Category: Issue Comments

DBRS has announced that it:

changed the trend to Positive from Stable, and confirmed all ratings of Intact Financial Corporation (Intact or the Company) and its operating insurance subsidiaries, including the Financial Strength Rating (FSR) of its main operating insurance subsidiaries at AA (low) and Intact’s “A” Issuer Rating. The trend on the ratings of RSA Insurance Group Limited, Intact’s UK-based subsidiary, was also changed to Positive (see “DBRS Morningstar Changes Trend on RSA Insurance Group Limited and its Operating Entities to Positive from Stable; Confirms Financial Strength Ratings at AA (low)”).
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The Company’s risk profile reflects its prudent approach to risk management, and its high-quality investment portfolio is based on a high proportion of readily marketable bonds and equities. Derivatives are utilized strictly for hedging purposes. Intact’s approach to managing its investment portfolio has allowed it to earn significant investment returns over the years and to withstand market volatility reasonably well. The commercial products portfolio is well diversified, but DBRS Morningstar notes that it is exposed to systemic risk arising from its cyber insurance offerings. In addition to traditional catastrophic risk exposures, which it mitigates primarily through reinsurance and policy terms and conditions, the Company has undertaken actions to reduce its earthquake risk exposure in Canada, which DBRS Morningstar views positively.

Intact’s earnings ability reflects its strong underwriting and pricing discipline across its business segments and geographies, combined with solid revenue generation from its distribution businesses. The Company’s net earnings have proven to be strong and resilient over time with a very good combined ratio of 90%, based on a three-year weighted average, as calculated by DBRS Morningstar.

The Company maintains ample liquidity resources to deal with potential cash demands under reasonably severe stress scenarios. Its investment portfolio consists of a high proportion of marketable bonds and equities, in addition to its substantial cash and short-term investment holdings. Reinsurance cover is available to limit the impact of losses that exceed retention thresholds.

Intact’s regulatory capital ratios for its standalone entities reflect appropriate buffers above required solvency levels, allowing the Company to handle reasonably adverse events. Fixed charge coverage ratios are high as a result of Intact’s consistently strong net earnings. Financial leverage has also returned to its pre-acquisition level.

Affected issues are IFC.PR.A, IFC.PR.C, IFC.PR.E, IFC.PR.F, IFC.PR.G, IFC.PR.I and IFC.PR.K.

National Bank of Canada has announced:

that it does not intend to exercise its right to redeem all or part of the currently outstanding 16,000,000 Series 38 Shares on November 15, 2022. As a result, subject to certain conditions, the holders of the Series 38 Shares have the right to convert all or part of their Series 38 Shares on a one-for-one basis into Non-Cumulative Floating Rate First Preferred Shares, Series 39 (NVCC) (the “Series 39 Shares”) on November 15, 2022, in accordance with the terms of the Series 38 Shares described in the prospectus supplement dated June 5, 2017.

Holders who do not exercise their right to convert their Series 38 Shares into Series 39 Shares on November 15, 2022, will retain their Series 38 Shares.

The foregoing conversions are subject to the conditions that: (i) if National Bank determines that there would remain outstanding on November 15, 2022, less than 1,000,000 Series 39 Shares, after having taken into account all Series 38 Shares tendered for conversion into Series 39 Shares, then holders of Series 38 Shares will not be entitled to convert their shares into Series 39 Shares, and (ii) alternatively, if National Bank determines that there would remain outstanding on November 15, 2022, less than 1,000,000 Series 38 Shares, after having taken into account all Series 38 Shares tendered for conversion into Series 39 Shares, then all remaining Series 38 Shares will automatically be converted into Series 39 Shares without the consent of the holders on November 15, 2022.

In either case, National Bank shall give a notice to that effect to all registered holders of Series 38 Shares no later than November 8, 2022.

On October 17, 2022, National Bank will give notice of:

i. the annual fixed dividend rate applicable to the Series 38 Shares to which a holder of Series 38 Shares will be entitled for the 5-year period from November 16, 2022, up to and including November 15, 2027; and

ii. the floating quarterly dividend rate applicable to the Series 39 Shares to which a holder of Series 39 Shares will be entitled for the 3-month period from November 16, 2022, up to and including February 15, 2023.

