Category: Issue Comments

Brookfield Funds has announced:

The monthly distribution rate for the Brascan SoundVest Rising Distribution Split Trust (capital units) is being decreased to $0.084 per unit, or $1.008 on an annual basis, effective with the January 2008 distribution (payable February 2008). The reduction is partly due to distribution decreases by certain trusts in the portfolio, fewer distribution increases by other trusts due to regulatory changes in the income trust sector, and increased borrowing costs due to higher interest rates relative to last year.

“While we are disappointed to record our first ever distribution reduction, the new rate still represents an attractive yield of 17.2% based on the current unit price. Moreover, we believe it is more sustainable in the current environment, provides a greater margin of safety and better reflects the income-generating ability of the portfolio,” said Kevin Charlebois, President and Chief Executive Officer of SoundVest Capital Management. The $0.15 quarterly payment on the Rising Distribution Split Trust preferred securities (BSD.PR.A) will remain unchanged from 2007 levels.

The former rate of distribution on the capital units, BSD.UN, was $0.1167 monthly, or $1.40 annually, according to their semi-annual financials. It is to be hoped that this distribution reduction to the capital stock holders will help to end the decline in NAV; asset coverage on the preferreds has declined from 1.8+:1 as at January 5, 2007, to 1.6+:1 on December 14 according to the company. No distributions to capital stock holders are allowed if asset coverage declines below 1.4:1, according to the prospectus:

The payment of interest on the Preferred Securities will be made in priority to any distributions on the Capital Units. The Trust may not make any cash distributions on the Capital Units if, after giving effect to the proposed distribution, the Combined Value would be less than 1.4 times the Repayment Price. Distributions on the Capital Units are conditional upon the Trust being current in its obligation to pay interest on the Preferred Securities. See ‘‘Details of the Offering — Certain Provisions of the Capital Units— Distributions’’.

Interest payments on the preferred securities, BSD.PR.A, remain unaffected.

Mulvhill Premium Split Share Corp. has announced:

its shareholders have approved a reorganization permitting the Company to extend the life of the Company for an additional 5 years to February 1, 2013. As part of the reorganization, the Preferred Shares will be renamed “Priority Equity Shares” and the Company will adopt a portfolio protection plan for the benefit of the holders of such shares. The dividend entitlement of the shares will remain unchanged at 5.50% per annum (on the $15.00 original issue price). Class A Shareholders will continue to benefit from a unique, highly leveraged investment in a blue-chip portfolio, and will receive distributions initially set at approximately 10% per annum on the net asset value of the Class A Shares.

Holders of Class A Shares and Preferred Shares will retain their annual and monthly retraction rights originally provided to them. In addition, under the reorganization, shareholders will be given a special retraction right to cause the Company to redeem their Class A Shares at net asset value of a Class A Share and Preferred Shares for $15.00 per share on January 31, 2008. The reorganization will only be implemented if holders of at least 2,000,000 Class A Shares elect not to retract their shares under the special retraction right.

Note that the Prefs will be renamed Priority Equity Shares and no longer rated by DBRS:

The change of name of the Preferred Shares to Priority Equity Shares is intended to more accurately describe the attributes of such shares and to more closely align them with similar shares recently offered in the market. The Priority Equity Shares will not be rated by DBRS and the Company will no longer be subject to DBRS’ additional requirements relating to the investments it may acquire and hold.

The Company proposes to adopt a strategy (the ‘‘Priority Equity Portfolio Protection Plan’’) to protect holders of the Priority Equity Shares in order to assist the Company to pay in full the original issue price of $15.00 per share (the amount so required to effect such payment from time to time being the ‘‘Priority Equity Share Repayment Amount’’) on the final redemption date of February 1, 2013 (the ‘‘Final Redemption Date’’).

The Priority Equity Portfolio Protection Plan provides that if the net asset value of the Company declines below a specific level, the Company will liquidate a portion of its portfolio and use the net proceeds to acquire (i) qualifying debt securities or (ii) certain securities and enter into a forward agreement (collectively, the ‘‘Permitted Repayment Securities’’) in order to cover the Priority Equity Share Repayment Amount in the event of further declines in the net asset value of the Company. To qualify as Permitted Repayment Securities, debt securities must have a remaining term to maturity of less than one year and be issued or guaranteed by the government of Canada or a province or the government of the United States, or be other cash equivalents with a rating of at least R-1 (mid) by DBRS or the equivalent rating from another rating organization.

