Category: Issue Comments

I have mentioned earlier that I was looking forward to today’s GWO Earnings Release for hints of what they will be doing with preferreds.

No news! And no purchases through the GWO.PR.E / GWO.PR.X Issuer Bid so far this year either. These two issues are currently trading at what I consider to be elevated levels, with pre-tax bid-YTWs in the 3.8% range. This is an interest equivalent (at a factor of 1.4x) of about 5.3%, which in turn is about where Great-West bond paper is trading. Given all the current uncertainty in the credit markets, there is not much incentive for them to purchase on the open market from a strictly financial point of view – there may be regulatory considerations of which I am not aware), so I think we can write off the next few months in terms of hoping for purchases and cancellations of these issues.

As far as CL.PR.B is concerned … who knows? It pays $1.5625, is currently callable at $26.00 and the redemption price declines by $0.25 p.a. every December 1 until 2010-12-31, after which it is callable at $25.00. Thus, net cost to the company of leaving it out is only $1.3125 p.a., which is 5.25% of par, which is probably what it would take to issue a new perpetual in size in this market. I suspect the window of opportunity for redemption of this issue has closed – at least for now.

Energy Split Corp. II has announced:

that its Board of Directors has approved a proposal to reorganize the Company. The reorganization will permit current holders of both Capital Yield Shares and ROC Preferred Shares to extend their investment in the Company beyond the scheduled redemption date of December 16, 2007 for up to an additional 3 years. Under the proposed reorganization, holders of ROC Preferred Shares will be entitled to receive a new coupon rate which will be fixed prior to the time of the shareholder meeting described below in the context of market conditions at that time. In approving the proposal to reorganize the Company, the Board received and relied on the financial advice and recommendations of Scotia Capital Inc.
    A special meeting of holders of Capital Yield Shares and ROC Preferred Shares will be held on October 23, 2007 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Yield Shares and ROC Preferred Shares in connection with the special meeting and will be available on www.sedar.com.

It is, of course, impossible to comment meaningfully on this proposal until the “new coupon rate” has been disclosed.

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.

Term extensions this year have been approved for DFN.PR.A and FFN.PR.A; the proposal for FTN.PR.A was denied by the capital stockholders.

Alcan has announced:

the redemption of its Floating Rate Cumulative Redeemable Preference Shares, Series C, 1984 Issue and 1985 Issue, and its Cumulative Redeemable Preference Shares, Series E, on September 3, 2007.

The redemption price is CAD25.00 per Preference Share.

There are 4,199,900 Preference Share, Series C, 1984 Issue, 1,500,000 Preference Shares, Series C, 1985 Issue and 2,999,900 Preference Shares, Series E outstanding.

About time they got rid of those silly things, that’s what I say! This announcement is, presumably, related to the Rio Tinto agreement.

Thanks to assiduous reader SE for bringing this to my attention while the ink was still drying on the press release!

I thought it would be fun to look at the valuation of EPP.PR.A, given what I’ve heard about the underwriters getting impatient.

For those who are curious … Pfd-3 (& (high)) issues (using DBRS ratings) trading above their curve price are from BPO, FTS & LB.

As always with issues of this quality, choice of investment is as much a matter of credit anticipation as it is of cash-flow analysis … so before jumping in, do the work and make your own mind up! HIMIPref™’s accuracy is nothing special with these lower-grade credits … but I thought it would be fun to look!

I have been advised that the underwriters are seeking to get this issue off their books at $21.50.

I mentioned this issue’s new low on July 23. It commenced trading May 25 … bang smack in the middle of the decline in the overall preferred share market.

At 21.50, this issue has a yield in excess of 5.75% … very attractive, but remember that it is rated only Pfd-3(high) by DBRS and should not comprise more than about 5% of a diversified preferred share portfolio.

Update: It should be noted that the issue is rated by S&P as BBB-, or P-2(low) on their Canadian Preferred Share Scale.

Update #2, 3:40pm: I don’t think the underwriters are having a very nice time. Now quoted at 20.30-00, 3×5, with 9,550 shares traded, new low of 20.10. Ouch! CIBC has been on the sell side of the last ten trades. With an annual dividend of $1.2125, a price of 20.21 corresponds to a yield of 6% … grossed up, that’s the equivalent of 8.4% interest!

The Bank of Montreal has announced:

on August 27, 2007, it will redeem all of its Non-Cumulative Class B Preferred Shares Series 4. The redemption price, as provided for in the terms of the issue, is $25.00 per share, together with declared and unpaid dividends to the date of redemption. As the normal quarterly dividend is due on August 25, 2007, the Bank has declared a 2-day stub dividend of $0.006575 per Series 4 share. This results in a total redemption price of $25.006575 per Series 4 share.

This redemption comes at the first opportunity the bank has had to call the issue at par. It was retractible for shares commencing 2008-5-25 and paid $1.20 on $25.00 par value … BMO doesn’t need to pay 4.8% Dividends for its funding.

