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.

The variance of returns was even more bizarre this month than it was in October! The underperformance of the E-L Financial issues, ELF.PR.F & ELF.PR.G is very surprising.

Big 8 Split Inc. has announced:

it has called 10,584 Preferred Shares for cash redemption on December 14, 2007 representing approximately 0.4% of the outstanding Preferred Shares as a result of holders of 10,584 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 13, 2007 will have approximately 0.5% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 14, 2007.

In addition, holders of a further 91,096 Preferred and Capital Shares have deposited such shares concurrently for retraction on December 14, 2007. As a result, a total of 101,680 Preferred and Capital Shares, or approximately 4.3% of both classes of shares currently outstanding will be redeemed.

Payment of the amount due to retracting shareholders will be made by the Company on December 14, 2007. From and after December 15, 2007 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.

BIG.PR.A is not tracked by HIMIPref™.

5Banc Split Inc. has announced:

it has called 1,350,696 Preferred Shares for cash redemption on December 14, 2007 representing approximately 10% of the outstanding Preferred Shares as a result of holders of 1,350,696 Capital Shares exercising their special annual retraction rights. The Preferred Shares shall be redeemed on a pro rata basis, so that holders of record of Preferred Shares on the close of business on December 13, 2007 will have approximately 10% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $10.00 per share. Holders of Preferred Shares that have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to and including December 14, 2007.

In addition, holders of a further 585,270 Preferred and Capital Shares have deposited such shares concurrently for retraction on December 14, 2007. As a result, a total of 1,935,966 Preferred and Capital Shares, or approximately 14% of both classes of shares currently outstanding will be redeemed.

Payment of the amount due to retracting shareholders will be made by the Company on December 14, 2007. From and after December 15, 2007 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.

FBS.PR.B is tracked by HIMIPref™ with the securityCode A29001. It is currently included in the HIMIPref™ SplitShare Index. It is also currently included in the S&P/TSX Preferred Share Index but will be removed in January.

Last January, the company very proudly announced the underwriters’ greenshoe had been exercised … sic transit gloria mundi.

Well, it took them long enough! GWO has announced it:

is selling its U.S. health-care business to Cigna Corp. in a deal valued at US$2.25 billion, a move its CEO says is part of a strategy to focus more on the financial services sector.
…
After taxes and write-offs, Great-West Lifeco said it will have approximately US$1.6 billion from the sale that will be used to repay bridge financing related to its purchase of Boston-based Putnam Investments, LLC, which closed in August.

After a bond issue in June the refinancing of the bridge debt languished. The original intention had been to issue hybrids (probably prefs); not only has this source of supply been removed, the issuer bid for GWO.PR.E / GWO.PR.X might see a bit more activity now.

GWO has the following direct issues outstanding: GWO.PR.E, GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I & GWO.PR.X. Related issuers are POW, PWF & CL.

When writing about the recent Quebecor World downgrade I noted:

At Pfd-5, there’s not much further IQW.PR.C / IQW.PR.D can go!

Well, now they’re taking that last step:

Quebecor World Inc. (TSX: IQW, NYSE: IQW) (the “Company”) announced today that it is suspending dividend payments on its Series 3 and Series 5 Preferred Shares. While the Company has  the  funds available to pay such dividends, it has been advised by counsel that as a result of recent developments, the Company may be prevented from paying dividends to holders of its preferred shares because it may not satisfy the applicable capital adequacy test contained in the Canada Business Corporations Act («CBCA»). In order to rectify this situation, the Company intends to propose to its shareholders at its next annual shareholders meeting scheduled for May 2008 a reduction of stated capital as permitted under the CBCA to allow the Company to resume paying dividends, including accrued, unpaid dividends. The Company notes that the dividends on the Series 3 and Series 5 preferred shares (including dividends that were to be paid on December 1, 2007) are cumulative and holders will be entitled to receive unpaid dividends, when declared by the Board of Directors, at such time as the Company is permitted to resume the payment of dividends.

It is not clear to me what effect, if any, this will have on the softMaturity of the IQW.PR.C which will occur prior to the meeting; and I’m not sure why they would choose to default on the IQW.PR.C rather than convert to common.

Sure, they don’t want to dilute the common, but why is this so much worse than defaulting?

Update: For those who are interested, here is the DBRS rating history of Quebecor World (and its predecessor corporation):

Update #2, 2007-11-26: DBRS has downgraded the preferreds to “D” (surprise!):

While the cumulative nature of the Series 3 and Series 5 preferred shares affords Quebecor World the flexibility to suspend dividends, provided dividends are paid in arrears, DBRS notes preferred shareholders maintain a level of expectation that these dividends will be paid in a timely manner, and this expectation is reflected in the preferred share ratings. Having not met the expectation of preferred shareholders, DBRS notes the preferred shares are more reflective of a “D” rating.
…
DBRS expects the conversion feature on the Series 5 preferred shares, which become convertible at the option of the Company on December 1, 2007, and at the holder’s option on March 1, 2008, will not be affected by the dividend suspension, and the conversion calculation will adjust to include accrued and unpaid dividends in the numerator of the equation, as per the Series 5 prospectus document dated August 3, 2001.

