Category: Issue Comments

DBRS has announced:

DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Medium-Term Notes rating of Manulife Financial Corporation (Manulife or the Company) to A (high) from “A,” its Unsecured Subordinated Debentures rating to “A” from A (low), and its Non-Cumulative Preferred Shares rating to Pfd-2 (high) from Pfd-2. In addition, DBRS Morningstar upgraded the Issuer Rating and Financial Strength Rating of The Manufacturers Life Insurance Company (MLI) to AA from AA (low), its Unsecured Subordinated Debentures rating to AA (low) from A (high), and its Non-Cumulative Preferred Shares rating to Pfd-1 from Pfd-1 (low). Concurrently, DBRS Morningstar upgraded the Fixed/Floating Subordinated Debentures of Manulife Finance (Delaware), L.P. to “A” from A (low). DBRS Morningstar also changed the trend on all ratings to Stable from Positive.

KEY RATING CONSIDERATIONS
The ratings upgrade reflects the Company’s powerful franchise in Canada, the United States and Asia as well as the execution of a renewed strategic vision that has focused on derisking the legacy insurance portfolio and reducing the volatility of earnings from movements in equity markets and interest rates, while leading its Canadian peers in terms of regulatory capitalization ratios. This derisking of the legacy insurance portfolio has materially improved the risk profile over the past decade. Moreover, we view Manulife’s performance in 2020 as resilient, given the adverse economic impact brought on by the Coronavirus Disease (COVID-19) pandemic globally. The ratings also consider Manulife’s relatively large exposure to guaranteed products in Canada and the United States, which can result in earnings volatility, as well as the additional complexities of operating an international insurance organization.

RATING DRIVERS
Given Manulife’s recent ratings upgrade, DBRS Morningstar does not see upward ratings pressure over the intermediate term. Over the longer term, if Manulife continues to improve profitability and derisk by further reducing its exposures to product guarantees and long-term care products, while maintaining its capital profile, the ratings would be upgraded.

Conversely, persistent weaker and volatile profitability combined with a sustained deterioration in financial leverage and coverage ratios would result in a ratings downgrade. An adverse event causing regulatory capital to decline substantially would also result in a ratings downgrade.

RATING RATIONALE
The Company’s broad and diverse franchise is supported by leading market shares in Canada, the United States, and Asia. The Company also has strong distribution capabilities, a broad product mix, global brand recognition, and management agility, all of which is supported by a solid risk management framework.

Positively, the Company continues to make improvements in its risk profile, earnings ability, and capitalization levels. Although profitability has weakened in the first half of 2020 because of the initial impact of the pandemic, earnings have remained resilient and in line with relevant peers by achieving a return on equity of 8.2% in the first half of 2020, per DBRS Morningstar’s calculations. Importantly, the Company’s financial leverage has improved to close to 25%, and Senior Management expects to maintain leverage around this level going forward.

Manulife has been making progress with its focus on growing its Global Wealth and Asset Management and Asian insurance operations, the business lines that provide the highest growth opportunities compared with the more mature insurance markets in North America. Together with the focus on expense management and a reduction of the impact of equity and interest rates volatility on the bottom line, these strategies have allowed Manulife to improve profitability in recent years.

Affected issues are MFC.PR.B, MFC.PR.C, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M, MFC.PR.N, MFC.PR.O, MFC.PR.P, MFC.PR.Q and MFC.PR.R.

Quadravest has announced:

Financial 15 Split Corp. (the “Company”) announced previously on March 2, 2020 it will extend the termination date of the Company a further five-year period from December 1, 2020 to December 1, 2025.

In connection with the extension, the Company may amend the prescribed minimum annual rate of cumulative preferential monthly dividends to be paid to the FTN.PR.A Preferred Shares (“Preferred Shares”) for the five-year renewal period, commencing December 1, 2020. The Company may also amend the dividend entitlement of the Preferred Shares on an annual basis.

