Category: Issue Comments

Brookfield Corporation accomplished most of it latest reorg on December 9:

Brookfield Corporation (NYSE: BN, TSX: BN) (the “Corporation”) and Brookfield Asset Management Ltd. (NYSE: BAM, TSX: BAM) (the “Manager”) today jointly announced the completion of the public listing and distribution of a 25% interest in the Corporation’s asset management business, through the Manager, by way of a plan of arrangement (“Arrangement”).

The Corporation has changed its name from Brookfield Asset Management Inc. to Brookfield Corporation, with effect from today and at the open of markets on December 12, 2022, its shares will trade under the new ticker “BN” on both stock exchanges. The Manager takes the name Brookfield Asset Management Ltd. and has been successfully listed on the New York Stock Exchange and the Toronto Stock Exchange. At the open of markets on December 12, 2022, its shares will trade under the ticker “BAM” on both stock exchanges.

Accordingly, the BAM Series 8, BAM.PR.E, shares have transformeed into BN Series 51, BN.PF.K shares:

Dividends
The holders of the Series 51 Preferred Shares are entitled to receive monthly floating cumulative preferential cash dividends, accruing daily, as and when declared by the board of directors on the 12th day of each month in an amount per share equal to the product of C$22.00 per share and one-twelfth of the annual floating dividend rate applicable to the month being the average Prime Rate for the month multiplied by a Designated Percentage as provided in the share conditions. The Designated Percentage established for November 2001 was 85%. Thereafter, the Designated Percentage has been adjusted each month based on the average trading price of the Series 51 Preferred Shares, to a maximum of 100% and a minimum of 50%.
…
Redemption
Subject to applicable law and certain restrictions and to the rights, privileges, restrictions and conditions attaching to other shares of the Corporation, all, but not less than all, of the Series 51 Preferred Shares will be redeemable at the option of the Corporation at a redemption price of C$22.44 per share, together with all accrued and unpaid dividends thereon up to but excluding the date of redemption. Notice of any redemption must be given by the Corporation at least 45 days and not more than 60 days prior to the date fixed for redemption.

Purchase for Cancellation
The Corporation may purchase (if obtainable) for cancellation the whole or any part of the Series 51 Preferred Shares in the open market or by private agreement or otherwise, at the lowest price obtainable, in the opinion of the board of directors, plus accrued and unpaid dividends and costs of purchase.

Exchange
Subject to certain restrictions, the holders of the Series 51 Preferred Shares will have the right, on November 1, 2026, and on November 1 in every fifth year thereafter, to exchange any or all of the Series 51 Preferred Shares held by them for Series 52 Preferred Shares of the Corporation, on a one-for one basis. An exchange of Series 51 Preferred Shares for Series 52 Preferred Shares must be initiated not less than 14 days and not more than 45 days prior to an exchange date. Under certain circumstances, the Series 51 Preferred Shares automatically convert into Series 51 Preferred Shares, on a one-for-one basis.

Rights of Liquidation
In the event of the liquidation, dissolution or winding-up of the Corporation, the holders of the Series 51 Preferred Shares will be entitled to receive C$22.00 per share together with all dividends accrued and unpaid to the date of payment before any amount will be paid or any assets of the Corporation distributed to the holders of any shares ranking junior to the Series 51 Preferred Shares. The holders of the Series 51 Preferred Shares will not be entitled to share in any further distribution of the assets of the Corporation.
…

National Bank of Canada has announced (on 2022-11-4):

that none of its outstanding 16,000,000 Series 38 Shares will be converted on November 15, 2022, into Non-Cumulative Floating Rate First Preferred Shares, Series 39 (NVCC) (the “Series 39 Shares”).

During the conversion period, 82,826 Series 38 Shares were tendered for conversion into Series 39 Shares, which is less than the minimum 1,000,000 required to give effect to the conversion, as per the terms of the Series 38 Shares described in the prospectus supplement dated June 5, 2017.

As a result, no Series 39 Shares will be issued on November 15, 2022, and holders of Series 38 Shared will retain their shares.

The Series 38 Shares are currently listed on the Toronto Stock Exchange under the symbol NA.PR.C. The annual dividend rate for such shares for the five-year period commencing on November 16, 2022, and ending on November 15, 2027, will be 7.027%.