The following has been copied from November 23, 2007 

I continue to be utterly amazed by the yield on BNA.PR.C, which had yet another rough ride today, down 0.9444% to close at 17.83 bid, yield 8.39% to maturity. 8.39%! Basically, 11.75% interest equivalent!

I confess, I thought for a fleeting moment today that it might be inventory overhang from a barely successful underwriting … but that doesn’t seem to fit the data. They started trading January 10 and hung around at the $25.00 level until early May, when they – quite reasonably – got caught up in the downdraft. Markets were strong in the first part of the year – if the dealers had been left holding the baby, surely they would have, and could have, blown it out the door at $24.00 in, say, March.

The fund has a position in this issue and I’m getting killed on it. But how can it possibly be fairly valued at 160bp over the similar-and-parri-passu BNA.PR.B? On the bright side, looking at the price chart is highly entertaining … I’ve found a new illustration for the word “parabola”.

This ends the copy. The rest is new!

I have thought of a perfectly appalling possibility, predicated by my bewilderment at the difference in yields between BNA.PR.B and BNA.PR.C … is it possible that the market has forgetten that they will mature?

It should be noted that Current Yield is a thoroughly bogus calculation – it ignores the amortization of the discount until maturity.

On the basis of Current Yield, the issues are much more equal …. is it at all possible that this is how they’re being traded? I’m grasping at straws here!

I should also note that while the price of the issue suffered on the first trading day, the volume was heavy. This indicates that the underwriting, in terms of getting the issue out the door, was a success, which makes the whole “overhang” theory even more unlikely.

Prefhound in the comments has some interesting things to say, as always. I will be responding in the comments, so stay tuned!

Update, 2007-11-24: Note that there is more discussion about Split-Shares in general and BNA.PR.C in particular in the post (and comments) : SplitShare & OpRet Yields.

Update #2, 2007-11-24: Sometimes I despair. I looked on Hank Cunningham’s blog, In Your Best Interest, and found Blackmont Capital’s Preferred Share Report, which – in the absence of any copyright notice telling me not to – I have uploaded here for wider distribution. Blackmont makes two rather surprising claims in this report:

• that BNA.PR.B is a Perp. False. The prospectus (March 13, 2004 on SEDAR) clearly states: The Company will redeem all outstanding Series 1 Preferred Shares on March 25, 2016 (the ‘‘Redemption Date’’).
• that the yield on BNA.PR.C is 5.85%. False. It appears that they have reported the current yield, being the annual dividend of 1.088 divided by the “last” price of $18.60. They have not accounted for the fact that the issue’s redemption price is $25.00.

The Blackmont report is riddled with errors – just looking at it very casually, I note that they list GWO.PR.E and GWO.PR.X as perpetuals.

Update, 2008-1-23 I have received an inquiry from a Canadian Moneysaver subscriber who asks if the dividends on this issue are cumulative.

First off … let’s check my “information summary site”, PrefInfo … yes they are.

Now, I think this is a well-researched and well-proofread site that dispenses highly accurate information to the yearning masses …. but I still recommend looking at the prospectus before actually plunking any money down. The prospectus is on SEDAR, company name “BAM Split”, dated January, 2007 and we see on the front page:

Holders of the Series 3 Preferred Shares will be entitled to receive quarterly fixed cumulative preferential dividends of $0.2719 per Series 3 Preferred Share.

… and on page four of the PDF (which is also page four of the prospectus):

Holders of the Series 3 Preferred Shares will be entitled to receive quarterly fixed cumulative preferential dividends equal to $0.2719 per Series 3 Preferred Share.
…
Series 3 Preferred Share dividends will be funded from the dividends received on the BAM Shares. Based on the current dividends paid on the BAM Shares, it is expected that the Company will have approximately 1.08 times coverage on the dividends to be paid on all Preferred Shares. As such, the dividends paid on the Series 3 Preferred Shares will constitute ordinary dividends to the holders of the Series 3 Preferred Shares. If for any reason, the dividends received by the Company on the BAM Shares are insufficient to fully fund the Preferred Share dividends, the Company will sell BAM Shares or write covered call options on its BAM Shares to the extent necessary to fund any shortfall.
See ‘‘Dividend Policy’’ and ‘‘Details of Offering — Series 3 Preferred Shares —
Dividends’’.

…. so …. I think it’s fair to say: “Yes. The dividends are cumulative.”

