Category: Issue Comments

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!

BCE announced (on 2022-10-14):

Holders of fixed-rate BCE Inc. Series Z Preferred Shares have the right to convert all or part of their shares, effective on December 1, 2022, on a one-for-one basis into floating-rate Cumulative Redeemable First Preferred Shares, Series Y of BCE Inc. (the “Series Y Preferred Shares”). In order to convert their shares, holders must exercise their right of conversion during the conversion period which runs from October 17, 2022 until 5:00 p.m. (Eastern time) on November 17, 2022.
…
As of December 1, 2022, the Series Z 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 based on a fixed rate equal to the product of: (a) the yield to maturity compounded semi-annually (the “Government of Canada Yield”), computed on November 10, 2022 by two investment dealers appointed by BCE Inc., that would be carried by a non-callable Government of Canada bond with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage Rate” determined by BCE Inc. is 160%. The annual dividend rate applicable to the Series Z Preferred Shares will be published on November 15, 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.

There was a similar announcement for BCE.PR.Y:

Holders of floating-rate BCE Inc. Series Y Preferred Shares have the right to convert all or part of their shares, effective on December 1, 2022, on a one-for-one basis into fixed-rate Cumulative Redeemable First Preferred Shares, Series Z of BCE Inc. (the “Series Z Preferred Shares”). In order to convert their shares, holders must exercise their right of conversion during the conversion period which runs from October 17, 2022 until 5:00 p.m. (Eastern time) on November 17, 2022.

Today the new dividend rate for BCE.PR.Z was announced:

BCE Inc. will, on December 1, 2022, continue to have Cumulative Redeemable First Preferred Shares, Series Z (“Series Z Preferred Shares”) outstanding if, following the end of the conversion period on November 17, 2022, BCE Inc. determines that at least one million Series Z Preferred Shares would remain outstanding. In such a case, as of December 1, 2022, the Series Z Preferred Shares 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 based on a fixed rate equal to the product of: (a) the average of the yields to maturity compounded semi-annually, determined on November 10, 2022 by two investment dealers selected by BCE Inc., that would be carried by non-callable Government of Canada bonds with a 5-year maturity (the “Government of Canada Yield”), multiplied by (b) a percentage rate determined by BCE Inc. (the “Selected Percentage Rate”) for such period. The “Selected Percentage Rate” determined by BCE Inc. for such period is 160%. The “Government of Canada Yield” is 3.341%. Accordingly, the annual dividend rate applicable to the Series Z Preferred Shares for the period of five years beginning on December 1, 2022 will be 5.346%.

BCE.PR.Z reset to 4.331% in 2007; to 3.152% in 2012; and to 3.904% in 2017.

BCE.PR.Y is a ratchetRate preferred.

The terminology, mechanics and analysis of interconvertible shares of this type have been discussed on many occasions:

• Research : Preferred Pairs
• Pairs Equivalency Calculator
• Research : Preferred Share Interconvertibility (PrefLetter Version)
• Research : Interconvertibility Part 2

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

The Toronto-Dominion Bank has announced (on 2022-10-19):

that none of its 14 million Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 16 (Non-Viability Contingent Capital (NVCC)) (the “Series 16 Shares”) will be converted on October 31, 2022 into Non-Cumulative Floating Rate Preferred Shares, Series 17 (NVCC) (the “Series 17 Shares”) of TD.

During the conversion period, which ran from October 3, 2022 to October 17, 2022, 131,188 Series 16 Shares were tendered for conversion into Series 17 Shares, which is less than the minimum 1,000,000 shares required to give effect to the conversion, as described in the prospectus supplement for the Series 16 Shares dated July 7, 2017. As a result, no Series 17 Shares will be issued on October 31, 2022 and holders of Series 16 Shares will retain their Series 16 Shares.

The Series 16 Shares are currently listed on the Toronto Stock Exchange under the symbol TD.PF.I. As previously announced on October 3, 2022, the dividend rate for the Series 16 Shares for the 5-year period from and including October 31, 2022 to but excluding October 31, 2027 will be 6.301%.

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. The issue reset to 6.301% in 2022. It is tracked by HIMIPref™ and is assigned to the FixedResets (Discount) subindex.

DBRS Limited has announced:

that, effective January 1, 2022, Real Estate & E-Commerce Split Corp. changed its name to Real Estate Split Corp.

DBRS Morningstar has also downgraded its rating on the Preferred Shares issued by Real Estate Split Corp. (the Company) to Pfd-3 (high) from Pfd-2 (low). The Preferred Shares have experienced a considerable reduction in downside protection since February 2022 as a result of the decline in the net asset value (NAV) of the portfolio in response to the broad stock market sell-off, which was triggered by the mix of the global high inflationary environment, tighter monetary policies, and various geopolitical events, such as the Russia-Ukraine war.