Based on current market rates for preferred shares with similar terms, the minimum annual rate for the five-year term will be set at 5.5% (previously 5.25%). The annual payment rate will be set at 6.75% per annum, based on the $10 repayment value. This is an increase of one and a quarter percent from the current rate. The Preferred shareholders have received a total of $8.89 per Share in distributions since inception. The dividend policy for the FTN Class A Shares (“Class A Shares”) will remain unchanged.

In relation to the term extension and the Preferred Share rate increase, the Company has an additional retraction right for those shareholders not wishing to continue holding their investment, allowing existing shareholders to tender one or both classes of Shares and receive a retraction price based on the November 30, 2020 net asset value per unit. Alternatively, shareholders may sell their Shares 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.

The Company invests in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, Manulife Financial Corporation, Sun Life Financial, Great-West Lifeco, CI Financial Corp, Bank of America, Citigroup Inc., Goldman Sachs Group, JP Morgan Chase & Co. and Wells Fargo & Co.

Congratulations to Assiduous Reader cowboylutrell for his awesome prediction:

Thus, my expectation is that they will announce in the next few days a new annual dividend rate of 6.75% on FTN.PR.A to begin in December 2020, compared to 5.50% currently.

DBRS has announced:

DBRS Limited (DBRS Morningstar) discontinued and withdrew the rating on the Preferred Shares issued by S Split Corp. following the issuer’s request.

SBN.PR.A was downgraded to Pfd-4 by DBRS last June. I imagine that having such a credit rating does not attract sufficient investors to be worth the rating fee.

Scotia Managed Companies Administration Inc. has announced:

that the redemption prices for all outstanding Class A Capital Shares (the “Capital Shares”) and Class B Preferred Shares, Series 2 (the “Preferred Shares”) to be paid on September 22, 2020 are as follows:

Redemption Price per Preferred Share: $19.71
Redemption Price per Capital Share: $14.4828

BNS Split Corp. II is a mutual fund corporation created to hold a portfolio of common shares of The Bank of Nova Scotia. Capital Shares and Preferred Shares of BNS Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols BSC and BSC.PR.C respectively. The Capital Shares and Preferred Shares will be de-listed from the TSX as at the close of trading on September 22, 2020.

For more information, please contact:
Investor Relations
BNS Split Corp. II
(416) 863-7301
E-mail: mc.bnssplit2@scotiabank.com
Web site: www.scotiamanagedcompanies.com

The redemption has been previously reported on PrefBlog.

The issue commenced trading 2015-9-22 after being announced 2015-9-17. The issue is tracked by HIMIPref™ but is relegated to the Scraps subindex on volume concerns.

Standard & Poor’s has announced:

• We expect Calgary, Alberta-based diversified global infrastructure holding company ATCO Ltd.’s (ATCO) financial measures to be weaker than we previously expected during our two-year outlook period, including a funds from operations (FFO) to debt ratio of about 14% in 2020, which is below our 15% downside trigger. In addition, we expect ATCO’s FFO to debt to reflect the 14%-15% range over the next two years, which implies minimal cushion amidst our view of a somewhat weaker operating and regulatory environment primarily in the Alberta region.
• As a result, we are revising the rating outlooks on ATCO, and its intermediary holding company subsidiary, Canadian Utilities Ltd. (CUL) to negative from stable and affirming the ratings on both entities, including the ‘A-‘ issuer credit rating.
• At the same time we are affirming the ratings for regulated operating subsidiary CU Inc. (CUI) and maintaining the stable outlook, reflecting the cumulative value of the protections in place between CUI and parent ATCO, which we view as sufficient to insulate our issuer credit rating on CUI from the group credit profile of parent ATCO.

…
The negative outlook on ATCO and CUL reflects financial measures that are weaker than previously expected under the current challenging economic environment. When ATCO announced its divestiture plan in 2018 we forecast a steady improvement in the company’s consolidated financial measures, with FFO to debt consistently above 15% by 2020. ATCO has been performing to our expectation for the past few years with FFO to debt improving to about 14% in 2019 from about 11% in 2017. However, the global pandemic and economic recession create uncertainty in the company’s operating environment. As a result, we do not expect the company will meet our expectation of reaching a 15% FFO to debt ratio by 2020.