Beneficial owners of Series 38 shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which will run from October 17, 2022, until October 31, 2022, at 5:00 p.m. (EDT).

NA.PR.C is a FixedReset, 4.45%+343, NVCC-compliant, that commenced trading 2017-6-13 after being announced 2017-6-1. It is tracked by HIMIPref™ and has been assigned to the FixedResets (Discount) subindex.

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

The Toronto-Dominion Bank has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding 14 million Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 16 (Non-Viability Contingent Capital (NVCC)) (the “Series 16 Shares”) of TD on October 31, 2022. As a result, and subject to certain conditions set out in the prospectus supplement dated July 7, 2017 relating to the issuance of the Series 16 Shares, the holders of the Series 16 Shares have the right to convert all or part of their Series 16 Shares, on a one-for-one basis, into Non-Cumulative Floating Rate Preferred Shares, Series 17 (NVCC) (the “Series 17 Shares”) of TD on October 31, 2022. Holders who do not exercise their right to convert their Series 16 Shares into Series 17 Shares on such date will continue to hold their Series 16 Shares.

The foregoing conversion right is subject to the conditions that: (i) if TD determines that there would be less than 1,000,000 Series 17 Shares outstanding after taking into account all shares tendered for conversion on October 31, 2022, then holders of Series 16 Shares will not be entitled to convert their shares into Series 17 Shares, and (ii) alternatively, if TD determines that there would remain outstanding less than 1,000,000 Series 16 Shares after taking into account all shares tendered for conversion on October 31, 2022, then all remaining Series 16 Shares will automatically be converted into Series 17 Shares on a one-for-one basis on October 31, 2022. In either case, TD will give written notice to that effect to holders of Series 16 Shares no later than October 24, 2022.

The dividend rate applicable to the Series 16 Shares for the 5-year period from and including October 31, 2022 to but excluding October 31, 2027 is 6.301%. The dividend rate applicable to the Series 17 Shares for the 3-month period from and including October 31, 2022 to but excluding January 31, 2023, is 6.662%.

Beneficial owners of Series 16 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from the date hereof until 5:00 p.m. (Toronto time) on October 17, 2022.

TD.PF.I was issued as a FixedReset, 4.50%+301, NVCC-compliant issue that commenced trading 2017-7-14 after being announced 2017-07-05. It is tracked by HIMIPref™ and is assigned to the FixedResets (Discount) subindex.

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

Quadravest has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce the Preferred Share dividend rate for the fiscal year beginning December 1, 2022. Based on current market rates for preferred shares with similar terms, monthly payments to FTN.PR.A will be $0.06250 per share for an annual yield of 7.50% on their $10 redemption value. This is an increase of three quarters of one percent over the current rate.

I must say, I am growing to dislike these annual resets intensely. The minimum rate on these resets is only 5.5% and apart from this the company has full discretion. A prudent analysis must therefore assume that next year the rate will reset to 5.5% but there is every possibility, of course, that it will not. So refusing to buy these things might result in leaving money on the table. All in all, though, assuming the worst is always the way to go in securities analysis!

Thanks to Assiduous Reader RAV4guy for bringing this to my attention!

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce the Preferred Share dividend rate for the fiscal year beginning December 1, 2022. Based on current market rates for preferred shares with similar terms, monthly payments to FFN.PR.A will be $0.06458 per share for an annual yield of 7.75% on their $10 redemption value. This is an increase of one percent over the current rate.

I must say, I am growing to dislike these annual resets intensely. The minimum rate on these resets is only 5.5% and apart from this the company has full discretion. A prudent analysis must therefore assume that next year the rate will reset to 5.5% but there is every possibility, of course, that it will not. So refusing to buy these things might result in leaving money on the table. All in all, though, assuming the worst is always the way to go in securities analysis!

