Category: Issue Comments

BCE Inc. has announced (on July 14):

Holders of fixed-rate BCE Inc. Series AA Preferred Shares have the right to convert all or part of their shares, effective on September 1, 2022, on a one-for-one basis into floating-rate Cumulative Redeemable First Preferred Shares, Series AB of BCE Inc. (the “Series AB Preferred Shares”). In order to convert their shares, holders must exercise their right of conversion during the conversion period which runs from July 18, 2022 until 5:00 p.m. (Eastern time) on August 22, 2022.
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As of September 1, 2022, the Series AA Preferred Shares, should they remain outstanding, will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be determined by BCE Inc. on August 8, 2022 but which shall not be less than 80% of the five-year Government of Canada Yield (as defined in BCE Inc.’s articles) compounded semiannually and computed on August 8, 2022 by two investment dealers appointed by BCE Inc. The annual dividend rate applicable to the Series AA Preferred Shares will be published on August 10, 2022 in the national edition of The Globe and Mail, the Montreal Gazette and Le Devoir and will be posted on BCE Inc.’s website at www.bce.ca.

BCE.PR.A is a FixedFloater that was issued with a 5.45% coupon in 2002 and reset to 4.80% in 2007; about half were converted to the RatchetRate BCE.PR.B.. It then reset to 3.45% in 2012 and there was a small net conversion back to the FixedFloater. It reset to 3.61% in 2017 and there was a 6% net conversion in the FixedFloater.

BCE.PR.B is a RatchetRate preferred that is interconvertible with BCE.PR.A every five years.

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

Manulife Financial Corporation has announced:

that it does not intend to exercise its right to redeem all or any of its currently outstanding 10,000,000 Non-cumulative Rate Reset Class 1 Shares Series 9 (the “Series 9 Preferred Shares”) (TSX: MFC.PR.I) on September 19, 2022. As a result, subject to certain conditions described in the prospectus supplement dated May 16, 2012 relating to the issuance of the Series 9 Preferred Shares (the “Prospectus”), the holders of the Series 9 Preferred Shares have the right, at their option, to convert all or part of their Series 9 Preferred Shares on a one-for-one basis into Non-cumulative Floating Rate Class 1 Shares Series 10 of Manulife (the “Series 10 Preferred Shares”) on September 19, 2022. A formal notice of the right to convert Series 9 Preferred Shares into Series 10 Preferred Shares will be sent to the registered holders of the Series 9 Preferred Shares in accordance with the share conditions of the Series 9 Preferred Shares. Holders of Series 9 Preferred Shares are not required to elect to convert all or any part of their Series 9 Preferred Shares into Series 10 Preferred Shares. Holders who do not exercise their right to convert their Series 9 Preferred Shares into Series 10 Preferred Shares on such date will retain their Series 9 Preferred Shares, unless automatically converted in accordance with the conditions below.

The foregoing conversion right is subject to the conditions that: (i) if, after September 2, 2022, Manulife determines that there would be less than 1,000,000 Series 9 Preferred Shares outstanding on September 19, 2022, then all remaining Series 9 Preferred Shares will automatically be converted into an equal number of Series 10 Preferred Shares on September 19, 2022, and (ii) alternatively, if, after September 2, 2022, Manulife determines that there would be less than 1,000,000 Series 10 Preferred Shares outstanding on September 19, 2022, then no Series 9 Preferred Shares will be converted into Series 10 Preferred Shares. In either case, Manulife will give written notice to that effect to any registered holders of Series 9 Preferred Shares affected by the preceding minimums on or before September 12, 2022.

The dividend rate applicable to the Series 9 Preferred Shares for the 5-year period commencing on September 20, 2022, and ending on September 19, 2027, and the dividend rate applicable to the Series 10 Preferred Shares for the 3-month period commencing on September 20, 2022, and ending on December 19, 2022, will be determined and announced by way of a news release on August 22, 2022. Manulife will also give written notice of these dividend rates to the registered holders of Series 9 Preferred Shares.