The HIMIPref™ database has been updated with a reorgDataEntry reflecting a 1:1 transformation from securityCode A43200 to A43201.

The new security has the following characteristics representing my interpretation of the current investment terms:

• listed as “Not Rated”
• Callable 2008-01-31 at $15
• Maturity 2013-2-1 at $15.00

Update: I have uploaded the current SplitShare index after having given effect to the change. Note that MUH.PR.A will remain in the index until the December month-end rebalancing.

CM.PR.G is a bit of a funny issue – the prospectus dated June 4, 2004 offered Series 28 Prefs that came attached to warrants to purchase Series 29 (which is CM.PR.G) after November 1, 2004.

I don’t know why they did it this way … I’ll have to do some more digging at some point. It may be somewhere in the files!

If the conversion was not exercised, the dividend dropped to less than 1% of par, so the Series 28 is best thought of as an installment receipt for the “real” issue, CM.PR.G, Series 29, which is exchange traded. Series 28 is not exchange traded.

Anyway, the 2007 financials disclose (page 115) that there are still 2,500 Series 28 shares outstanding … $25-thousand worth. In 2007, they purchased 558 shares for cancellation.

But they’re still trying! Got to get this ridiculous item off the books somehow!

Allbanc Split Corp has announced:

that its Board of Directors has approved a proposal to reorganize the Company. 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. Holders of Class A Capital Shares who do not wish to extend their investment and all holders of Class A Preferred Shares will have their shares redeemed on March 10, 2008.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) 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 (iii) 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 be subject to receipt of all necessary regulatory approvals.

A special meeting of holders of Class A Capital Shares has been called and will be held on January 25, 2008 to consider and vote upon the reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Class A Capital Shares in connection with the special meeting.

So – the pondering that commenced October 25 has resulted in a proposed term-extension for the Capital Shares, but not for the preferreds – given that the NAVPU is $196.93 as of December 6, giving asset coverage of 3.23:1, they should be able to issue a larger amount of preferreds while maintaining asset coverage in the 2.2:1 area.

ABK.PR.C is tracked by HIMIPref™ with the securityCode A33000. It is not included in the SplitShare index due to volume concerns.

Many thanks to the Assiduous Reader who brought this news release to my attention!

Financial Preferred Securities Corporation has announced:

Financial Preferred Securities Corporation (TSX:FPR.PR.A)announces the redemption price of $18.90 Cdn per share in respect of the most recent redemption date of November 30, 2007. The redemption amount will be paid to redeeming unitholders on December 21, 2007, the 15th business day in December.

Shares of Financial Preferred Securities Corporation may be surrendered for redemption in November of any year, but must be surrendered at least 20 business days prior to the redemption date. Shares surrendered for redemption are redeemed on the redemption date at a redemption price per unit equal to the Net Realized Proceeds per share calculated as of the annual redemption date.

For the redemption date of November 30, 2007, approximately 14% of the outstanding shares were tendered for redemption representing 235,462 units. The net asset value on November 30, 2007 was also $18.90 per share.

FPR.PR.A is not tracked by HIMIPref™.

Prefblog’s prettiest Assiduous Reader wrote in pointing out that there’s a huge difference in yields among Weston’s perpetual issues … and I thought that would be an interesting topic.

This is, indeed, quite the spread – 34bp between WN.PR.A & WN.PR.D is something that would normally be arbtraged away very quickly for actively traded issues of the same name … for example

Note that the NA spread is probably influenced by proximity to call price of the higher yielding instrument – this added complexity does not exist for poor old Weston.

It should be noted that Weston is on Credit Review Negative by DBRS; I am advised that one factor in non-arbitrage of yield is that some institutional holders know very well that there is an opportunity, but are not empowered to take advantage of it. They bought WN when it was investment-grade; they have decided to keep the name despite the downgrade; but they cannot buy non-investment-grade issues; therefore they cannot execute a swap.