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

Brompton Group has announced:

Brompton Split Banc Corp. (the “Fund”) announces 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 (6.25% on the original issue price of $10) payable quarterly. The new distribution rate represents a $0.125 increase per annum from the previous $0.50 distribution rate. The Preferred Share distribution rate is based on current market rates for preferred shares with similar terms. In addition, the Fund intends to maintain the targeted monthly Class A Share distribution rate at $0.10 per Class A Share. The new 5-year term extension offers Preferred shareholders the opportunity to enjoy preferential cash dividends until November 29, 2027. Since inception on November 15, 2005 to August 31, 2022, the Preferred share has delivered an attractive 5.0%(1) per annum return.

Since inception to August 31, 2022, Class A shareholders have received cash distributions of $19.75 per share, which when combined with capital appreciation represents a total return of 10.7% per annum(1). Class A shareholders have the option to benefit by reinvesting their cash distributions in a distribution reinvestment plan (“DRIP”) which is commission free to participants. Class A shareholders can enroll in the DRIP program by contacting their investment advisor.

Brompton Split Banc Corp. invests, on an approximately equal weighted basis in a portfolio consisting of common shares of the six largest Canadian banks (currently, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank). In addition, the Company may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purposes of enhanced diversification and return potential.

In connection with the extension, shareholders who do not wish to continue their investment in the Fund, will be able to retract Preferred Shares or Class A Shares on November 29, 2022 pursuant to a special retraction right and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on November 29, 2022. Pursuant to this option, the retraction price may be less than the market price if the share is trading at a premium to net asset value. To exercise this retraction right, shareholders must provide notice to their investment dealer by October 31, 2022 at 5:00 p.m. (Toronto time). Alternatively, shareholders may sell their Preferred Shares and/or Class A Shares through their securities dealer for the market price at any time, potentially at a higher price than would be achieved through retraction, or shareholders may take no action and continue to hold their shares

Notice of the extension was released last March.

DBRS has announced (on August 30):

DBRS Limited (DBRS Morningstar) downgraded the rating of the Cumulative Preferred Shares of Canadian Utilities Limited (CUL, the Holdco, or the Company) to Pfd-2 from Pfd-2 (high). DBRS Morningstar confirmed both the Issuer Rating and the Unsecured Debentures rating at “A,” and its Commercial Paper rating at R-1 (low). All trends are Stable.

The downgrade of the Cumulative Preferred Shares reflects DBRS Morningstar’s expectation that CUL could issue more debt in the future either through the long-term debt or the use of its credit facilities, such that the higher-than-standard mapping of Pfd-2 (high), which only applies in rare cases where an issuer has no or minimal debt and has no plan to issue debt in the future, is no longer appropriate. DBRS Morningstar expects CUL to maintain its financing flexibility at the Holdco level in the medium term. The standard mapping of the preferred shares is Pdf-2.

The confirmations reflect (1) the Holdco’s solid consolidated and nonconsolidated cash flow credit metrics, strong liquidity, and reasonable leverage; (2) the strong credit profile at its sizable and diversified regulated subsidiaries, particularly at CU Inc. (CUI; rated A (high) with a Stable trend by DBRS Morningstar); and (3) stable cash flow from its regulated natural gas distribution operations in Australia, ATCO Gas Australia Pty. Ltd. (AGA), and from LUMA Energy LLC (LUMA Energy). CUI, AGA, and LUMA Energy accounted for most of CUL’s consolidated cash flow in 2021 and are expected to contribute more than 90% of CUL’s cash flow in the medium terms. CUL’s ratings incorporate the structural subordination of its debt to the debt issued by CUI as well as AGA. LUMA Energy has no debt.