Beneficial owners of Series 9 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on September 2, 2022. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, TSX Trust Company, at 1‑800-783-9495.

Subject to certain conditions described in the Prospectus, Manulife may redeem the Series 9 Preferred Shares, in whole or in part, on September 19, 2027, and on September 19 every five years thereafter and may redeem the Series 10 Preferred Shares, in whole or in part, after September 19, 2022.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 10 Preferred Shares effective upon conversion. Listing of the Series 10 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 10 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.I was issued as a FixedReset, 4.40%+286, that commenced trading 2012-5-24 after being announced 2012-5-16. After the 2017 announcement the issue would be extended, the rate was reset to 4.35100% and I recommended against conversion; there was no conversion. It is tracked by HIMIPref™ and is included in the FixedReset (Discount) subindex.

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

DBRS has announced that it:

withdrew its rating on Canaccord Genuity Group Inc.’s (CG) Cumulative Preferred Shares. The decision to withdraw the rating was made at the issuer’s request. The last rating action on CG was on October 22, 2021, when DBRS Morningstar confirmed the Company’s Cumulative Preferred Shares rating at Pfd-4 (high) with a Stable trend.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

Affected issues are CF.PR.A and CF.PR.C

Bank of Montreal has announced:

its intention to redeem all of its 16,000,000 outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 42 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 42”) for an aggregate total of $400 million on August 25, 2022. The redemption has been approved by the Office of the Superintendent of Financial Institutions.

The Preferred Shares Series 42 are redeemable at the Bank’s option on August 25, 2022 (the “Redemption Date”) at a redemption price of $25.00 per share. Payment of the redemption price will be made by the Bank on the Redemption Date.

Separately from the payment of the redemption price, the final quarterly dividend of $0.275 per share for the Preferred Shares Series 42 announced by the Bank on May 25, 2022 will be paid in the usual manner on August 25, 2022, to shareholders of record on August 2, 2022.

Notice will be delivered to holders of the Preferred Shares Series 42 in accordance with the terms thereof.

BMO.PR.D is a FixedReset, 4.40%+317, NVCC, that commenced trading 2017-6-29 after being announced 2017-6-20. It has been tracked by HIMIPref™ and is currently assigned to the FixedResets (Discount) subindex.

What makes this redemption fascinating is that yesterday BMO announced:

a domestic public offering of $500 million of Non-Cumulative 5-Year Fixed Rate Reset Class B Preferred Shares, Series 50 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 50”).

The Preferred Shares Series 50 will be issued to certain institutional investors at a price of $1,000 per share. Holders will be entitled to receive non-cumulative preferential fixed semi-annual dividends, as and when declared by the Board of Directors of the Bank, payable in the amount of $24.64400000 per share, to yield 7.376 per cent annually, for the initial period to, but excluding, November 26, 2027. Thereafter, the dividend rate will reset every five years at a rate equal to the then 5-Year Government of Canada bond yield plus 4.250 per cent.

Subject to regulatory approval, during the period from October 26, 2027 to and including November 26, 2027 and during the period from October 26 to and including November 26 every fifth year thereafter, on not less than 15 days nor more than 60 days’ notice, the Bank may redeem the Preferred Shares Series 50 in whole or in part at par, plus any declared and unpaid dividends.

Upon the occurrence of certain regulatory events and subject to regulatory approval, the Bank may, at its option and without the consent of the holder, at any time following such occurrence, on not less than 30 days nor more than 60 days’ notice, redeem the Preferred Shares Series 50 in whole but not in part at par, plus any declared and unpaid dividends.

BMO Capital Markets is acting as lead agent on the issue. The anticipated closing date is July 27, 2022. The net proceeds to the Bank from the sale of Preferred Shares Series 50 will be added to the general funds of the Bank and will be utilized for general banking purposes.