Update: I have uploaded graphs of the absolute Yields-to-Worst and of the differences thereof for your viewing pleasure.

Sentry Select, much to my surprise, has released no news release regarding the results of their annual redemption option – I would have thought that such an announcement would be a regulatory requirement, but I’ll admit I’m not as familiar with the reporting requirements of public companies as I’d like to be.

Anyway, thanks to Financial Webring Forum and an Assiduous Reader, I can now say that they were forced to redeem about one-sixth of their units; according to their June 30 Semi-annual report, they used to have 13,071,383 units outstanding; now, according to the TSX, they have only 10,896,968.

That’s a difference of nearly 2.2-million units; at $21 each, that means that there was selling pressure in excess of $40-million hitting the market in the last half of October … readers may know that the PerpetualDiscount index fell about 2.5% in the latter half of October … and the fund made an unfortunately early shift into this sector at that time.

The fund’s raison d’etre is to sell liquidity! There was just too much on offer!

According to Sentry Select, the NAVPU of DPS.UN was 21.07 on November 28, while the market price was $20.20. This is a discount of about 4.1% … below the 5% required to trigger Mandatory Purchases for Cancellation … but not by much!

DPS.UN is still paying out an unsustainable dividend – according to the June financials, almost 28% of the 1H07 payout was return of capital, compared to 35.2% in 2006. Redemptions of higher coupon issues may be expected to exacerbate the unsustainability as time passes.

Cyclical Split NT Corp. has announced:

that it has called 24,255 Preferred Shares, representing approximately 15.2401% of the issued and outstanding Preferred Shares, for cash redemption on December 14, 2007 as a result of the special annual retraction of 24,255 Capital Shares by the holders thereof. The 24,255 Preferred Shares shall be redeemed on a pro rata basis so that preferred shareholders of record on December 13, 2007 will have approximately 15.2401% of their Preferred Shares redeemed, with the number of Preferred Shares to be redeemed from each holder rounded to the nearest whole number. The redemption price for the Preferred Shares will be $25.00 per share.

CYC.PR.A is not rated by DBRS, as the rating was “withdrawn … at the request of the Company” in May, 2005. This would normally be a bad sign, as would their lack of a website, but according to their semi-annual financials filed on SEDAR, asset coverage as of June 30, 2007, was a very impressive 6.1+:1.

The issue is extremely small, with a market value of about $4.4-million according to the TSX. CYC.PR.A is not tracked by HIMIPref™

Energy Split Corp. II Inc. has announced:

that in relation to its reorganization, the Company has called 186,000 ROC Preferred Shares for cash redemption on December 14, 2007 representing approximately 22.245% of the outstanding ROC Preferred Shares. The ROC Preferred Shares shall be redeemed on a pro rata basis so that each holder of ROC Preferred Shares of record on December 13, 2007 will have approximately 22.245% of their ROC Preferred Shares redeemed. The redemption price of the ROC Preferred Shares will be equal to the lesser of (i) Unit Value as determined on the December 6, 2007 (the “Valuation Date”) and (ii) $25.00. As at the close of business today, Unit Value was $42.76.

Holders of ROC Preferred Shares that are on record for the dividend 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 December 16, 2007.

The Company is redeeming the 186,000 ROC Preferred Shares in order to increase the downside protection on the remaining ROC Preferred Shares to approximately 55%, as of November 30, 2007, in order to maintain the current rating of Pfd-2 (low) on the ROC Preferred Shares. There is no assurance that the rating will be maintained and the redemption and reorganization are not conditional on the rating being maintained. The redemption is taking place in accordance with the approval received from shareholders at the meeting approving the reorganization.

“Downside protection of 55%” has the same meaning as “Asset Coverage of 2.22:1” … as assets worth $2.22 can lose 55% of their value and still be worth $1.00.

This announcement is in accord with the previously announced plan.

EN.PR.A is tracked by HIMIPref™, but is not included in any of the indices due to low average volume. There are a mere 1,209,398 shares outstanding, according to the Toronto Stock Exchange.