CUI’s ratings serve as a basis for CUL ratings. In addition, DBRS Morningstar also considers structural subordination and low leverage at the Holdco level. The Holdco holds a 100% interest in CUI. DBRS Morningstar estimates CUI accounted for more than 90% of CUL’s consolidated cash flow. CUI is one of the largest and most diversified regulated utilities in Canada, with a rate base of approximately $13.3 billion as at mid-year 2021. On July 25, 2022, DBRS Morningstar confirmed the A (high) rating of CUI. Please see DBRS Morningstar’s report on CUI dated August 2, 2022.
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DBRS Morningstar does not expect to take a positive rating action on CUL’s ratings because these are largely constrained by CUI’s ratings. However, the following factors could place pressure on CUL’s current ratings, should they occur: (1) adverse changes in regulation in Alberta that negatively affect CUI’s ratings; (2) a change in the business mix that would reduce the cash flow contribution from CUI to CUL’s overall consolidated cash flow; (3) a material increase in consolidated and/or nonconsolidated leverage; and (4) a substantial increase in nonregulated operations on a sustained basis.

Affected issues are CU.PR.C, CU.PR.D, CU.PR.E, CU.PR.F, CU.PR.G, CU.PR.H, CU.PR.I and CU.PR.J

TransAlta Corporation has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding cumulative redeemable rate reset first preferred shares Series E (“Series E Shares”) (TSX: TA.PR.H) on September 30, 2022 (the “Conversion Date”).

As a result and subject to certain conditions set out in the prospectus supplement dated August 3, 2012 relating to the issuance of the Series E Shares, the holders of the Series E Shares will have the right to convert all or any of their Series E Shares into cumulative redeemable floating rate first preferred shares Series F of the Company (“Series F Shares”) on the basis of one Series F Share for each Series E Share on the Conversion Date.

With respect to any Series E Shares that remain outstanding after September 30, 2022, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of TransAlta. The annual dividend rate for the Series E Shares for the five-year period from and including September 30, 2022 to but excluding September 30, 2027, will be 6.89400%, being equal to the five-year Government of Canada bond yield of 3.24400% determined as of today plus 3.65000%, in accordance with the terms of the Series E Shares.

With respect to any Series F Shares that may be issued on September 30, 2022, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors of TransAlta. The annual dividend rate for the 3-month floating rate period from and including September 30, 2022 to but excluding December 31, 2022 will be 6.96800%, being equal to the annual rate for the most recent auction of 90-day Government of Canada Treasury Bills of 3.31800% plus 3.65000%, in accordance with the terms of the Series E Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

As provided in the terms of the Series E Shares, if TransAlta determines after reviewing all Series E Shares tendered for conversion into Series F Shares that: (i) there would remain outstanding on September 30, 2022, less than 1,000,000 Series E Shares, all remaining Series E Shares shall be converted automatically into Series F Shares on a one-for one basis effective September 30, 2022; or (ii) there would remain outstanding after September 30, 2022, less than 1,000,000 Series F Shares, the holders of Series E Shares shall not be entitled to convert their shares into Series F Shares effective September 30, 2022. There are currently 9,000,000 Series E Shares outstanding.

The Series E 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 E Shares must be exercised through CDS or the CDS Participant through which the Series E Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series E Shares into Series F Shares is 3:00 p.m. (MST) / 5:00 p.m. (EST) on September 15, 2022. Any notices received after this deadline will not be valid. As such, holders of Series E Shares who wish to exercise their right to convert their shares 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.

If TransAlta does not receive an election notice from a holder of Series E Shares during the time fixed therefor, then the Series E Shares shall be deemed not to have been converted (except in the case of an automatic conversion). Holders of the Series E Shares and the Series F Shares will have the opportunity to convert their shares again on September 30, 2027, and every five years thereafter as long as the shares remain outstanding.

As previously announced on July 27, 2022, holders of Series E shares as of the record date of September 1, 2022 will receive a dividend of $0.32463 payable on September 30, 2022, in respect of the period starting from and including June 30, 2022 up to but excluding September 30, 2022, regardless of whether the holder elects to convert their Series E Shares into Series F Shares on the Conversion Date.

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

TA.PR.H was issued as a FixedReset, 5.00%+365, that commenced trading 2012-8-10 after being announced 2012-8-2. It reset to 5.194% in 2017; I recommended against conversion; and there was no conversion. The issue is tracked by HIMIPref™ but has been assigned to the Scraps index on credit concerns.