Our view of ATCO’s business risk profile as excellent has not changed. The assessment largely reflects the company’s lower-risk regulated electric and natural gas utility operations, large customer base, regulatory and geographic diversity, and effective management of regulatory risk. However, the majority of ATCO’s regulated cash flow comes from Alberta, which makes ATCO mostly dependent on the Alberta Utilities Commission (AUC) to support its credit quality. Other offsetting factors to the business risk include exposure to nonutility operations that consists of structures and logistics, energy infrastructure, transportation, and commercial real estate segments, all of which collectively represent about 10%-15% of ATCO’s consolidated cash flow, and are susceptible to cyclical economic conditions, which can affect the consistency of the company’s overall profit measures.
…
The ratings affirmation and stable outlook on CUI reflects our view of the company’s separateness and strength of the cumulative value of the insulation provisions in place between CUI and ATCO are sufficient to rate CUI up to one-notch higher than ATCO. Our analysis of the insulating measures takes into account the following:

• CUI is a separate legal entity with its own capital structure, maintains its own records, does not commingle funds, assets, cash flows, or participate in a money pool with the rest of the ATCO group.
• CUI has its own credit facility, makes its own debt arrangements, and has operations that are separate from the rest of the ATCO group.
• We believe there is a strong economic basis for the ATCO group to preserve the credit strength of CUI given ATCO indirectly owns more than half of CUI through CUL and that CUI contributes a significant portion of ATCO’s consolidated cash flow.
• There are no cross-default provisions between CUI and the rest of the ATCO group (or its subsidiaries) that could directly lead to a default at CUI.
• While we assess the above insulation measures as sufficient to insulate the ratings on CUI from the group credit profile of ATCO by one notch, the issuer credit rating on CUI is limited by its stand-alone credit profile (SACP).

The negative outlook on ATCO and CUL reflects our view that ATCO’s credit measures will be weaker than we previously expected over our two-year outlook period with a FFO to debt ratio that we expect to range from 14%-15%.

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

DBRS has announced that it:

upgraded the Issuer Rating, Medium-Term Notes, and Debentures ratings of Loblaw Companies Limited (Loblaw or the Company) to BBB (high) from BBB. DBRS Morningstar also upgraded Loblaw’s Short-Term Issuer Rating to R-2 (high) from R-2 (middle) and its Second Preferred Shares rating to Pfd-3 (high) from Pfd-3. DBRS Morningstar changed all trends to Stable from Positive. The upgrades reflect Loblaw’s sound operating performance over the last number of years, independent of the Coronavirus Disease (COVID19) pandemic-related effects on operating results, combined with improved credit metrics following the spin-out of Choice Properties Real Estate Investment Trust (Choice; rated BBB (high) with a Stable trend by DBRS Morningstar). While uncertainties related to the intensity and duration of the coronavirus pandemic as well as the macroeconomic aftereffects remain, the Stable trends reflect DBRS Morningstar’s view that Loblaw is well positioned to navigate the current environment within the new BBB (high) rating category. The BBB (high) ratings also reflect the Company’s strong business risk profile, including its position as Canada’s largest food and drug retailer, and continue to consider the intense competition in Canadian food retail.
…
DBRS Morningstar expects Loblaw’s financial profile to improve modestly over the medium term, benefitting from growth in earnings, while the Company’s debt balance is projected to remain relatively flat. DBRS Morningstar believes cash flow from operations will continue to track operating income, while capital expenditures (capex) are forecast to remain in the $1.1 billion range in 2020 and 2021. Capex is expected to primarily focus on existing store improvements and process and efficiency improvements as well as e-commerce and information technology projects. DBRS Morningstar believes dividends on a per-share basis will continue to grow but not exceed $500 million in 2020 and 2021 (normalized for timing). As such, DBRS Morningstar forecasts Loblaw’s FCF (before working capital changes) to be well above $2.0 billion in 2020 and 2021. DBRS Morningstar believes the Company will continue to use its FCF to buy back approximately $0.8 billion and $1.0 billion of shares in 2020 and 2021, respectively, with the majority of the balance accounting for lease principal payments. Consequently, credit metrics should improve marginally within the rating category in line with earnings growth and remain acceptable for the new BBB (high) rating (i.e., adjusted debt-to-EBITDA of approximately 3.25x).

