-year period ending in 2006.

A rather sad press release today:

Equitable Group Inc. (“EGI”) (TSX:ETC) announced today that it currently holds, as part of its investment portfolio, 207,000 preferred shares Series 5 of Quebecor World Inc. (IQW.PR.5). The book value of the holding is $5.2 million. EGI anticipates an impairment charge will be taken on this investment for the period ended December 31, 2007 due to the recent market activity of the IQW.PR.5 preferred shares. The impact on net income of a full write down of this investment is estimated to be $3.1 million ($0.24 per share). EGI’s total preferred share investment portfolio as at September 30, 2007 was $170.3 million.

So they had a book value of $5.2-million and are taking a write-down of $3.1-million, with 207,000 shares held. The $3.1-million must be after tax, because if it’s pre-tax, they’re keeping them on the books at $10 per share, which – to me – sounds pretty hard to justify.

In other news today, Andrew Willis of the Globe has posted some gossip:

Sources close to the deal said Quebecor and Tricap are giving ground on demands that their new loans rank ahead of the company’s bank debt, and are showing a willingness to refinance the company on terms that put them on more equal footing with long-time lenders. There is also talk that a new bank may be willing to step in and help refinance the company, which is staggering under $2.5-billion of debt.
“The original rescue package was never going to fly. It gave too much to Quebecor and Tricap. There are now more palatable options being discussed,” said one source working on the deal. However, other fixed income experts said Tricap will only make minor concessions before walking away.

The prior PrefBlog post regarding this saga was regarding the possible TSX delisting.

BCE has sent a reminder to holders of its Series AC preferreds (BCE.PR.C) that there is a conversion option to the as-yet non-existent BCE.PR.D to take effect March 1.

They advise:

Holders wishing to convert their shares will have to exercise their conversion privilege between January 16, 2008 and February 20, 2008.
…
BCE Inc. will, by January 16, 2008, communicate in writing with holders of Series AC Preferred Shares additional information pertaining to the manner of exercising the conversion privilege and to the method of computing the fixed dividend rate that will be payable on the Series AC Preferred Shares for the five year period beginning March 1, 2008.
…
Under and subject to the terms and conditions of the Definitive Agreement entered into by BCE Inc. in connection with its acquisition by an investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC, the purchaser has agreed to purchase all outstanding Series AC Preferred Shares for a price of $25.76 per share, together with accrued but unpaid dividends to the Effective Date (as such term is defined in the Definitive Agreement). The purchaser has also agreed, on and subject to the terms and conditions of the Definitive Agreement, to purchase all outstanding Series AD Preferred Shares for a price of $25.50 per share, together with accrued but unpaid dividends to the Effective Date.

I do not have any information regarding the fixed rate to be paid for the five years commencing 2008-03-01 on the BCE.PR.C. All there is to go on at the moment is the prospectus:

BCE Inc. shall determine on the 25th day prior to the first day of each Subsequent Fixed Rate Period the annual dividend rate for each Subsequent Fixed Rate Period, which shall not be less than 80% of the five-year Government of Canada Yield, and give notice thereof. See “Details of the Offering”.

A decision regarding the attractiveness of the conversion privilege requires a certain amount of scenario analysis! The first consideration is whether or not the Teachers’ deal will proceed.

According to the notice, if the deal proceeds then holders will receive $0.26 more for the currently outstanding BCE.PR.C than they will for the potential conversion proceeds of BCE.PR.D. So mark this scenario as a (narrow) win for BCE.PR.C.

There is not enough information available to make a good decision possible for the alternative scenario, that the deal does not go through – we don’t even know the rate that will be paid on the BCE.PR.C. The rate offered on the last conversion of this type, BCE.PR.Y / BCE.PR.Z was 4.331% – note that five-year Canadas now yield under 3.5%, so any kind of reasonable rate on the prefs will have to greatly exceed the 80%-of-Canadas minimum.

However, I offer the following argument: if the deal fails, I believe that the credit quality of BCE will be seen as impaired. While BCE bonds may rally on a failure (they are currently pricing in, as far as I can tell, a dramatic loss of quality should the deal succeed), I do not think the preferreds are pricing in the full implications of everything that has happened to BCE over the past year that will be felt if they remain outstanding. Also, floating rate issues (and fixed floaters) have been hurt over the past few months as Bank of Canada credit-crunch-inspired easings have diminished the attractiveness of floaters versus fixed-rate perpetuals.

Thus, I suspect, BCE.PR.D (if issued) will trade below par. Therefore, I suspect, BCE.PR.D will pay 100% of Canada Prime, currently 6.00%.

What will prime average over the next five years? I don’t know. But I suspect that it will average well over 5.00% and that the rate offered on the BCE.PR.C reset will be well under 5.00%.

Therefore, I suspect, most holders will elect to convert their BCE.PR.C to BCE.PR.D on the grounds that, on a balance of risks, they should have a higher return.

Geez, you know, downgrades are just like peanuts! It hasn’t been too long since the last downgrade of these issues.

DBRS has announced it has:

downgraded two series of Preferred Shares issued by High Income Preferred Shares Corporation (the Company). The Series 1 Shares have been downgraded from Pfd-2 to Pfd-2 (low) and the Series 2 Shares have been downgraded from Pfd-3 to Pfd-4. Both series of shares maintain a Negative trend.

At inception, the Company issued 1.26 million Series 1 Shares at $25 per share, 1.26 million Series 2 Shares at $14.70 per share and privately placed 1.26 million Equity Shares at $3.54 per share. The termination date for each series of shares is June 29, 2012 (the Redemption Date).

Approximately 33% of the gross proceeds from the initial offering were used to enter into a forward agreement with the Canadian Imperial Bank of Commerce (the Counterparty) to provide for the full repayment of the Series 1 Shares principal on the Redemption Date. The remaining net proceeds from the initial offering were invested in a portfolio of common shares (the Managed Portfolio), which initially provided asset coverage to the Series 2 Shares of about 1.8 (downside protection of 44%). In addition to providing coverage to the Series 2 Shares principal, the Managed Portfolio is used to pay annual fees and expenses, as well as monthly distributions to the Series 1 and Series 2 Shares (5.85% and 7.25% per annum, respectively).

Since inception, the Managed Portfolio’s net asset value (NAV) has declined 39% from about $27 to $16.36 per share (as of January 11, 2008), providing downside protection of 10% to the Series 2 Shareholders. Using a covered call option approach, the Managed Portfolio’s NAV has suffered in recent months due to high volatility in equity markets.