Category: Issue Comments

A press release states:

JovFunds Management Inc., the manager of Charterhouse Preferred Share Index Corporation (the “Company”) (PFD.PR.A: TSX), announced today that the Company has received requests for redemption in respect of a total of 844,498 PSI Preferred Shares (“Shares”), representing approximately 38% of the outstanding Shares. Redeeming shareholders will be entitled to receive an amount equal to the net realized proceeds from that portion of the Index Portfolio that is sold to fund the redemption, together with any other net assets of the Company as at November 30, 2007. The redemption payment will be made on or before the tenth business day of the December, 2007.

I reviewed Charterhouse as part of my review of closed end funds.

Now … let’s work it out. 844,000 preferred shares outstanding … 38% are being redeemed … let’s say the NAV approximates the market price, say $20 …. that’s selling pressure of about maybe six to six-and-a-half million. Good thing it’s not a big fund!

Update: Oops! 844,000 preferred shares REPRESENTS 38% of the outstanding. So at $20, total selling pressure comes to about $16.9-million. This is much more serious!

The board of Thirty-Five Split Inc. has announced:

The Capital Shares and Preferred Shares will be redeemed by the Company on March 31, 2008 (the “Redemption Date”) in accordance with the redemption provisions of the shares. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $25.00 and the Net Asset Value per Unit.

TFS.PR.A is tracked by HIMIPref™, but is not included in the SplitShare index due to volume concerns.

Quebecor has announced:

that it was withdrawing its refinancing plan involving an offer of approximately Cdn$250 million of its equity shares, an offer on a private placement basis of an aggregate of $500 million of new debt securities and amendments to the Company’s secured credit facilities.  The Company has decided to withdraw the refinancing plan due to adverse current financial market conditions.

The previously noted potential redemption of IQW.PR.C, which was conditional on successful financing, will presumably not take place.

DBRS has announced it has:

placed the Long-Term and Preferred Share ratings of Quebecor World Inc. (Quebecor World or the Company) Under Review with Negative Implications.

This action follows an announcement by the Company that it has withdrawn the aggregate $750 million refinancing plan that was announced on November 13, 2007. The Company’s inability to implement its refinancing plan raises additional concerns with Quebecor World’s liquidity position and near-term financial flexibility. DBRS believes Quebecor World’s liquidity issues remain significant and could increase in severity should the Company fail to refinance all or portions of its existing credit facilities in the first half of 2008.

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

Update, 2007-11-23: Moody’s has put Quebecor World:

on review for possible downgrade and downgraded the company’s speculative grade liquidity rating to SGL-4 (indicating poor liquidity).
…
With the refinancing transaction having been cancelled, the company’s financing arrangements require prompt attention in order to assure ongoing orderly operations, and Moody’s considers near term default risk and, therefore, QWI’s long term debt ratings, to be inextricably linked to the company’s ability to normalize its financing arrangements (refer to Moody’s credit opinion for further commentary). Moody’s intends to review the company’s financing/liquidity plans in short order, with any resulting rating action being based on likely effectiveness and prospects for timely execution. With QWI appearing to be on the verge of generating modest positive cash flow as the cash drain related to its extensive retooling exercise nears completion, presuming that the company’s financing/liquidity plans are viable, Moody’s would affirm the existing B3 corporate family rating (CFR) and Caa1 instrument ratings. Should this not be the case, downwards ratings actions are likely.

In accordance with the company’s plans, Energy Split Corp. II Inc. has announced:

that the final condition required to extend the term of the Company for an additional three years to December 16, 2010, has been met. Holders of Capital Yield Shares and holders of ROC Preferred Shares previously approved the extension of the term of the Company subject to the condition that a minimum of 1,280,000 Capital Yield Shares remain outstanding following the November 16, 2007 additional special retraction right (the “Special Retraction Right”). Following the Special Retraction, 2,366,686 Capital Yield Shares (representing 98% of the currently outstanding Capital Yield Shares) will remain outstanding.
…
In order to increase the asset coverage for the continuing ROC Preferred Shares and in order to meet the requirements needed to maintain the current rating of Pfd-2 (low), the Company expects to call approximately 16% of the continuing ROC Preferred Shares for redemption on December 14, 2007 on the same basis as those tendered to the Special Retraction Right. The exact number of shares called for redemption will be announced on November 30, 2007. While the Company expects to receive a confirmation of the Pfd-2 (low) rating on the ROC Preferred Shares, the redemption and reorganization is not conditional on the rating being maintained. Upon the completion of the reorganization, the Company expects to adjust the number of remaining outstanding ROC Preferred Shares by way of sub-division in order to maintain the ratio of Capital Yield Shares to ROC Preferred Shares of two-to-one.