The Preferred Shares Series 50 will be offered by way of a prospectus supplement to the Bank’s short form base shelf prospectus dated March 11, 2022, to be filed on or about July 22, 2022 with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada.

So the upshot is that BMO is issuing a FixedReset at +425 in order to fund a redemption of BMO.PR.D, a FixedReset +317. The redemption will cost $400-million; the new issue is worth $500-million. And yes, I know that the bank claims that “The net proceeds to the Bank from the sale of Preferred Shares Series 50 will be added to the general funds of the Bank and will be utilized for general banking purposes” but I find that statement somewhat suspicious in view of the timing of these two events.

To say this is unusual is to understate the issue. The only rationale I can think of was suggested by Addenda Capital’s Mark Kaminski In collaboration with François Desjardins, in a piece published in November, 2021:

To understand the rationale behind OTC preferred shares, we first need to look at an instrument that entered the financial market last year: the limited recourse capital note (LRCN).
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There is a ceiling, as OSFI pointed out in its July 2020 ruling: LRCNs issued by a federally regulated bank can only fill up 50% of its AT1 bucket. By issuing OTC preferred shares, banks gain the ability to issue more LRCNs. Our understanding of the market’s thinking is that once OSFI is comfortable that there is an established OTC preferred share market, it will raise the LRCN limits.

In essence, the banks are moving regulatory capital from retail investors (i.e. exchange-traded preferred shares) to institutional investors. In our view, OSFI is interested in seeing an established OTC preferred share market in the event that those LRCNs would be converted to preferred shares.

Well, if the coupon and reset rate on the new issue is any indication, it’s going to cost the banks a hell of a lot of money to establish an OTC market for preferreds. And, if the market has any sense at all (not always a good bet), then the yields on LRCNs will be equivalent to these OTC issues, since the LRCN is only an OTC preferred that has been dressed up like a bond to bamboozle the clients of portfolio managers who like to bamboozle their clients.

Surely it would make more sense to insist that an Exchange listing be sought for the preferred shares underlying the LRCNs? One could even insist that issuance of an LRCN should involve the issuance of X shares to the vehicle through which this charade is being funnelled, with another X shares being issued to the public with an Exchange listing. Or would that make the bamboozlement too transparent?

One way or another, something very odd is happening, with no disclosure made to the investing public.

Thanks to Assiduous Reader CanSiamCyp for bringing the redemption to my attention, and for previously bringing the OTC issue to my attention.

Canadian Imperial Bank of Commerce has announced:

its intention to redeem all of its issued and outstanding Non-cumulative Class A Preferred Shares Series 45 (TSX: CM.PR.R) for cash. The redemption will occur on July 29, 2022. The redemption price is $25.00 per Series 45 share.

The $0.275000 quarterly dividend announced on May 26, 2022 will be the final dividend on the Series 45 shares and will be paid on July 28, 2022, covering the period to July 31, 2022, to shareholders of record on June 28, 2022.

Holders of the Series 45 shares should contact the financial institution, broker or other intermediary through which they hold the shares to confirm how they will receive their redemption proceeds.

CM.PR.R is a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-05-25. It has been tracked by HIMIPref™ and is currently part of the FixedResets (Discount) subindex.

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

Birchcliff Energy Ltd. has announced:

• • Subject to the approval of Birchcliff’s board of directors, Birchcliff currently intends to redeem all of its outstanding Series A and Series C preferred shares at the end of Q3 2022.
• • Birchcliff expects to reach zero total debt in Q4 2022, even after the proposed redemption of its Series A and Series C preferred shares, with an anticipated surplus of $260 million to $280 million at year-end 2022, based on current strip pricing.

BIR.PR.A was issued as a FixedReset, 8.00%+683 that commenced trading 2012-8-8. It reset to 8.374% in 2017.

BIR.PR.C was issued as a seven-year retractible, 7.00%, that commenced trading in 2013.