NA.PR.C is a FixedReset, 4.45%+343, NVCC-compliant, that commenced trading 2017-6-13 after being announced 2017-6-1. Notice of extension was given in 2022 and it reset to 7.027%. The issue is tracked by HIMIPref™ and has been assigned to the FixedResets (Discount) subindex.

BAM.PF.J will reset at 6.229% effective 2023-1-1. BAM.PF.J was issued as a FixedReset, 4.75%+310M475, that commenced trading 2017-9-13 after being announced 2017-09-06.

BAM.PR.Z will reset at 6.089% effective 2023-1-1. BAM.PR.Z was issued as a FixedReset, 4.80%+296, that commenced trading 2011-11-2 after being announced 2011-10-24. BAM.PR.Z reset to 4.685% effective 2018-1-1; I recommended against conversion; and there was no conversion.

BPO.PR.I will reset at 6.359% effective 2023-1-1. BPO.PR.I was issued as a FixedReset, 4.85%+323M485, that commenced trading 2017-12-7 after being announced 2017-11-29.

IFC.PR.A will reset at 4.841% effective 2022-12-31. IFC.PR.A was issued as a FixedReset, 4.20%+172, that commenced trading 2011-7-12 after being announced 2011-6-22. IFC.PR.A reset at 3.396% effective December 31, 2017, and I recommended against conversion. There was no conversion.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g. IFC.PR.A and the FloatingReset that will arise if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

It is somewhat surprising to note that the market is pricing in a lengthy policy tightening cycle by the BoC: the implied rates until the next interconversion are not much different from the current 3-month bill rate of 4.26%, with the averages for investment-grade and junk issues at +4.08% and +4.25%, respectively. Some may conclude that investors are making no attempt to forecast the duration of this tightening cycle!

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

It should be noted that the data is not of particularly good quality, since of the InvestmentGrade pairs, only SLF.PR.G / SLF.PR.J and TRP.PR.A / TRP.PR.F have FloatingResets of any appreciable liquidity. These two pairs are plotted with the coordinates (2.89 years, 3.62%) and (2.39 years, 4.22%) respectively. So there’s a certain amount of danger that plots could change appreciably if the upcoming conversion options result in FloatingResets that are highly liquid. Be warned!

If we plug in the current bid price of the IFC.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Similarly, for BAM.PF.J:

Similarly, for BAM.PR.Z:

Similarly, for BPO.PR.I:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade above the price of their FixedReset counterparts. Therefore, I recommend that holders of IFC.PR.A, BAM.PF.J, BAM.PR.Z and BPO.PR.I convert their holdings to the corresponding FloatingResets. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Readers who are not as Assiduous as they should be occasionally get upset at my conversion recommendations because I make no attempt whatsoever to make my own estimate of the average 3-month bill rate for the next five years and tailor a recommendation accordingly. I do not do this because it cannot be done with any degree of conviction whatsoever; anybody who tells you that they can reliably predict market yields five years in advance is a charlatan. Market Timing is a snare and delusion; financial markets form a chaotic system in which things that have no rational relevance today can be the driving forces tomorrow. I did not predict the market effects of the COVID pandemic six months before it happened; I did not predict the market effects of the Russian invasion of Ukraine six months before it happened, either; I don’t know anybody who did. All we can ever do is compare similar instruments and attempt an educated guess about relative value; for example IFC.PR.A vs. its possible Floating Rate counterpart. Comparing either one of them with cash or equity over the short term is an exercise in futility.

So what to do? Construct your portfolio to meet your needs and your risks, based on the long-term characteristics of the various alternatives. If, for instance, you are financing your position with a variable rate mortgage based on prime (not a wise move, but some people do it), your lower risk (higher certainty) option is the FloatingReset, as it will reset every three months in accordance with the three month bill rate, which is closely related to prime. Prime and the three month bill rate are similar instruments; prime and the five-year bond rate are less similar; prime and equity prices are highly dissimilar. My purpose in making these ‘convert or hold’ recommendations is to show the potential for short term trading gains between the FixedReset and its FloatingReset counterpart which are, as previously noted, similar instruments. Thus, for instance, if your portfolio requirements indicate that the FixedReset instrument is better suited for you, you might wish to elect to convert to the FloatingReset anyway; this would be reasonable (but not guaranteed!) to the extent that you have a reasonable (but not guaranteed!) expectation that the FloatingReset will be trading higher than the FixedReset for a long enough period to allow you to swap the issues on the market and maybe take out $0.25/share on the swap.

