Category: Issue Comments

Element Fleet Management Corp. has announced:

• The Company will redeem Series G shares in full on September 30, 2020, further maturing its capital structure by eliminating its most expensive preferred series
• The redemption is enabled by the Company’s strategic plan to deliver a consistent, superior client experience by improving operating performance and profitability, which has materially enhanced free cash flow over the last two years
• With the redemption, the Company will have cumulatively eliminated or replaced over $1 billion of high-cost hybrid instruments from its capital structure in the last 18 months, simplifying and strengthening its investment-grade balance sheet

…its intention to redeem – in accordance with the terms of the Cumulative 5-Year Rate Reset Preferred Shares, Series G (the “Series G Shares”) as set out in the Company’s articles – all of its 6,900,000 issued and outstanding Series G Shares on September 30, 2020 (the “Redemption Date”) for a redemption price equal to $25.00 per Series G Share, together with all accrued and unpaid dividends up to but excluding the Redemption Date (the “Redemption Price”), less any tax required to be deducted and withheld by the Company.

“The ongoing success of our strategic plan to transform Element’s business by delivering a consistent, superior client experience and improving profitability enables us to take advantage of this opportunity to further mature our capital structure by eliminating the most expensive series of our preferred shares,” said Jay Forbes, President and Chief Executive Officer of Element. “This redemption advances our strategic priority of simplifying and strengthening Element’s investment-grade balance sheet.”

With this redemption, the Company will have cumulatively eliminated or replaced over $1 billion of high-cost hybrid instruments from its capital structure in the last 18 months.

The Company remains on track to achieve sub-6.0x tangible leverage by the end of this year.

“We expect that achieving our tangible leverage target – combined with Element’s focus on organic profitable revenue growth – will result in our business generating excess free cash flow in the near future,” Mr. Forbes added. “We are evaluating the timing and scope of further potential capital allocation measures and look forward to sharing our Board’s capital allocation strategy along with our Q3 2020 results at the end of October.”

As previously announced, the Company’s Board of Directors has declared a dividend of $0.406250 per Series G Share for the third quarter of 2020 payable on the Redemption Date to holders of record as of the close of business on September 14, 2020. This will be the final quarterly dividend on the Series G Shares, although holders will receive on redemption of the Series G Shares all accrued and unpaid dividends up to but excluding the Redemption Date.

The Company has provided notice today of the Redemption Price and the Redemption Date to the sole registered holder of the Series G Shares in accordance with the terms of the Series G Shares as set out in the Company’s articles. Non-registered holders of Series G Shares should contact their broker or other intermediary for information regarding the redemption process for the Series G Shares in which they hold a beneficial interest. The Company’s transfer agent for the Series G Shares is Computershare Investor Services Inc. Questions regarding the redemption process may be directed to Computershare Investor Services Inc. at 1-800-564-6253 or by email to corporateactions@computershare.com.

EFN.PR.G is a FixedReset, 6.50%+534, that was announced 2015-5-20, but not added to HIMIPref™ at the time due to the lack of a credit rating. It, together with EFN’s other three preferred share issues, were added to HIMIPref™ in September, 2015, after the company was rated Pfd-3 by DBRS.

As a matter of interest, EFN.PR.G was quoted at 22.70-30 today to yield 6.39%-6.19% to perpetuity. The closing price was 23.20 on volume of 200 shares. The redemption may be considered another piece of evidence that the Canadian preferred share market is still really cheap!