The affected issue is L.PR.B

Dundee Corporation has announced:

the results of its substantial issuer bid, as amended (the “Offer”), to purchase for cancellation from the holders thereof all of its issued and outstanding Cumulative 5-Year Rate Reset First Preference Shares, Series 2 in the capital of the Corporation (the “Series 2 Shares”) at a fixed price of C$19.50 per Series 2 Share. The Offer expired at 5:00 p.m. (Toronto time) on September 8, 2020.

Based on the report of Computershare Investor Services Inc., as depositary for the Offer (the “Depositary”), approximately 1,966,816 Series 2 Shares were tendered to the Offer. In accordance with the terms and conditions of the Offer and based on the Depositary’s report, the Corporation has taken up and paid for approximately 1,966,816 Series 2 Shares at a fixed price of C$19.50 per Series 2 Share for an aggregate purchase price of approximately C$38,352,912. All Series 2 Shares purchased by the Corporation under the Offer will be cancelled. The Series 2 Shares purchased under the Offer represent approximately 63% of the Series 2 Shares issued and outstanding before giving effect to the Offer. After giving effect to the cancellation of the Series 2 Shares purchased by the Corporation under the Offer, approximately 1,149,162 Series 2 Shares will be issued and outstanding.

The Corporation has made payment for the Series 2 Shares tendered and accepted for purchase by tendering to the Depositary (i) the aggregate purchase price, and (ii) the aggregate amount of the accrued dividend payable on the Series 2 Shares validly tendered, taken up and paid for under the Offer, all in accordance with the Offer and applicable laws. The accrued dividend amount payable per Series 2 Share validly tendered, taken up and paid for under the Offer is C$0.25487. Payment to shareholders for the Series 2 Shares will be made in cash, without interest, and will be completed by the Depositary as soon as practicable. Any Series 2 Shares invalidly tendered will be returned to the tendering shareholder promptly by the Depositary.

The full details of the Offer are described in the Corporation’s offer to purchase and issuer bid circular dated July 22, 2020, as amended by the notice of variation dated August 26, 2020, as well as the related amended letter of transmittal and amended notice of guaranteed delivery, copies of which were filed and are available under Dundee’s profile on SEDAR at www.sedar.com and are posted on Dundee’s website at www.dundeecorp.com.

Dundee retained RBC Dominion Securities Inc. to act as financial advisor, Cassels Brock & Blackwell LLP to act as its external legal advisor, Kingsdale Advisors to act as information agent and appointed Computershare Investor Services Inc. to act as depositary for the Offer.

The Board of Directors of the Corporation will continue to review various options for the allocation of capital. Throughout 2019 and during 2020 to date, the Corporation has continued to implement its strategy of rationalizing its portfolio of investments and monetizing non-core assets as it exits business lines which are no longer deemed to be aligned with its longer-term strategy, while remaining committed to creating value for the Corporation and considering opportunities that might present themselves, including potential returns to shareholders of the Corporation.

This purchase offer at 19.50 follows an earlier attempt to organize a Dutch Auction issuer bid. Note that DC.PR.B’s FloatingReset counterpart, DC.PR.D, was not targetted by either purchase proposal.