That’s how you make money in the market, taking out small profits as many times as opportunity permits. That’s what proprietary traders (and properly operated hedge funds, deserving of the name) do – and proprietary trades, backed with sufficient capital, are the only group of market participants that consistently make profits.

Those who wish to convert are advised that the deadline for notifying the company of such a desire is 5:00 p.m. (Toronto time) on December 16, 2022 for each of these issues. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s no time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

DBRS has announced that it:

changed the trends on Fairfax Financial Holdings Limited (Fairfax or the Company) and its related entities to Positive from Stable. DBRS Morningstar also confirmed all ratings, including Fairfax’s Issuer Rating, at BBB (high), with Northbridge General Insurance Corporation’s (Northbridge) and Federated Insurance Company of Canada’s Financial Strength Ratings at “A”.

KEY RATING CONSIDERATIONS
The change in the trends to Positive from Stable recognizes Fairfax’s resilient, diversified and growing franchise; consistent underwriting profitability; strong liquidity position; and sound regulatory capital. The Company is a major international property and casualty (P&C) insurance and reinsurance player with a significant presence in key global markets through its geographically diversified insurance and reinsurance operating subsidiaries. Fairfax maintains ample liquid assets at both the holding and operating companies, as well as access to committed lines of credit. Fairfax’s earnings are subject to volatility as a result of exposure to natural catastrophe losses and the impact of financial market fluctuations on unrealized investment gains and losses. The Company’s subsidiaries maintain appropriate regulatory capital ratios with buffers above required solvency levels, allowing Fairfax to handle adverse events. The ratings also consider Fairfax’s improved risk profile, driven by the Company’s recent shift towards investing in highly rated and liquid fixed-income securities while reducing holdings of noninvestment-grade bonds. AAA-rated bonds now account for the majority of Fairfax’s bond portfolio.

RATING DRIVERS
DBRS Morningstar would upgrade the ratings on Fairfax and its subsidiaries, if the Company maintains its improved risk profile and overall profitability while reducing its financial leverage ratio.

Given the Positive trend, a downgrade in the near future is unlikely. However, the trend would revert to Stable if there is deterioration in the risk profile and overall profitability, or sustained elevated financial leverage.

RATING RATIONALE
DBRS Morningstar views the Company’s franchise strength as Strong/Good, reflecting the size and diversity of its core operations. Fairfax has developed an extensive portfolio of global insurance and reinsurance subsidiaries over time, which the Company continues to expand through organic growth and prudent strategic acquisitions. Management of Fairfax’s insurance and reinsurance operating subsidiaries is decentralized, with each organization having its own autonomous management team. The breakdown of premiums written by line of business has remained consistent over the past five years, with casualty insurance accounting for just more than half of the gross premiums written. The Company ranks among the top five providers of commercial P&C insurance in Canada based on 2021 direct premiums written. Fairfax’s largest U.S.-based subsidiary, Odyssey Group, ranks among the 25 largest global P&C reinsurers. The Company’s U.K. subsidiary, Brit Limited (Brit), is the second largest Lloyd’s of London syndicate and a market leader in specialty insurance and reinsurance. Fairfax can compete with larger global players using various platforms in selected markets where it can achieve underwriting profitability. The Company’s gross written gross premiums have increased progressively over the past five years to $23.8 billion reported for year-end 2021.

Fairfax’s Good risk profile is supported by the Company’s strong underwriting and risk-limit controls, effective claims management, and appropriate reinsurance coverage for aggregate claim events or large losses. Moreover, Fairfax has appropriate internal controls and has been able to operate successfully in multiple jurisdictions. There has been a significant increase in the proportion of AAA rated bonds and a decline in the proportion of bonds rated BBB and below in the bond portfolio, resulting in a material improvement in the credit risk profile of the Company’s fixed-income investment portfolio.

DBRS Morningstar assesses Fairfax’s earnings ability as Good. The Company is characterized by disciplined underwriting, supported by a long-term value investing approach that sometimes may introduce earnings volatility. The Company has a history of acquiring well-managed insurance companies, ensuring that it retains management to continue running these businesses. The results for the first nine months of 2022 (9M 2022) were negatively affected by market volatility, caused in part by the rapid increase in interest rates globally. As a result, Fairfax reported a consolidated net loss of $816 million as of 9M 2022. Nonetheless, Fairfax expects to report a small profit for full year due to realized gains ($1.3 billion on a pre-tax basis) upon the sale of the Company’s pet insurance business, which will be reflected in Q4 2022 earnings. The hardening reinsurance market is expected to contribute positively to Fairfax earnings in the short to medium term.