Dundee Corporation has announced:

that it has received confirmation of support from a few of the largest investors that hold an aggregate of 590,700 Cumulative 5-Year Rate Reset First Preference Shares, Series 2 in the capital of the Corporation (the “Series 2 Shares”) who have agreed to tender all such Series 2 Shares to the Corporation’s previously announced substantial issuer bid (the “Offer”) at a price of $19.50 per Series 2 Share. As a result, the Corporation intends to mail and file a notice of variation in accordance with applicable Canadian securities laws on or before August 27, 2020 to amend the Offer to: (i) increase the price payable per Series 2 Share to a fixed price of $19.50 (the “Amended Purchase Price”); and (ii) increase the aggregate number of Series 2 Shares subject to the initial Offer from $44,000,000 in value to all of the issued and outstanding Series 2 Shares, representing approximately $61,000,000 in value based on the Amended Purchase Price. The Offer was initially made by way of a “modified Dutch auction”, which would have allowed holders who chose to participate in the initial Offer to individually select the price, within a price range of not less than C$16.00 and not more than C$18.50 per Series 2 Share, at which to tender.

In addition to the Amended Purchase Price, Shareholders who have Series 2 Shares taken up and paid for by the Corporation pursuant to the amended Offer will be entitled to receive a portion of the $0.33025 dividend declared by the Board of Directors on such Series 2 Shares for the quarter ended September 30, 2020. As an example, assuming the amended Offer expires on September 8, 2020 and the Series 2 Shares are taken up and paid for by the Corporation on September 10, 2020, the accrued dividend amount payable per Series 2 Share validly tendered, taken up and paid for under the amended Offer is estimated to be approximately C$0.26.

As a result of the variation in the terms of the Offer, the amended Offer will now expire at 5:00 p.m. (Toronto time) on September 8, 2020 or such later time and date to which the amended Offer may be extended by Dundee, unless varied or withdrawn by Dundee.

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. In line with the Corporation’s longer-term strategy and commitment to creating value for the Corporation, the Board believes that the purchase of Series 2 Shares under the amended Offer represents an attractive investment opportunity for Dundee and will be welcomed by certain holders of Series 2 Shares who may wish to reduce their share ownership positions.

“We believe that the amended purchase price gives greater certainty for a successful bid, which locks in long term value for our shareholders,” said Jonathan Goodman, Chairman and CEO.
…
As a result of the amendments to the terms of the Offer, if a shareholder has previously tendered Series 2 Shares, such tender is no longer valid, and the shareholder WILL BE REQUIRED TO PROPERLY RETENDER THEIR SERIES 2 SHARES to accept the amended Offer. For greater certainty, any and all Series 2 Shares previously tendered will be deemed to be withdrawn, and the shareholder must take additional steps if they wish to participate in the amended Offer.

I don’t know how the requirement to retender shares will interact with procedures at the various brokerages; those who have tendered are urged to contact their brokers and ensure that their shares are properly retendered.

The original Normal Course Issuer Bid (a Dutch Auction) was discussed on PrefBlog. Thanks to Assiduous Reader Dan Good for bringing this amendment to our attention.

DBRS has announced that it:

maintained the Under Review with Developing Implications status on GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares rating of Pfd-4 (high). DBRS Morningstar has maintained this status since June 18, 2019, given the lack of clarity on the ultimate composition and financial fundamentals of the Company.
…
On August 13, 2020, GMP announced that it had entered into a definitive purchase agreement with RFGL to consolidate 100% ownership of RGMP under GMP. Under the terms of the agreement, GMP will acquire all common shares of Richardson GMP that it does not already own (65.9% stake) for a purchase price of 1.875 GMP common shares (originally two GMP common shares) per one common Richardson GMP share. Following the impact of the coronavirus pandemic, RBC Capital Markets, LLC (RBC) revised its valuation of Richardson GMP from $500 million to $420 million. Accordingly, they concluded that the common shares now carry a value between $3.55 to $4.50 (previously $4.25 to $5.15) while GMP common shares carry a value of between $2.00 to $2.55 (previously $2.20 to $2.90) on an en bloc basis.

Furthermore, GMP will pay a special dividend of $11.3 million to the preclosing GMP shareholders and will resume paying quarterly dividends on its outstanding preferred shares following the special meeting, while $36 million in retention payments will be made to Richardson GMP’s investment advisors upon closing of the transaction. Additionally, Richardson Financial will not redeem its $32 million preferred share ownership in order to invest in the growth in the new business; instead, their preferred share terms will be amended to add a right to redeem the preferred shares for cash any time following the third anniversary of closing. The DBRS Morningstar-rated Cumulative Preferred Shares will remain with the consolidated entity.