DC.PR.B is a FixedReset, 5.688%+410, that commenced trading 2009-9-15 with a 6.75% coupon after being announced 2009-8-25. It reset to 5.688% effective 2014-09-30. I made no recommendation regarding conversion. DC.PR.B later reset to 5.284% effective September 30, 2019. I recommended retaining, or converting to, DC.PR.B. Instead, there was a small net conversion to DC.PR.D leaving DC.PR.B with about 61% of the total. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

DC.PR.D is a FloatingReset, +410, that came into existence via a partial conversion from DC.PR.B. It is tracked by HIMIPref™ but relegated to the Scraps – FloatingReset subindex on credit concerns.

Scotia Managed Companies has announced:

The Board of Directors of BNS Split Corp. II (the “Company”) has declared today dividends of $0.1971 per Preferred Share and $0.2150 per Capital Share, payable on September 22, 2020 to holders of record at the close of business on September 18, 2020.

The Class A Capital Shares (“Capital Shares”) and Class B Preferred Shares, Series 2 (“Preferred Shares”) will be redeemed by the Company in accordance with their terms on September 22, 2020 and the Company will wind up and terminate as soon as practicable after such date. The redemption price for each Preferred Share will be an amount equal to the Series 2 Preferred Share Redemption Price (as defined in the provisions attaching to the Preferred Shares). The Series 2 Preferred Share Redemption Price will equal the lesser of (i) $19.71; and (ii) Unit Value (as defined in the provisions attaching to the Preferred Shares). The redemption price (the “Capital Share Redemption Price”) for every two Capital Shares redeemed will be an amount equal to the amount, if any, by which the Unit Value exceeds $19.71.

Holders of Capital Shares who requested to receive a redemption payment equal to the Capital Share Redemption Price in common shares of The Bank of Nova Scotia (“BNS”) (rounded down to the nearest whole share) rather than cash and gave notice to this effect and tendered $19.71 for every two Capital Shares by August 24, 2020 will receive their pro rata share of BNS shares. The redemption of Capital Shares and Preferred Shares will constitute a taxable disposition of the Company’s shares at the time of the redemption whether the payment is received in the form of cash or BNS shares.

A further press release will be issued by the Company in connection with the redemption prices on September 21, 2020. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on September 22, 2020.

BNS Split Corp. II is a mutual fund corporation created to hold a portfolio of common shares of The Bank of Nova Scotia. Capital Shares and Preferred Shares of BNS Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols BSC and BSC.PR.C respectively.

The issue commenced trading 2015-9-22 after being announced 2015-9-17. The issue is tracked by HIMIPref™ but is relegated to the Scraps subindex on volume concerns.

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series G (the “Series G Shares”) (TSX: FFH.PR.G) for the five years commencing October 1, 2020 and ending September 30, 2025. The fixed quarterly dividends on the Series G Shares during that period, if and when declared, will be paid at an annual rate of 2.962% (C$0.185125 per share per quarter).

Holders of Series G Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on September 15, 2020, to convert all or part of their Series G Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series H (the “Series H Shares”) (TSX: FFH.PR.H), effective September 30, 2020. The quarterly floating rate dividends on the Series H Shares will be paid at an annual rate, calculated for each quarter, of 2.56% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the September 30, 2020 to December 30, 2020 dividend period for the Series H Shares will be 0.68282% (2.70900% on an annualized basis) and the dividend for such dividend period, if and when declared, will be C$0.17070 per share, payable on December 30, 2020.

Holders of Series H Shares also have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on September 15, 2020, to convert all or part of their Series H Shares, on a one-for-one basis, into Series G Shares, effective September 30, 2020. Holders of the Series H Shares who elect to convert their shares by the conversion deadline will receive Series G Shares effective September 30, 2020 and will be entitled to receive, if and when declared, the fixed-rate dividend as described above.

Holders of Series G Shares are not required to elect to convert all or any part of their Series G Shares into Series H Shares and holders of Series H Shares are not required to elect to convert all or any part of their Series H Shares into Series G Shares. Holders of the Series G Shares who do not elect to convert their shares by the conversion deadline will retain their Series G Shares and will receive the fixed-rate dividend as described above (subject to the automatic conversion features described below). Holders of the Series H Shares who do not elect to convert their shares by the conversion deadline will retain their Series H Shares and will receive the floating-rate dividend as described above (subject to the automatic conversion features described below).