DBRS Morningstar assesses Fairfax’s liquidity profile as Strong/Good. Fairfax maintains a strong financial position at the holding company level, with approximately a $873.5 million total for cash and liquid investments as at Q3 2022. DBRS Morningstar considers this level of cash and investments as providing an important liquidity cushion for any potential uptick in insurance claims from the subsidiaries or potential catastrophe losses. The Company redeployed a significant amount of cash in 2022 to invest in AAA-rated U.S. Treasuries and Government of Canada bonds. This is expected to help increase earnings through interest income going forward while maintaining the Company’s resilient liquidity position. Fairfax maintains a committed credit facility of $2 billion that is available to support liquidity needs. The credit facility was largely undrawn as at September 30, 2022.

DBRS Morningstar assesses the capitalization of Fairfax as Good/Moderate. The Company’s insurance and reinsurance operating subsidiaries are appropriately capitalized. Fairfax’s fixed-charge coverage ratios have been volatile over time because of the impact of International Financial Reporting Standards’ accounting treatment of unrealized capital gains and losses within the investment portfolio. However, it improved significantly in 2021 because of the Company’s strong earnings. The Company’s financial leverage ratio (calculated by DBRS Morningstar on a consolidated basis as debt plus preferred shares to capital) increased to 35.7% at Q3 2022, in part due to the issuance of $750 million of senior debt in August 2022 and a decline in common equity. Any substantial further increase in leverage would change the Positive trend to Stable.

The rating of Pfd-3(high) was unaffected.

Affected issues are FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.GM, FFH.PR.H, FFH.PR.I, FFH.PR.J, FFH.PR.K and FFH.PR.M.

Brookfield has announced:

that it has determined the fixed dividend rate on its … Cumulative Class A Preference Shares, Series 48 (“Series 48 Shares”) (TSX: BAM.PF.J) for the five years commencing January 1, 2023 and ending December 31, 2027. As previously disclosed, the … Series 48 Shares are expected to commence trading on the TSX under the updated symbols … “BN.PF.J”, respectively, on December 12, 2022.
…
Series 48 Shares and Series 49 Shares

If declared, the fixed quarterly dividends on the Series 48 Shares during the five years commencing January 1, 2023 will be paid at an annual rate of 6.229% ($0.3893125 per share per quarter).

Holders of Series 48 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on December 16, 2022, to convert all or part of their Series 48 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 49 (the “Series 49 Shares”), effective December 31, 2022. The quarterly floating rate dividends on the Series 49 Shares will be paid at an annual rate, calculated for each quarter, of 3.10% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the January 1, 2023 to March 31, 2023 dividend period for the Series 49 Shares will be 1.78348% (7.233% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.44587 per share, payable on March 31, 2022.

Holders of Series 48 Shares are not required to elect to convert all or any part of their Series 48 Shares into Series 49 Shares.

As provided in the share conditions of the Series 48 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 48 Shares outstanding after December 31, 2022, all remaining Series 48 Shares will be automatically converted into Series 49 Shares on a one-for-one basis effective December 31, 2022; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 49 Shares outstanding after December 31, 2022, no Series 48 Shares will be permitted to be converted into Series 49 Shares. There are currently 11,885,972 Series 48 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 49 Shares effective upon conversion. Listing of the Series 49 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX.

BAM.PF.J was issued as a FixedReset, 4.75%+310M475, that commenced trading 2017-9-13 after being announced 2017-09-06. It is tracked by HIMIPref™ and has been assigned to the FixedReset (Discount) subindex.

Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!

Brookfield has announced:

hat it has determined the fixed dividend rate on its Cumulative Class A Preference Shares, Series 30 (“Series 30 Shares”) (TSX: BAM.PR.Z) for the five years commencing January 1, 2023 and ending December 31, 2027, … As previously disclosed, the Series 30 Shares … are expected to commence trading on the TSX under the updated symbols “BN.PR.Z” … on December 12, 2022.
Series 30 Shares and Series 31 Shares

If declared, the fixed quarterly dividends on the Series 30 Shares during the five years commencing January 1, 2023 will be paid at an annual rate of 6.089% ($0.3805625 per share per quarter).

