Category: Issue Comments

It’s been three months (to the day!) since I looked at this pair, so I thought I’d update the calculations.

So, a lot of the potential profit from this trade has been arbitraged away already, even for those potential participants who don’t have to worry about tax effects. Mind you though, for those investors who own BBD.PR.B as a long-only investment (a course of action I don’t recommend, given the credit rating) … why not switch?

I’ve updated the graphs of the flatBidPrices and the differences thereof.

These issues are currently rated P-2(low) by Standard & Poors, which today placed them on Credit Watch Negative:

At the same time, Standard & Poor’s placed its ratings, including its ‘BBB+’ long-term corporate credit rating, on parent company George Weston Ltd. on CreditWatch with negative implications.
     “The CreditWatch placement reflects the magnitude of challenges faced by Loblaw,” said Standard & Poor’s credit analyst Don Povilaitis. These challenges include substantially lower profitability, supply chain difficulties, significant senior management changes, a new corporate structure which involves substantially reducing the number of employees at head office, and a material goodwill impairment charge.

…
The ratings on Loblaw and George Weston, which has a 62% equity interest in Loblaw, are linked and jointly influenced by the respective credit profiles. The ratings on the two companies are likely to move in tandem, as Loblaw represents a significant portion of George Weston’s revenues and earnings, and is therefore a key driver of George Weston’s overall performance.

This is due to Loblaw’s announcement of lower earnings and goodwill impairment:

Basic net earnings per common share for the fourth quarter, before taking into account a charge with respect to an expected goodwill impairment, were $0.16 compared to $0.73 in 2005. For the year, basic net earnings per common share, before taking into account a charge with respect to an expected goodwill impairment, were $2.12 compared to $2.72 in 2005.
    The Company has performed its annual goodwill impairment test analysis. Based on this analysis, it is anticipated that the carrying value of the $1.5 billion of goodwill associated with the acquisition of the Provigo business in 1998 is impaired. As a result, the Company expects to record in the fourth quarter an initial estimate of a goodwill impairment charge, which the Company estimates to be in the range of $600 million to $900 million, in its audited consolidated financial statements for the year ended December 30, 2006. This is a non-cash charge that is expected to be finalized and adjusted as necessary in the first half of 2007. This expected charge will result in a negative impact to basic net earnings per common share for the fourth quarter and the full year of $2.19 to $3.28 per share. After the impact of this charge, the Company expects to record a basic net loss per common share in the range of $2.03 to $3.12 in the fourth quarter. For the year, after the impact of this charge, the Company expects a basic net loss per common share in the range of $0.07 to $1.16.

There has as yet been no announcement from DBRS, which rates the issues at Pfd-2(low).

Update, 7:50pm EST DBRS has announced that Weston is “Under Review with Negative Implications”.

TransCanada Corporation today announced that:

it has entered into an agreement with a syndicate of underwriters, led by BMO Capital Markets, RBC Capital Markets, and TD Securities Inc. under which they have agreed to purchase from TransCanada and sell to the public 39,470,000 Subscription Receipts.The purchase price of $38.00 per Subscription Receipt will result in gross proceeds of approximately $1.5 billion. The net proceeds of the offering will be used by TransCanada towards financing the proposed acquisition of the American Natural Resources Company and ANR Storage Company (collectively, ANR). TransCanada announced the acquisition of ANR together with the acquisition of an additional interest in Great Lakes Gas Transmission Limited Partnership for a total of approximately US$3.4 billion, including US$457 million of assumed debt, on December 22, 2006.

TransCanada has also granted the Underwriters an option to purchase up to an additional 5,920,500 Subscription Receipts at a price of $38.00 per Subscription Receipt at any time up to 30 days after closing of the offering.

On closing of the ANR acquisition, the Subscription Receipts will automatically be exchanged on a one-to-one basis for common shares of TransCanada without any further action on the part of the holder and without payment of additional consideration.

Readers will recall that DBRS placed these issues Under Review with Developing Implications in December:

DBRS estimates that, on a pro forma consolidated basis, the Company’s debt-to-capital ratio (62% on a DBRS-adjusted basis as at September 30, 2006) would rise to 69% on a 100% debt-financed basis.

However, given new common equity worth $1.5-billion against a total price on the acquisition of about CAD $4-billion, it would appear that the debt-to-capital ratio will be materially unchanged … but note that I have not done a credit analysis or read any fine print!

I’ll update this post when we see what DBRS has to say.

Coastal Income Corp has announced (via CCN Matthews) that:

it will redeem all of its issued Senior Preferred shares (TSX:DIV.pr.A) on March 20, 2007. The redemption will be made in accordance with the Fund’s articles and results from a retraction of the Capital shares. Shareholders need not take any action relating to the redemption; the Fund’s transfer agent CIBC Mellon will automatically redeem the shares on March 20, 2007 and deposit cash proceeds directly into shareholder’s accounts equal to $25.51071, representing $25.20 per share plus $0.31071 per share representing accrued and unpaid dividends. Post the redemption, the Senior Preferred shares will no long be listed on the TSX.

The closing quotation today was 25.67-00, with 3,400 shares trading, all in the 25.96-00 range.

I mentioned this issue in the post Mean-YTW on SplitShare Index Goes Negative!

Hat-tip to the reader who brought this to my attention!

It has been announced that Great-West will aquire Putnam Investments for CAD 4.6-Billion.

In response, DBRS has placed the entire corporate structure on credit review with developing implications: GWO (which includes CL and GWL), PWF and POW.

Standard & Poors has taken a much more nonchalant approach, affirming the current ratings.

According to GWO:

Funding for the transaction will come from internal resources as well as from proceeds of an issue of Lifeco common shares of no more than CDN $1.2 billion, the issuance of debentures and hybrids, a bank credit facility, and an acquisition tax benefit securitization.

This transaction might possibly explain the mystery of CL.PR.B, which has still not been called. If they have to push through a lot of net issuance, they’re probably not too enthusiastic about calling the old stuff – CL.PR.B has 6-million shares outstanding, so redeeming it at $26.00 would add $156-million to the amount of gross issuance required.

Similarly, it is possible that the resources devoted to the GWO.PR.E / GWO.PR.X Issuer Bid will be reduced.

For the other companies in the group, the transaction may affect, for instance, the chance of PWF.PR.J being redeemed early.

One may take a lot of views and play with a lot of scenarios. Me, I’m just going to assume, as always, that the worst scenario – in life, love and investing – is most likely.

After their initial attempt to make quorum failed, Faircourt tried again and was able to get approval from the preferred security holders and the Capital Unitholders.

The merger is expected to close on or about January 31, 2007, and the continuing security will be FIG.PR.A.

Update 2007-1-31 : Yet another press release! Everything has been completed.