Assiduous Reader DR points out by eMail that there’s something of a mystery regarding the reset rate: the company used 3.244% as the GOC-5 base, which is somewhat different from the investing.com indication of around 3.28%. This sort of difference is often due to different benchmarks being used, but investing.com uses the 1.25% of 2027-3-1 which is the same as the Bank of Canada. I can only surmise that Bloomberg uses a different bond – perhaps the 2.75% of 2027-9-1, which had 12-billion outstanding at the end of July after an auction on 2022-7-20, with another one scheduled for 2027-9-22.

Pembina Pipeline Corporation has announced:

that it does not intend to exercise its right to redeem the currently outstanding Cumulative Redeemable Rate Reset Class A Preferred Shares, Series 15 (“Series 15 Shares”) (TSX: PPL.PR.O) on September 30, 2022.

As a result, and subject to certain terms of the Series 15 Shares, the holders of the Series 15 Shares will have the right to elect to convert all or part of their Series 15 Shares on a one-for-one basis into Cumulative Redeemable Floating Rate Class A Preferred Shares, Series 16 of Pembina (“Series 16 Shares”) on October 3, 2022 (the “Conversion Date”), being the first business day following the statutory holiday on September 30, 2022. Holders who do not exercise their right to convert their Series 15 Shares into Series 16 Shares will retain their Series 15 Shares.

As provided in the terms of the Series 15 Shares: (i) if Pembina determines that there would remain outstanding immediately following the conversion less than 1,000,000 Series 15 Shares, then all remaining Series 15 Shares will be automatically converted into Series 16 Shares on a one-for-one basis effective as of the Conversion Date; or (ii) if Pembina determines that there would be less than 1,000,000 Series 16 Shares outstanding immediately following the conversion, no Series 15 Shares will be converted into Series 16 Shares on the Conversion Date. There are currently 8,000,000 Series 15 Shares outstanding.

With respect to any Series 15 Shares that remain outstanding after the Conversion Date, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate for the Series 15 Shares for the five-year period from and including September 30, 2022, to, but excluding, September 30, 2027, will be 6.164 percent, being equal to the five-year Government of Canada bond yield of 3.244 percent determined as of today plus 2.92 percent, in accordance with the terms of the Series 15 Shares.

With respect to any Series 16 Shares that may be issued on the Conversion Date, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate applicable to the Series 16 Shares for the three-month floating rate period from and including September 30, 2022, to, but excluding, December 31, 2022, will be 6.238 percent, being equal to the annual rate of interest for the most recent auction of 90-day Government of Canada treasury bills of 3.318 percent plus 2.92 percent, in accordance with the terms of the Series 16 Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series 15 Shares who wish to exercise their right of conversion during the conversion period, which runs from August 31, 2022, until 3:00 pm (MT) / 5:00 pm (ET) on September 19, 2022, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with the time to complete the necessary steps. Any notices received after this deadline will not be valid.

As previously announced, the dividend payable on October 3, 2022, to holders of the Series 15 Shares of record on September 15, 2022, will be $0.2790 per Series 15 Share, consistent with the dividend rate in effect since the issuance of the Series 15 Shares. For more information on the terms of the Series 15 Shares and the Series 16 Shares, please see Pembina’s articles of amendment dated October 2, 2017, relating to the creation of the Series 15 Shares and the Series 16 Shares, which can be found on SEDAR at www.sedar.com.

PPL.PR.O was issued as VSN.PR.A, a FixedReset, 4.40%+292 that commenced trading 2012-2-14 after being announced 2012-2-3. In 2017 the issue reset to 4.464%; I recommended against conversion; and there was no conversion. The ticker changed in October 2017.

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

Assiduous Reader DR points out by eMail that there’s something of a mystery regarding the reset rate: the company used 3.244% as the GOC-5 base, which is somewhat different from the investing.com indication of around 3.28%. This sort of difference is often due to different benchmarks being used, but investing.com uses the 1.25% of 2027-3-1 which is the same as the Bank of Canada. I can only surmise that Bloomberg uses a different bond – perhaps the 2.75% of 2027-9-1, which had 12-billion outstanding at the end of July after an auction on 2022-7-20, with another one scheduled for 2027-9-22.