Holders of Series 30 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on December 16, 2022, to convert all or part of their Series 30 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 31 (the “Series 31 Shares”), effective December 31, 2022. The quarterly floating rate dividends on the Series 31 Shares will be paid at an annual rate, calculated for each quarter, of 2.96% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the January 1, 2023 to March 31, 2023 dividend period for the Series 31 Shares will be 1.74896% (7.093% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.43724 per share, payable on March 31, 2023.

Holders of Series 30 Shares are not required to elect to convert all or any part of their Series 30 Shares into Series 31 Shares.

As provided in the share conditions of the Series 30 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 30 Shares outstanding after December 31, 2022, all remaining Series 30 Shares will be automatically converted into Series 31 Shares on a one-for-one basis effective December 31, 2022; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 31 Shares outstanding after December 31, 2022, no Series 30 Shares will be permitted to be converted into Series 31 Shares. There are currently 9,787,090 Series 30 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 31 Shares effective upon conversion. Listing of the Series 31 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX.

BAM.PR.Z was issued as a FixedReset, 4.80%+296, that commenced trading 2011-11-2 after being announced 2011-10-24. BAM.PR.Z reset to 4.685% effective 2018-1-1; I recommended against conversion; and there was no conversion. It is tracked by HIMIPref™ and assigned to the FixedReset (Discount) subindex.

Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P., has announced:

the reset dividend rate on its Class AAA Preference Shares, Series II (“Series II Shares”) (TSX: BPO.PR.I).

If declared, the fixed quarterly dividends on the Series II Shares for the five years commencing January 1, 2023 and ending December 31, 2027 will be paid at an annual rate of 6.359% ($0.397438 per share per quarter).

Holders of Series II Shares have the right, at their option, exercisable no later than 5:00 p.m. (Toronto time) on December 16, 2022, to convert all or part of their Series II Shares, on a one-for-one basis, into Class AAA Preference Shares, Series JJ (the “Series JJ Shares”), effective December 31, 2022.

The quarterly floating rate dividends on the Series JJ Shares have an annual rate, calculated for each quarter, of 3.23% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the January 1, 2023 to March 31, 2023 dividend period for the Series JJ Shares will be 1.81479% (7.36% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.453698 per share, payable on March 31, 2023.

Holders of Series II Shares are not required to elect to convert all or any part of their Series II Shares into Series JJ Shares.

As provided in the share conditions of the Series II Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series II Shares outstanding after December 31, 2022, all remaining Series II Shares will be automatically converted into Series JJ Shares on a one-for-one basis effective December 31, 2022; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series JJ Shares outstanding after December 31, 2022, no Series II Shares will be permitted to be converted into Series JJ Shares. There are currently 10,000,000 Series II Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series JJ Shares effective upon conversion. Listing of the Series JJ Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series JJ Shares will be listed on the TSX under the trading symbol “ BPO.PR.J”.

BPO.PR.I was issued as a FixedReset, 4.85%+323M485, that commenced trading 2017-12-7 after being announced 2017-11-29. The issue has been tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!

Intact Financial Corporation has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-cumulative Rate Reset Class A Shares Series 1 of IFC (the “Series 1 Preferred Shares”) (TSX: IFC.PR.A) on December 31, 2022. As a result, subject to certain conditions set out in the prospectus dated July 5, 2011 relating to the issuance of the Series 1 Preferred Shares (the “Prospectus”), the holders of the Series 1 Preferred Shares will have the right, at their option, to elect to convert all or any of their Series 1 Preferred Shares into Non-cumulative Floating Rate Class A Shares Series 2 of IFC (the “Series 2 Preferred Shares”) on a one-for-one basis on December 31, 2022. Holders who do not exercise their right to convert their Series 1 Preferred Shares into Series 2 Preferred Shares on such date will retain their Series 1 Preferred Shares, unless automatically converted in accordance with the conditions below.

With respect to any Series 1 Preferred Shares that may remain outstanding after December 31, 2022, commencing as of such date, holders thereof will be entitled to receive fixed non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The annual dividend rate for the Series 1 Preferred Shares for the five-year period from and including December 31, 2022 to but excluding December 31, 2027 will be 4.841%, as determined in accordance with the terms of the Series 1 Preferred Shares.