As provided in the share conditions of the Series G Shares and the Series H Shares: (i) if Fairfax determines that there would be fewer than 1,000,000 Series G Shares outstanding after September 30, 2020, all remaining Series G Shares will be automatically converted into Series H Shares on a one-for-one basis effective September 30, 2020 and Fairfax will cause the return of all Series H Shares tendered for conversion into Series G Shares; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series H Shares outstanding after September 30, 2020, all remaining Series H Shares will be automatically converted into Series G Shares on a one-for-one basis effective September 30, 2020 and Fairfax will cause the return of all Series G Shares tendered for conversion into Series H Shares.

There are currently 7,432,952 Series G Shares and 2,567,048 Series H Shares outstanding. The Series G Shares and the Series H Shares are listed on the Toronto Stock Exchange under the trading symbols “FFH.PR.G” and “FFH.PR.H”, respectively.

FFH.PR.G was issued as a FixedReset 5.00%+256, which commenced trading July 28, 2010 after being announced July 20, 2010. It reset to 3.318% in 2015. I recommended that holders continue holding the issue, but there was a 26% conversion anyway.

FFH.PR.H is a FloatingReset, Bills+256, that arose out of a partial conversion from FFH.PR.G.

Northland Power Inc. has announced:

that pursuant to the share terms in respect of the Cumulative Rate Reset Preferred Shares, Series 1 (“Series 1 Shares”), it has determined the fixed dividend rate for the five years commencing September 30, 2020 and ending September 29, 2025. The fixed quarterly dividends on the Series 1 Shares during that period will be paid at an annual rate of 3.2% (Cdn. $0.2001 per share per quarter).

The quarterly floating rate dividends on the Cumulative Floating Rate Preferred Shares, Series 2 (the “Series 2 Shares”) will be paid at an annual rate, calculated for each quarter, of 2.80% over the annual yield on 90-day Government of Canada treasury bills. The actual quarterly dividend rate in respect of the September 30, 2020 to December 30, 2020 dividend period for the Series 2 Shares will be 0.74% (2.95% on an annualized basis) and the dividend, if and when declared, for such dividend period will be Cdn. $0.1859 per share, payable on December 31, 2020.

Holders of Series 1 Shares and Series 2 Shares have the right, at their option, exercisable not later than 5:00 pm (Toronto time) on September 15, 2020, to convert all or part of their Series 1 Shares or Series 2 Shares, as applicable, on a one-for-one basis, into shares of the other series, effective September 30, 2020.

Holders of either Series 1 Shares or Series 2 Shares are not required to elect to convert all or any part of their shares.

As provided in the share conditions for each of the Series 1 Shares and the Series 2 Shares, if Northland determines that after giving effect to all notices of conversion of Series 1 Shares and Series 2 Shares there would be fewer than 1,000,000 Series 1 Shares or Series 2 Shares outstanding after September 30, 2020, (i) all remaining shares of the series for which there would be fewer than 1,000,000 shares outstanding will be automatically converted into the other series of preferred shares on a one-for-one basis effective September 30, 2020; and (ii) no shares will be permitted to be converted into the series that would have fewer than 1,000,000 shares outstanding.

There are currently 4,501,565 Series 1 Shares and 1,498,435 Series 2 Shares outstanding.

NPI.PR.A was issued as a FixedReset, 5.25%+280bp, which commenced trading 2010-7-28 after being announced 2010-7-6 under the ticker symbol NPP.PR.A. The ticker was changed to NPI.PR.A effective January 1, 2011 after conversion from an Income Trust. The issue reset to 3.51% in 2015 and I recommended that holders retain the issue but there was a 25% conversion to NPI.PR.B.

NPI.PR.B is a FloatingReset, Bills+280bp, which came into existence via a partial conversion from NPI.PR.A.