Considering a deterioration in downside protection (to 54.8% in November 2022 from 64.2% in November 2021), together with the increase in Class A shares distribution (to 10.4% on the original issue price of $15.0 from 8.0% in September 2021), the amount of grind present (6.8% per year over the remaining term), and the foreign-exchange risk exposure, DBRS Morningstar downgraded the rating on the Preferred Shares to Pfd-3 (high) from Pfd-2 (low).

The Company invests in a diversified portfolio composed of approximately 19 real estate issuers (the Portfolio) operating in the real estate or related sectors, including real estate investment trusts. The Portfolio may include securities denominated in currencies other than the Canadian dollar, exposing the Preferred Shares to foreign currency risk. The Company takes a tactical approach to determine whether to hedge the exposure to foreign currencies. The Company is managed by Middlefield Limited (the Manager).

Holders of the Preferred Shares receive quarterly fixed cumulative preferential cash distributions of $0.13125 (or $0.525 annually) per share, representing a 5.25% per-annum return on the original issue price of $10.00. The fixed distributions of dividends on the Preferred Shares are funded from the dividends received on the securities in the Portfolio, which cover approximately 1.4 times the annual Preferred Shares distributions. Holders of the Class A Shares receive regular monthly noncumulative distributions targeted to be $0.13 (or $1.56 annually) per Class A Share to yield 10.4% per annum on the original issue price of $15.00. Distributions to the Class A Shares were increased from the initial amount of $0.10 (or $1.20 annually) per Class A Share as of September 15, 2021. The Class A Share distributions are subject to the asset coverage test, which does not permit any distributions to holders of the Class A Shares if the Company’s NAV falls below $15.00 or if the dividends of the Preferred Shares are in arrears.

As of November 2, 2022, the downside protection available to the Preferred Shares was approximately 54.8%. Regular distributions to holders of the Class A Shares are projected to cause an average annual portfolio grind of about 6.8% over the remaining term. To supplement Portfolio income, the Manager may engage in covered call option writing on all, or a portion of the securities held in the Portfolio, engage in securities lending, or rely on realized capital gains.

The Company established a loan facility for working capital purposes, with the maximum amount of 5% of the total assets of the Company. The Company may pledge the Portfolio securities as collateral for amounts borrowed under the loan facility.

Recent Updates/Treasury Offerings

(i) On February 9, 2022
The company completed an overnight treasury offering of Class A Shares and Preferred Shares, raising approximately $16.3 million in gross proceeds. The Class A Shares were offered at a price of $19.10 per share for a distribution rate of 8.2% on the issue price, and the Preferred Shares were offered at a price of $10.55 per share for a yield to maturity of 5.0%.

(ii) On May 12, 2022
The company completed an overnight treasury offering of Class A Shares and Preferred Shares, raising approximately $15.2 million in gross proceeds. The Class A Shares were offered at a price of $18.00 per share for a distribution rate of 8.7% on the issue price, and the Preferred Shares were offered at a price of $10.10 per share for a yield to maturity of 5.2%.

(iii) On June 29, 2022
The company completed an overnight treasury offering of Class A Shares and Preferred Shares, raising approximately $10.1 million in gross proceeds. The Class A Shares were offered at a price of $15.30 per share for a distribution rate of 10.2% on the issue price, and the Preferred Shares were offered at a price of $10.12 per share for a yield to maturity of 5.2%.

(iv) On October 12, 2022
The company completed an overnight treasury offering of Class A Shares and Preferred Shares, raising approximately $11.8 million in gross proceeds. The Class A Shares were offered at a price of $14.40 per share for a distribution rate of 10.8% on the issue price, and the Preferred Shares were offered at a price of $9.80 per share for a yield to maturity of 5.4%.

A limited number of Class M Shares that rank junior to the Preferred Shares and Class A Shares in respect of capital upon the dissolution, winding up, or liquidation of the Company have been issued by the Company. There are currently $10 worth of such shares outstanding. The Class M Shares are not entitled to receive any dividends for as long as any Preferred Shares or Class A Shares are outstanding. Furthermore, no additional Class M Shares can be issued until the Preferred Shares and the Class A Shares have been retracted, redeemed, or purchased for cancellation.

The maturity date for both classes of shares is December 31, 2025. On maturity, the holders of the Preferred Shares will be entitled to the value of the Portfolio up to the face value of the Preferred Shares and any accrued but unpaid dividends in priority to the holders of the Class A Shares and the Class M Shares.

The main constraints to the rating are the following:

(1) Market fluctuations resulting from high inflation, interest rate hikes, oil prices, and global supply chain issues could further affect the Company’s NAV. The downside protection available to holders of the Preferred Shares depends on the value of the common shares held in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares dividend coverage or downside protection from time to time.

(3) Reliance on the manager to generate a high yield on the investment portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

(4) The high concentration of the Portfolio in one industry (Real Estate).

(5) Potential foreign-exchange risk because the income received on the Portfolio is not hedged all the time.

The affected issue is RS.PR.A