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.

From Marketwire …

Quebecor World Inc. (TSX:IQW)(NYSE:IQW) today announced that none of its 12,000,000 issued and outstanding Series 3 Cumulative Redeemable First Preferred Shares (TSX:IQW.PR.D) (the “Series 3 Preferred Shares”) will be converted into Series 2 Cumulative Redeemable First Preferred Shares (the “Series 2 Preferred Shares”).Shareholders who had elected to convert will have returned to them, as soon as practicable after December 1, 2007, share certificates representing the number of Series 3 Preferred Shares surrendered for conversion. Starting December 1, 2007 and until November 31, 2012, holders of Series 3 Preferred Shares will be entitled to receive quarterly fixed dividends at an annual rate of 6.13% subject to being declared by the Board of Directors of Quebecor World and as permitted by applicable law. The Series 3 Preferred Shares will remain listed on The Toronto Stock Exchange under the symbol IQW.PR.D.

It would seem that the market emphatically agrees with my assessment that the fixed-rate was the way to go for the next five years!

DBRS has announced that Weston is under review with negative implications due to the review of Loblaw:

DBRS has today placed the ratings of Loblaw Companies Limited (Loblaw, or the Company) Under Review with Negative Implications based on the Company’s deepening decline in earnings that shows no sign of abating. DBRS is increasingly concerned about Loblaw’s ability to execute on its turnaround plan and achieve the improvements required to maintain its current ratings.
…
(1) Operational problems such as supply chain management and integration of the management team.
(2) An intensifying competitive environment and Loblaw’s ability to generate meaningful same-store sales growth and improve operating income using a price-reduction strategy in this environment.
(3) Implementation of meaningful cost saving initiatives.

This follows the downgrade to Pfd-3(high) on May 22. Weston has the following preferred issues trading on the TSX: WN.PR.A WN.PR.B WN.PR.C WN.PR.D & WN.PR.E. All except WN.PR.B are fixed-rate perpetual; WN.PR.B is retractible.

This follows a similar announcement by S&P:

Standard & Poor’s Ratings Services today said it placed its ratings, including the ‘BBB+’ long-term corporate credit rating, on Toronto-based retailer Loblaw Companies Ltd. on CreditWatch with negative implications. At the same time, we placed the ratings on parent company George Weston Ltd., including the ‘BBB’ long-term corporate credit rating, on CreditWatch with negative implications.

“The CreditWatch placement follows Loblaw’s announcement of its very weak third-quarter performance,” said Standard & Poor’s credit analyst Maude Tremblay.

Update, 2008-2-7: DBRS has today:

downgraded the long-term ratings of Loblaw Companies Limited (Loblaw or the Company) to BBB (high) from A (low) and has also downgraded the short-term rating to R-2 (high) from R-1 (low). The trend is Negative for the long-term ratings and Stable for the short-term rating.
…
DBRS’s ratings for George Weston Limited remain Under Review with Negative Implications (where they were placed on November 16, 2007), until the review is completed this month.

S&P also downgraded Loblaws to BBB (no modifier!) and still with a negative trend, while maintaining Weston on Watch Negative. 

The underwriters unloaded all (? Well, I don’t know for sure. But a big chunk, anyway!) of their unsold inventory of TD.PR.P today; 819,021 shares (of a 10-million share issue) traded in a range of 24.00-23, closing at 24.10-13, 12×11. I am advised that the blow-out price was $24.00.

I don’t get it. Who, except maybe for those willing to pay up-up-UP for the privilege of buying a big piece, would be willing to buy it at $24.00? Let’s look at a recent comparable – the same comparable I wrote about when I reported on the opening day: TD.PR.O.

All I can really do is repeat the following from my previous post:

Yields are basically comparable, although the TD issue looks expensive even on this basis. So:

• If yields go up and prices go down, old & new will return about the same.
• If yields are unchanged, old and new will return about the same.
• If yields go down, the new issues will get called away just as things start to get fun, while the old issues will rack up big gains.