With respect to any Series 2 Preferred Shares that may be issued on December 31, 2022, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The dividend rate for the Series 2 Preferred Shares for the 3-month floating rate period from and including December 31, 2022 to but excluding March 31, 2023 will be 1.44321% (5.853% on an annualized basis), as determined in accordance with the terms of the Series 2 Preferred Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

The foregoing conversion right for the Series 1 Preferred Shares is subject to the conditions that: (i) if IFC determines that there would be less than 1,000,000 Series 1 Preferred Shares outstanding on December 31, 2022, then all remaining Series 1 Preferred Shares will automatically be converted into an equal number of Series 2 Preferred Shares on December 31, 2022, and (ii) alternatively, if IFC determines that there would be less than 1,000,000 Series 2 Preferred Shares outstanding on December 31, 2022, then no Series 1 Preferred Shares will be converted into Series 2 Preferred Shares. In either case, IFC will give written notice to that effect to any registered holders of Series 1 Preferred Shares on or before December 23, 2022.

The Series 1 Preferred Shares are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (“CDS Participant”). All rights of holders of Series 1 Preferred Shares must be exercised through CDS or the CDS Participant through which the Series 1 Preferred Shares are held. The deadline for the registered shareholder of any Series 1 Preferred Shares to provide notice of exercise of the right to convert is 5:00 p.m. (ET) on December 16, 2022. Any notices received after this deadline will not be valid. As such, beneficial holders of Series 1 Preferred Shares who wish to exercise their right to convert their shares during the conversion period, which will run from Thursday, December 1, 2022 until 5:00 p.m. (ET) on Friday, December 16, 2022, should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

Holders of the Series 1 Preferred Shares and the Series 2 Preferred Shares (if issued on December 31, 2022) will have the opportunity to convert their shares again on December 31, 2027, and every five years thereafter as long as the shares remain outstanding. Subject to certain conditions described in the Prospectus, IFC may redeem the Series 1 Preferred Shares, in whole or in part, on December 31, 2027 and on December 31 every five years thereafter and may redeem the Series 2 Preferred Shares (if issued), in whole or in part, on any date after December 31, 2022.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 2 Preferred Shares effective on conversion. Listing of the Series 2 Preferred Shares is subject to IFC fulfilling all the listing requirements of the TSX.

For more information on the terms of, and risks associated with an investment in, the Series 1 Preferred Shares and the Series 2 Preferred Shares, please see IFC’s prospectus dated July 5, 2011 which is available on www.sedar.com.

IFC.PR.A was issued as a FixedReset, 4.20%+172, that commenced trading 2011-7-12 after being announced 2011-6-22. IFC.PR.A reset at 3.396% effective December 31, 2017, and I recommended against conversion. There was no conversion. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

Northland Power Inc. has announced:

that it intends to redeem all of its 4,800,000 issued and outstanding Cumulative Rate Reset Preferred Shares, Series 3 (the “Series 3 Preferred Shares”) on January 3, 2023 (the “Redemption Date”) at a price of $25.00 per Series 3 Preferred Share together with all accrued and unpaid dividends thereon up to, but excluding, December 31, 2022 (less any tax required to be deducted or withheld by the Company) (the “Redemption Price”) for an aggregate total of $121.5 million.

The final quarterly dividend of $0.3175 per Series 3 Preferred Share payable on December 30, 2022 will be the final quarterly dividend on the Series 3 Preferred Shares and shall be considered to be an accrued and unpaid dividend and included in the Redemption Price.

The Company has provided notice today of the Redemption Price and the Redemption Date to the sole registered holder of the Series 3 Preferred Shares in accordance with their terms. Non-registered holders of Series 3 Preferred Shares should contact their broker or other intermediary for information regarding the redemption process for the Series 3 Preferred Shares in which they hold a beneficial interest.

After the Series 3 Preferred Shares are redeemed, holders of Series 3 Preferred shares will cease to be entitled to distributions of dividends and will not be entitled to exercise any rights as holders other than to receive the Redemption Price.

NPI.PR.C was issued as a FixedReset, 5.00%+346, that commenced trading 2012-5-24 after being announced 2012-5-14. It reset to 5.08% effective 2018-1-1 and I recommended against conversion. It has been tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Thanks to Assiduous Reader niagara for bringing this to my attention!