GMP has called a special meeting of common shareholders on October 6, 2020, to approve the transaction, which would require a majority of the minority shareholders (excluding RFGL) to vote in favour of the proposal. GMP will subsequently require regulatory approval from the Investment Industry Regulatory Organization of Canada. The transaction is expected to close in the fourth quarter of 2020.

Following the approval of the transaction, RFGL is expected to have the largest ownership interest representing 40% of the consolidated entity. GMP shareholders and the Richardson GMP investment advisors and management would retain 31.4% and 28.5%, respectively.

KEY RATING CONSIDERATIONS
The continued Under Review period considers that even though the transaction’s parties have reached a definitive agreement the consolidation of GMP with Richardson GMP is still subject to shareholder and regulatory approval. DBRS Morningstar will assess GMP’s pro forma structure once it consolidates full ownership of Richardson GMP. This assessment will review the Company’s assets and liabilities composition, ownership, future strategic direction, and management’s ability to execute on this plan. If the consolidation were not to occur, DBRS Morningstar would need to assess GMP’s standalone intrinsic strength, including its credit fundamentals, prospects for growth, and ability to maintain debt service payments on its Cumulative Preferred Shares.

The last extension of the Review-Developing status was in June, 2020. The suspension of dividends was announced on July 31, 2020.

Emera Incorporated has announced:

that 128,610 of its 3,864,636 issued and outstanding Cumulative Rate Reset First Preferred Shares, Series A (the “Series A Shares”) were tendered for conversion, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Shares”) and that 1,130,788 of its 2,135,364 issued and outstanding Series B Shares were tendered for conversion, on a one-of-one basis, into Series A Shares. As a result of the conversion, Emera has 4,866,814 Series A Shares and 1,133,186 Series B Shares issued and outstanding. The Series A Shares and the Series B Shares will continue to be listed on the Toronto Stock Exchange (“TSX”) under the symbols EMA.PR.A and EMA.PR.B, respectively.

EMA.PR.A was issued as a FixedReset, 4.40%+184, that commenced trading 2010-6-2 after being announced 2010-5-25. Extension was announced in 2015 and a reset to 2.555% announced. I receommended against conversion, but there was a 36% conversion to EMA.PR.B anyway. Notice of extension was provided on 2020-7-9. EMA.PR.A reset at 2.182% effective 2020-8-15.

EMA.PR.B is a FloatingReset, Bills+184, that became extant in 2015 via a 36% conversion from EMA.PR.A.

DBRS has announced that it has:

downgraded the rating of the preferred shares (the Preferred Shares) issued by Canadian Banc Corp. (the Company) to Pfd-3 from Pfd-3 (high). The Company invests in a portfolio of common shares (the Portfolio) issued by the six largest Canadian banks: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank. Each of the six banks generally represents no less than 5% and no more than 20% of the net asset value (NAV) of the Portfolio. In addition, up to 20% of the NAV of the Portfolio may be invested in equity securities of Canadian or foreign financial services corporations other than the banks listed above.

Dividends from the Portfolio are used to pay holders of the Preferred Shares floating cumulative monthly dividends at an annual rate equal to the prevailing prime rate in Canada plus 1.5%, with a minimum annual rate of 5% and a maximum annual rate of 8%. Holders of the Class A Shares are entitled to receive monthly cash distributions targeted to be 10% annually based on the volume-weighted average market price of the Class A Shares for the last three trading days of the preceding month.

