Category: Issue Comments

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.

It’s worth noting that HSB.PR.D was actually only the 27th-worst issue in the HIMIPref™ Universe, but only those issues included in the HIMIPref™ indices are examined for possible inclusion in this table. A lot of lower-volume and worse-credit issues were passed over.

Woo-hoo! You know what I like? I like redemptions at prices that exceed the market, that’s what I like! Redemptions are not always unfavourable!

FIG.PR.A closed today at 9.81-85, 4×9, after trading 20,437 shares in a range of 9.80-90. The sponsor, Faircourt Asset Management, has just announced:

that $30,000,000 of aggregate principal amount of preferred securities will be redeemed.
    Given the challenges facing global equity markets and resulting volatility, the Manager believes that to maintain appropriate balance in the fund between the Trust Units and Preferred Securities, redemptions are necessary. Therefore, the Manager announces that $30,000,000 in aggregate principal amount of the Trust’s 6.25% outstanding Preferred Securities (the “Preferred Securities”) will be redeemed on March 2, 2008 (the “Redemption
Date”). The scheduled Redemption Date of March 2, 2008 falls on a Sunday and payment will therefore be made in full on the next business day, March 3, 2008.
    Proceeds from the Preferred Securities redemption will amount to $10.1062 for each $10.00 principal amount of Securities, being equal to the aggregate of (i) $10.00 (the “Redemption Price”), and (ii) all accrued and unpaid interest hereon to but excluding the Redemption Date (collectively, the “Total Redemption Price”). The notice date of the Preferred Securities redemption is February 1, 2008. The Total Redemption Price for all Preferred Securities being redeemed is $30,318,600
    The Preferred Securities are being redeemed pursuant to the terms of the Trust Indenture governing the Preferred Securities, which permit a partial redemption at such time as the principal amount of the Preferred Securities exceeds 40% of the Total Assets of the Trust.

Assiduous Readers with extremely good memories will recall that there was also a redemption last August. The TSX states that 17,464,308 shares are outstanding, therefore the redemption proportion is a bit more than one-sixth.

Asset coverage on January 31 was 2.0+:1 according to the company. This redemption should bring coverage up to 2.4+:1.

FIG.PR.A is tracked by HIMIPref™ and is part of the Interest Bearing subindex. The issue has recently been removed from the S&P/TSX Preferred Share Index.

TD.PR.Q, which was announced shortly after BNS.PR.O was announced, commenced trading today and fears of a debacle were not realized. It traded 433,512 shares to close at 25.11-14, 6×19.

The greenshoe was fully exercised:

The Toronto-Dominion Bank (“TD”) today announced that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 2 million Non-cumulative Class A First
Preferred Shares, Series Q (the “Series Q Shares”) carrying a face value of $25.00 per share. This brings the total issue announced on January 22, 2008, and expected to close January 31, 2008, to 8 million shares and gross proceeds raised under the offering to $200 million.
    The Series Q Shares will yield 5.60% per cent annually and are redeemable by TD for cash, subject to regulatory consent, at a declining premium after approximately five years. TD has filed in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

More Later.

Later, More: Curve price at the close 2008-1-31 was 25.23.

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.