This issue has been included in the HIMIPref™ “Operating Retractible” index. It was highlighted 2006-10-25 for having a negative Yield-to-Worst

The Great-West Life Assurance Company has announced:

its intention to redeem all 2,093,032 Non-Cumulative Preferred Shares, Series L on October 31, 2007 for the cash redemption price of $25.00 per share. The Series L Preferred Shares were issued on November 13, 1997.

GWL.PR.L is a relatively small issue (only 2,093,032 shares outstanding, according to the TSX), but this is an interesting development nevertheless.

This is a fixed-floater that was issued as consideration for the shares of London Insurance Group and have a paid-up capital of only $2.74. There will be a significant Deemed Dividend realized on the redemption of these shares – so holders should consult their personal tax advisors and figure out – pronto! – whether they should be sold instantly or not.

This deemed dividend WILL BE LIABLE FOR TAX irrespective of whether the holder actually got them in exchange for London Insurance shares or bought them yesterday, so pay attention and don’t waste any time before figuring out what this means for you! I’m only saying this once! Those who hold the shares on the redemption date will be putting a massive dividend on their tax returns. If the shares were bought at, say, $25, they will also be entitled to claim an equally massive capital loss. These effects might offset … they might not. CONSULT A TAX ADVISOR!

The timing of the call is not accidental – from the Takeover Document:

Until October 31, 2007, the holders of the GWL Preferred Shares, Series L will be entitled to receive quarterly non-cumulative preferential cash dividends, as and when declared by the Board of Directors of GWL, payable on the last day of January, April, July and October in each year at a rate equal to $0.325 per share to initially yield 5.20 %. The first such dividend, if declared, will be payable on January 31, 1998 in an amount per share equal to $1.30 multiplied by a fraction, the numerator of which is the number of days in the initial dividend period and the denominator of which is 365.

From October 31, 2007 (the ‘‘Floating Rate Period’’), the holders of the GWL Preferred Shares, Series L will be entitled to receive floating non-cumulative cash dividends, as and when declared by the Board of Directors of GWL, payable on the last day of January, April, July and October in each year at a rate in respect of each quarterly dividend period equal to one quarter of the greater of (a) 75% of Prime and (b) 4.50%.

October 31, 2007 was to have been an Exchange Date and these were to have been exchangeable into Series M, a fixed-reset issue … but none of this is applicable any more.

As mentioned by GWO on their site, full details of GWO.PR.L are available on SEDAR – look for “The Great-West Life Assurance Company” “Take-over Bid Circular” date September 11, 1997.

Great-West Lifeco, the parent, will announce second quarter results on August 1. I do hope they will announce the redemption of CL.PR.B … the continued existence of this issue is making my life miserable.
GWL.PR.L is not tracked by HIMIPref™.

BCX Split Corp. has announced:

that it has called 1,521,805 Preferred Shares for cash redemption on August 3, 2007 (in accordance with the Company’s Articles) representing approximately 71.183% of the outstanding Preferred Shares as a result of the special annual retraction of 1,642,307 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 August 2, 2007 will have approximately 71.183% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $15.71 per share.

This issue has not been tracked by HIMIPref™.

BMONT Split Corp. has announced:

that it has called 180,051 Preferred Shares for cash redemption on August 3, 2007 (in accordance with the Company’s Articles) representing approximately 36.364% of the outstanding Preferred Shares as a result of the special annual retraction of 413,492 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 August 2, 2007 will have approximately 36.364% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $27.45 per share.

This issue is tracked by HIMIPref™ but is such a low-volume issue that it is included only in the “Scraps” index.

DBRS has announced that it:

has today downgraded the long-term debt rating of Empire Company Ltd. (Empire or the Company) to BB (high) from BBB, the Preferred Share rating to Pfd-4 (high) from Pfd-3, and discontinued the short-term rating. The trends remain Negative for the long-term and Preferred Shares ratings.

DBRS placed Empire’s ratings Under Review with Negative Implications on April 27, 2007 following the announcement that Empire and Sobeys Inc. (Sobeys or the Company) had entered into an agreement by which Empire would acquire all of the outstanding common shares of Sobeys that it did not already own for approximately $1.06 billion. Empire previously owned 72.1% of the issued and outstanding shares of Sobeys.
…
The significant increase in financial leverage, combined with a weaker profitability at Sobeys, has led to DBRS’s two-notch reduction in long-term ratings. The negative trend reflects the challenges involved with reversing the declining profitability and cash flow at Sobeys. DBRS is also concerned with the high level of budgeted capex and/or additional acquisitions that could result in further increases to debt for the consolidated group.

EMP.PR.B is a tiny little issue with 331,900 shares outstanding, total par value $8.3 million, according to the 2006 Annual Report. They pay 75% of prime. The TSX indicates a listing date of July 9, 1982, which illustrates one of my hobby-horses: with floaters you get short-term rates and long-term credit risk.

This issue is not, has not been, and will not be tracked by HIMIPref™ – too small!