DBRS Morningstar expects the monthly cash distributions to the holders of the Class A Shares and operating expenses to cause an average grind on the NAV of the Portfolio of approximately 3.5% until the end of the term. An asset coverage test in place mitigates the effects of the grind by not permitting the Company to make monthly distributions to the Class A Shares if the dividends of the Preferred Shares are in arrears or if the NAV of the Portfolio falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. In addition, no special distributions can be made to the Class A Shares if, after such distributions, the NAV is below $25. This ensures a sufficient level of protection to the holders of the Preferred Shares.

The main form of credit enhancement available to the Preferred Shares is a buffer of downside protection. As of July 15, 2020, the amount of downside protection available to the Preferred Shares was 41.9%. The Preferred Share dividend coverage ratio was approximately 1.2x.

Following the stock market sell-off in response to the worldwide spread of Coronavirus Disease (COVID-19) and various geopolitical news in March 2020, the Preferred Shares experienced a decline in downside protection. Although the credit quality of the underlying assets of the Portfolio is strong, the Portfolio is concentrated in the financial services industry, which has suffered deep declines. The downside protection level partially recovered; however, it remains below the required level for a Pfd-3 (high) rating. The floating nature of dividend distributions to the Preferred Shares and Class A Shares, while mitigated by predetermined ranges of dividend yields, may potentially increase the volatility of the protection available to holders of the Preferred Shares in a high interest rate environment. Considering the decline in downside protection and the Portfolio performance metrics, DBRS Morningstar downgraded the rating on the Preferred Shares to Pfd-3 from Pfd-3 (high).

The maturity date is December 1, 2023. 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, in priority to the holders of the Class A Shares. The Class A Shareholders will receive the remaining value of the Company. The term may be extended beyond the termination date for additional terms of five years each as determined by the Company’s board of directors.

DBRS Morningstar also considered the following constraints:

(1) The reliance on the Portfolio manager to generate additional income through methods such as option writing.

(2) The monthly cash distributions to holders of the Class A Shares.

(3) The dependence of the downside protection available to holders of the Preferred Shares on the value of the underlying common shares, which are subject to share price volatility.

BK.PR.A has a NAVPU of 16.80 as of July 31 for asset coverage of 1.7-:1 and downside protection (a different statement of the same idea) of 40.5%.

DBRS has announced that it has:

downgraded the Preferred Shares (the Preferred Shares) issued by Dividend 15 Split Corp. II (the Company) to Pfd-4 from Pfd-3 (low). The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio), which are issued by the following 15 companies: Bank of Montreal, The Bank of Nova Scotia, BCE Inc., CI Financial Corp., Canadian Imperial Bank of Commerce, Enbridge Inc., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., TELUS Corporation, Thomson Reuters Corporation, The Toronto-Dominion Bank, TransAlta Corporation, and TC Energy Corp. Up to 15% of the net asset value (NAV) of the Portfolio may be invested in equity securities of issuers other than the companies listed above. Quadravest Capital Management Inc. actively manages the Portfolio. The Company has the ability to write covered call options in respect of some or all of the common shares held in the Portfolio to generate additional income and supplement the dividends received on the Portfolio.

On May 22, 2020, DBRS Morningstar placed the Preferred Shares Under Review with Negative Implications. The Preferred Shares have experienced a considerable reduction in downside protection since February 2020 as a result of the rapid decline in the NAV of the portfolio in response to the stock market sell-off, which was triggered by the worldwide spread of Coronavirus Disease (COVID-19) and various geopolitical events. With this downgrade, the rating of the Preferred Shares has been removed from Under Review with Negative Implications.

As at July 15, 2020, the downside protection available to the Preferred Shares was 21.2%. The dividend coverage ratio was approximately 0.8 times (x). Holders of the Preferred Shares continue to receive fixed cumulative monthly cash distributions of $0.04792 per Preferred Share, yielding 5.75% annually on the original issue price of $10.00. Distributions to the Class A Shares have been suspended since March 2020 because they have not met the NAV test of 1.5x.

DBRS Morningstar downgraded the rating on the Preferred Shares based on longer-term trends being established for the NAV. Although the downside protection has experienced some recovery in the past three months, its current level combined with a dividend coverage below 1.0, are commensurate with a Pfd-4 rating.