Domtar has announced:

that it sent on November 21, 2007 notices of redemption to the registered holders of all of its Series A Preferred Shares and Series B Preferred Shares. In accordance with the share provisions applicable to such Preferred Shares and the notices of redemption, the Series A Preferred Shares will be redeemed on December 21, 2007 at Canadian $25.4932 per Series A Preferred Share, representing the redemption price of Canadian $25.00 plus accrued dividends of Canadian $0.4932, accruing as of and from October 2, 2007 (being the last dividend payment date). The Series B Preferred Shares will be redeemed on December 21, 2007 at Canadian $25.2466 per Series B Preferred Share, representing the redemption price of Canadian $25.00 plus accrued dividends of Canadian $0.2466, accruing as of and from October 2, 2007 (being the last dividend payment date).

Neither issue is tracked by HIMIPref™. They were very tiny issues:

Preferred Shares Series “A”

Cusip: 257561308 The Series A Preferred shares are non-voting and redeemable at the Corporation’s option at $25.00 per share since April 1, 1994. These shares carry a cumulative cash dividend per share of $2.25 per annum.As at December 31, 2006, the Corporation had a total of 67,476 Series A Preferred shares outstanding.

 

Preferred Shares Series “B”

Cusip: 257561407 The Series B Preferred shares are non-voting and redeemable at the Corporation’s option at $25.00 per share. These shares carry a cumulative cash dividend equivalent to 72% of the bank prime rate.

As at December 31, 2006, the Corporation had a total of 1,245,000 Series B Preferred shares outstanding.

The issues’ last rating change was a downgrade to Pfd-5(high) from Pfd-4 by DBRS on April 13, 2006. S&P has had them at P-4(low) since December 1, 2005.

Manulife has announced:

it has exercised its right to redeem, on December 31, 2007, all of the 3,420,905 outstanding 6.10% Non-Cumulative Class A, Series 6 Preferred Shares (CUSIP No. 564835502) at $26.00 per preferred share plus declared and unpaid dividends to the date fixed for redemption. Formal notice of redemption has been delivered to the registered holder of the preferred shares in accordance with the terms and conditions of those shares.

MIC.PR.A is tracked by HIMIPref™ (securityCode A43270), but is not included in any of the indices due to volume concerns – the most recent removal from the indices was August 31, 2007.

Many thanks to the assiduous reader who brought this to my attention!

Brompton Group has announced:

that Dividend Growth Split Corp. has filed a final prospectus in respect of an initial public offering of class A and preferred shares for a maximum offering size of $100 million. The preferred shares have been provisionally rated Pfd-2 by Dominion Bond Rating Service Limited.Dividend Growth Split Corp. has been created to provide investors with an investment in 20 large capitalization Canadian equities that have demonstrated the highest dividend growth rates over a five year period and have a current dividend yield of at least 2% per annum, utilizing a split share structure on a low cost basis.

Class A shareholders will receive the benefits of monthly cash distributions targeted to be 8.0% per annum, low management fees and the opportunity for growth in net asset value. Preferred shareholders will receive attractive quarterly distributions of 5.25% per annum supported by the high credit quality of the underlying assets.

Asset coverage is 2.5:1 at the issue price – probably less after initial fees and expenses, but I haven’t even read as far as that in the prospectus! I do see that the wind-up date is November 30, 2014, with no intervening calls, and:

No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution, after payment of the distribution by the Company, the NAV per Unit would be less than $15.00. In addition, it is intended that the Company will not pay distributions in excess of the targeted $0.10 per month, on the Class A Shares if, after payment of the distribution, the NAV per Unit would be less than $25.00 unless the Company has to make such distributions to fully recover refundable taxes.

No decision has been made as to whether to include these in the HIMIPref™ universe; I’m going to wait until I see how much they’re able to sell.

BCE has announced:

that 6,991,775 of its 8,852,620 Cumulative Redeemable First Preferred Shares, Series Z (“Series Z Preferred Shares”) have been tendered for conversion, on a one-for-one basis, into Cumulative Redeemable First Preferred Shares, Series Y (“Series Y Preferred Shares”). In addition, 12,825 of its 1,147,380 Series Y Preferred Shares have been tendered for conversion, on a one-for-one basis, into Series Z Preferred Shares. Consequently, on December 1, 2007, BCE will have 8,126,330 Series Y Preferred shares and 1,873,670 Series Z Preferred shares issued and outstanding.
…
The Series Y Preferred Shares will pay a monthly floating adjustable cash dividend for the five-year period beginning on December 1, 2007, as and when declared by the Board of Directors of BCE. The Series Z Preferred Shares will
pay on a quarterly basis, for the five-year period beginning on December 1, 2007, as and when declared by the Board of Directors of BCE, a fixed dividend based on an annual dividend rate of 4.331%.
…
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 Y Preferred Shares for a price of $25.50 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 Z Preferred Shares for a price of $25.25 per share, together with accrued but unpaid dividends to the Effective Date.