Neither issue has been tracked by HIMIPref™.

Thanks to Assiduous Reader Dan Good for bringing this to my attention!

– ECN Capital Corp. has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative 5-Year Minimum Rate Reset Preferred Shares, Series C (the “Series C Shares”) (TSX: ECN.PR.C) on June 30, 2022 (the “Conversion Date”).

As a result and subject to certain conditions set out in the terms of the Series C Shares as set out in the Company’s articles and summarized in the prospectus supplement of the Company dated May 17, 2017 relating to the issuance of the Series C Shares, the holders of the Series C Shares will have the right to convert all or any of their Series C Shares into Cumulative Floating Rate Preferred Shares, Series D of the Company (the “Series D Shares”) on the basis of one Series D Share for each Series C Share on the Conversion Date.

With respect to any Series C 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 the Company. The annual dividend rate for the Series C Shares for the five-year period from and including June 30, 2022 to but excluding June 30, 2027 will be 7.93700%, being equal to the five-year Government of Canada bond yield of 2.74700% determined as of May 31, 2022 plus 5.19000%, determined in accordance with the terms of the Series C Shares.

With respect to any Series D 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 the Company. The dividend rate applicable to the Series D Shares for the three-month period from and including June 30, 2022 to but excluding September 30, 2022 will be 6.66700%, being equal to the annual rate for the most recent auction as of May 31, 2022 of three-month Government of Canada Treasury Bills of 1.47700% plus 5.19000%, determined in accordance with the terms of the Series D Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

As provided in the terms of the Series C Shares, if ECN determines after reviewing all Series C Shares tendered for conversion into Series D Shares that: (i) there would remain outstanding on the Conversion Date less than 500,000 Series C Shares, all remaining Series C Shares shall be converted automatically into Series D Shares on a one-for one basis effective on the Conversion Date; or (ii) there would remain outstanding on the Conversion Date less than 500,000 Series D Shares, the holders of Series C Shares shall not be entitled to convert their shares into Series D Shares on the Conversion Date. There are currently 3,712,400 Series C Shares outstanding.

The Series C 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 C Shares must be exercised through CDS or the CDS Participant through which the Series C Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series C Shares into Series D Shares is 5:00 p.m. (Toronto time) on June 17, 2022. Any notices received after this deadline will not be valid. As such, holders of Series C 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 ECN does not receive an election notice from a holder of Series C Shares during the time fixed therefor, then the Series C Shares shall be deemed not to have been converted (except in the case of an automatic conversion). Holders of the Series C Shares and the Series D Shares will have the opportunity to convert their shares again on June 30, 2027, and every five years thereafter as long as the shares remain outstanding.

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

ECN.PR.C was issued as a FixedReset, 6.25%+519M625, that commenced trading 2017-5-25 after being announced 2017-5-15. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

Thanks to Assiduous Reader CanSiamCyp for ensuring I was aware of this!

As mentioned in the June 1 Market Action Report, I recently was forwarded a copy about a complaint regarding the dividend amount for BCE.PR.B:

Assiduous Reader TS sends me a copy of an eMail he sent to BCE:

Dear Sir or Madame,

I believe that the dividend on BCE.PR.B and similar prime rate preferred shares for record date May 31, 2022 were calculated incorrectly.

On the website it states that the dividend is $0.06215

The prime rate for the entire month of May was 3.2% so $25 x 3.2% / 12 mths = $0.06667

You still have time to change that as payment date is Jun 13, 2022.

Please correct as soon as possible.

Thank you.

Today, the dividend page for BCE.PR.B has been revised to show a dividend payable June 13 for 0.06667 and I was forwarded a copy of BCE’s response:

Good morning!

Indeed, you are correct and we had caught it just in time to have it corrected with the various instances when you wrote to us.

Really appreciate you taking the time to let us know.

Sincerely,

Well done, TS! It always pays to check things and pays even better to make polite inquiries when something seems strange!