The NAVPU was 12.53 on July 31, for Asset Coverage of 1.3-:1 and downside protection (the same concept expressed differently) of 20.2%. The ‘Review-Negative’ status, now rescinded, was previously reported on PrefBlog.

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series 15 (Series 15 Shares) (TSX: ENB.PF.G) on September 1, 2020. As a result, subject to certain conditions, the holders of the Series 15 Shares have the right to convert all or part of their Series 15 Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series 16 of Enbridge (Series 16 Shares) on September 1, 2020. Holders who do not exercise their right to convert their Series 15 Shares into Series 16 Shares will retain their Series 15 Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series 15 Shares outstanding after September 1, 2020, then all remaining Series 15 Shares will automatically be converted into Series 16 Shares on a one-for-one basis on September 1, 2020; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series 16 Shares outstanding after September 1, 2020, no Series 15 Shares will be converted into Series 16 Shares. There are currently 11,000,000 Series 15 Shares outstanding.

With respect to any Series 15 Shares that remain outstanding after September 1, 2020, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series 15 Shares for the five-year period commencing on September 1, 2020 to, but excluding, September 1, 2025 will be 2.983 percent, being equal to the five-year Government of Canada bond yield of 0.303 percent determined as of today plus 2.68 percent in accordance with the terms of the Series 15 Shares.

With respect to any Series 16 Shares that may be issued on September 1, 2020, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series 16 Shares for the three-month floating rate period commencing on September 1, 2020 to, but excluding, December 1, 2020 will be 0.70861 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 0.17 percent plus 2.68 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 2, 2020 until 5:00 p.m. (EST) on August 17, 2020, 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 time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PF.G is a FixedReset, 4.40%+268, that commenced trading 2014-9-23 after being announced 2014-9-11. It is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

GMP Capital Inc. has announced:

DIVIDENDS

The Company’s net working capital as at June 30, 2020 was $122.8 million. While this level of liquidity is sufficient to pay dividends, under Section 38(3) of the Business Corporations Act (Ontario), the Company’s governing corporate statute, the Company cannot pay a dividend if there are reasonable grounds for believing that the net realizable value of the Company’s assets would be less than the aggregate of its liabilities and its legal stated capital of all classes of shares (common and preferred).

Due to the current level of stated capital of the Company’s outstanding common and preferred shares, the Board of Directors has reasonable grounds to believe that this test would not be satisfied as at September 30, 2020, the date on which its quarterly preferred share dividend would normally be paid. As such the Company is suspending the dividends on its preferred shares. At its next meeting of common shareholders, the Company intends to seek the approval of its common shareholders to reduce the stated capital of the common shares to allow the Company to resume paying dividends, including accrued, unpaid dividends on the preferred shares.

Dividends on the outstanding preferred shares are cumulative and will continue to accrue in accordance with the rights, privileges, restrictions and conditions associated with each series of preferred shares.

Affected issues are GMP.PR.B and GMP.PR.C.

These issues have been on Review-Developing at DBRS for a long time, due to uncertainty regarding the proposed deal with Richardson GMP. It looks like the uncertainty became a lot more uncertain!

Of particular interest is the following quote (emphasis added):

At its next meeting of common shareholders, the Company intends to seek the approval of its common shareholders to reduce the stated capital of the common shares to allow the Company to resume paying dividends, including accrued, unpaid dividends on the preferred shares.

So there’s no indication as to how much of a reduction in stated capital the company will seek. A sharp reduction in stated capital at Aimia allowed the company to resume dividends on the common and to execute a Substantial Issuer Bid for that common, neither of which was good for the preferred shareholders.

Thanks to Assiduous Reader DR for bring this to my attention!

Bank of Montreal has announced (on July 27):

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 33 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 33”) and Non-Cumulative Floating Rate Class B Preferred Shares, Series 34 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 34”).