Brompton Group has announced (on 2022-11-16):

Brompton Split Banc Corp. (the “Company”) is pleased to announce it is undertaking a treasury offering of preferred shares (“Preferred Shares”) (the “Offering”).

The sales period for this offering will end no later than 9:00 a.m. (ET) on Friday, November 18, 2022. The offering is expected to close on or about November 24, 2022 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Preferred Shares will be offered at a price of $9.55 per Preferred Share for a yield to maturity of 7.5%.
(1) The closing price on the TSX for the Preferred Shares on November 15, 2022 was $9.64. The offering is being led by RBC Capital Markets.

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return the original $10.00 issue price to holders of Preferred Shares on the maturity date. On March 24, 2022, the Company announced that the Board of Directors approved an extension of the maturity date of the Company for an additional 5-year term to November 29, 2027. On September 26, 2022, the Company announced that the distribution rate for the Preferred Shares for the new 5-year term from November 30, 2022 to November 29, 2027 will be $0.625 per annum.

Based on the most recently calculated net asset value per unit of the Company on November 10, 2022, the Preferred Shares have downside protection from a decline in the value of the Company’s portfolio of approximately 51%. The Preferred Shares have delivered a 5.1% per annum total return over the last 5 years, outperforming the S&P/TSX Preferred Share Index by 4.7% per annum.(1) The Preferred Shares have a DBRS rating of Pfd-3(high).

The Company received retraction notices from certain holders of Preferred Shares in connection with the non-concurrent retraction right on November 29, 2022. The Company is offering Preferred Shares under the Offering in order to, to the extent possible, have a matched number of Preferred Shares and Class A Shares of the Company (“Class A Shares”) outstanding following the nonconcurrent retraction and secure term financing for the Class A shareholders for the next 5-year term ending on November 29, 2027. Class A shareholders enjoy the opportunity for enhanced capital appreciation because of the leverage provided by the Preferred Shares. Class A Shares have generated a 14% per annum return over the past 10 years, outperforming the S&P/TSX Capped Financials Index by 3.1% per annum. (1)

The Company invests in a portfolio (the “Portfolio”) consisting of common shares of the six largest Canadian banks: Royal Bank of Canada, The Bank of Nova Scotia, National Bank of Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Montreal. In addition, the Company may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purpose of enhanced diversification and return potential.

They have now announced:

Brompton Split Banc Corp. (the “Company”) is pleased to announce a successful treasury offering of preferred shares (“Preferred Shares”). Gross proceeds of the offering are expected to be approximately $74 million. The offering is expected to close on or about November 24, 2022 and is subject to certain closing conditions. Following closing of the offering and after giving effect to the November 29, 2022 non-concurrent retraction it is
expected that there will be a matched number of Preferred Shares and class A shares of the Company outstanding. The Company has granted the Agents (as defined below) an over-allotment option, exercisable for 30 days following the closing date of the offering, to purchase additional Preferred Shares up to such number as is equal to 15% of the number of Preferred Shares issued at the closing of the offering.

The “nonconcurrent retraction” mentioned in the first press release is the Special Retraction granted to the preferred shareholders in lieu of the previously scheduled maturity. It will be remembered that the preferreds reset to 6.25% effective 2022-11-30, up from 5.00% for the past five years. At the time, this rate was, perhaps, a little on the skimpy side but still within reasonable bounds; but by mid-October times had changed and much better yields were available elsewhere. Hence, a big retraction at par.

$74-million at a price of 9.55 implies that this offering totalled about 7.75-million shares; the 2022-9-30 Fund Profile implies that about 18.6-million shares were outstanding at that time. Hence, a 41% retraction rate (assuming that this issuance precisely covers the retraction); and the non-exercising shareholders should kick themselves, because they could have retracted at $10.00 and repurchased at $9.55, which is good business. The shares traded in a range of 9.41-49 today.

One can calculate how much the company lost on this deal fairly easily (don’t forget underwriting commissions!), but management will argue that boosting the dividend to a level at which retractions would be negligible would cost the company more. It’s also true, of course, that if they had restored the equality of Capital Units and Preferreds by consolidating the former, this would have meant reduced assets in the fund and, alas, reduced fees.

Thanks to assiduous readers EW and JD for bringing this to my attention!