Doesn’t anybody do scenario analysis any more?

If I repeat myself often enough, maybe enough people will listen that we’ll start seeing more preferred shares issued that actually have a concession to market … or maybe I’ll just be dismissed as a crank. You can never be sure…

Well! This is unexpected! Quebecor has announced:

Quebecor World Inc. (TSX: IQW, NYSE: IQW) (the “Company”) announced a refinancing plan today pursuant to which it intends to concurrently:
…
[Raise a lot of debt & equity money – JH]
…
The net proceeds of the Senior Note Offering and the Convertible Debenture Offering and a portion of the net proceeds of the Equity Offering will be used to repay indebtedness under the Company’s credit facilities and the Company intends to use the remaining net proceeds of the Equity Offering to redeem its Series 5 Cumulative Redeemable First Preferred Shares for an aggregate redemption price of Cdn$175 million (approximately $185 million) plus accrued and unpaid dividends. The redemption of these preferred shares is conditional upon the completion of each of the elements of the refinancing plan and subject to re-confirmation by the Company’s Board of Directors.

I was expecting direct conversion:

The thing that makes this situation so fraught with interest is that IQW.PR.C is currently quoted at $23.35-50 and has actually declined in price recently (it was trading just under $25.00 a month ago). Note that 23.50 is 94% of par value.

We can assume the company will convert to common. They don’t have any money and they don’t want to pay the pref dividends. If I’m wrong on that one and they convert to cash, well, that’s $1.50 profit to today’s buyer, so don’t complain to me.

Given recent prices and Quebecor’s recent downgrade, I don’t think there will be many complaints!

As previously reported, the management of EN.PR.A is attempting to extend the term on this split-share corporation … why not, it’s a lot cheaper than having to underwrite a new one!

In accordance with the plan, Scotia Managed Companies announced today:

that pursuant to the Company’s reorganization the new fixed distribution rate on the ROC Preferred Shares is 5.00%. This represents an increase of 0.75% over the current fixed rate of 4.25% of the ROC Preferred Shares. If the reorganization is successful and based on the $25.00 issue price of the ROC Preferred Shares, holders of ROC Preferred Shares will be entitled to quarterly fixed distributions of $0.3125 effective December 16, 2007.

The new fixed distribution rate was determined based on a formula approved by holders of Capital Yield Shares and holders of ROC Preferred Shares at a special meeting held October 23, 2007. The formula provided for the rate to equal the greater of (i) 5.00% and (ii) the Government of Canada three year bond rate as at November 9, 2007 plus 0.75%, rounded down to the nearest 0.05%.

…

The reorganization will only be implemented if a minimum of 1,280,000 Capital Yield Shares remain issued and outstanding following exercise of the Special Retraction Right by holders on or before November 16, 2007. If this condition is not satisfied, the Company will redeem the Capital Yield Shares and the ROC Preferred Shares on December 16, 2007 as originally contemplated.

If the reorganization is implemented the ratio of Capital Yield Shares to ROC Preferred Shares will continue to be two-to-one and the asset coverage on the ROC Preferred Shares will be set at approximately 2.2 times to extend the current Pfd-2(low) rating. In order to achieve this, the Company may redeem ROC Preferred Shares which are not surrendered for retraction pursuant to the Special Retraction Right. The reorganization is not conditional on the rating being maintained.

So, now the preferred shareholders will know what they’re voting on, anyway! Frankly, 5% looks a little skimpy – not horrible, but a little skimpy – given the other three-year-ish split share paper that’s currently available.

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.

HIMIPref™ and PrefInfo information will not be updated until it is known whether the reorganization has been effected. This should be announced on or just after November 16.

This has been rather a boring topic to update this year; in my last update I noted that there had been no purchases, unlike the good old days of substantial purchases.

GWO has recently released their Third Quarter Financials and, at last, we see some activity on this front, albeit not much.

In their Statement of Cash Flows, page 10 of the PDF, they have indicated that $1-million was spent to purchase and cancel preferred shares in the third quarter; note 12 to the financials, on page 25 of the PDF, indicates that this represents the cancellation of 40,400 shares of GWO.PR.E (so there’s obviously some rounding of the cash amount!).

Not much, perhaps, but we are reminded on page 24, Note 11(b), of the redemption of GWL.PR.L subsequent to quarter-end, which was worth $50-million.