With respect to any Preferred Shares Series 33 that remain outstanding after August 25, 2020, commencing as of such date, holders thereof will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the five-year period commencing on August 25, 2020, and ending on August 24, 2025, will be 3.054 per cent, being equal to the sum of the five-year Government of Canada bond yield as at July 27, 2020 (being the first business day following the dividend rate calculation date of July 26, 2020, established in the Preferred Shares Series 33 prospectus, which falls on a Sunday), plus 2.71 per cent, as determined in accordance with the terms of the Preferred Shares Series 33.

With respect to any Preferred Shares Series 34 that may be issued on August 25, 2020, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of the actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the three-month period commencing on August 25, 2020, and ending on November 24, 2020, will be 2.878 per cent, being equal to the sum of the three-month Government of Canada Treasury bill yield as at July 27, 2020 (being the first business day following the dividend rate calculation date of July 26, 2020), plus 2.71 per cent, as determined in accordance with the terms of the Preferred Shares Series 34.

Beneficial owners of Preferred Shares Series 33 who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (EDT) on August 10, 2020.

Conversion enquiries should be directed to BMO’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-340-5021.

BMO.PR.Y is a FixedReset, 3.80%+271, that commenced trading 2015-6-5 after being announced 2015-5-27. Notice of extension was published 2020-6-29. The issue is tracked by HIMIPref™ and is assigned to the FixedReset (Discount) subindex.

Dundee Corporation has announced:

that it intends to commence a substantial issuer bid (the “Offer”) to purchase for cancellation from the holders thereof who choose to participate up to C$44,000,000 in value of its Cumulative 5-Year Rate Reset First Preference Shares, Series 2 in the capital of the Corporation (the “Series 2 Shares”). The Offer is being made by way of a modified Dutch auction”, which will allow holders who choose to participate in the Offer to individually select the price, within a price range of not less than C$16.00 and not more than C$18.50 per Series 2 Share (in increments of C$0.10 per Share), at which they will tender their Series 2 Shares to the Offer. Upon expiry of the Offer, the Corporation will determine the lowest purchase price (the “Purchase Price”) (which will not be less than C$16.00 and not more than C$18.50 per Series 2 Share) based on all tenders validly deposited and not properly withdrawn pursuant to the Offer that will allow it to purchase the maximum number of Series 2 Shares tendered to the Offer, having an aggregate purchase price not exceeding C$44,000,000.

In addition to the Purchase Price, Shareholders who have Series 2 Shares taken up and paid for by the Corporation pursuant to the Offer will be entitled to receive the portion of any quarterly cash dividend declared by the Board of Directors on such Series 2 Shares for the quarter ended September 30, 2020, with such portion of the quarterly cash dividend per Series 2 Share being equal to the amount obtained when the amount of any quarterly dividend that would otherwise have been payable in respect of the dividend period is multiplied by a fraction, the numerator of which is the number of calendar days in such dividend period that such Series 2 Share has been outstanding (to but excluding the date of being taken up) and the denominator of which is the number of calendar days in such dividend period. As an example, assuming the Offer expires on August 27, 2020, the Series 2 Shares are taken up and paid for by the Corporation on August 31, 2020 and a dividend consistent with the prior quarter was declared on the Series 2 Shares, the accrued dividend amount payable per Series 2 Share validly tendered, taken up and paid for under the Offer is estimated to be approximately C$0.22.

The Offer will expire at 5:00 p.m. (Toronto time) on August 27, 2020 or such later time and date to which the Offer may be extended by Dundee, unless varied or withdrawn by Dundee.
…
“In this current and ongoing low interest rate environment we believe this is an effective way to lower our cost of capital and reduce our overall cash outflows by purchasing the more expensive Series 2 Shares tendered as part of this Offer compared to the Series 3 Shares,” said Robert Sellars, Executive Vice President and Chief Financial Officer.

The Board of Directors of the Corporation will continue to review various options for the allocation of capital, including any portion of the C$44,000,000 under the Offer remaining in excess of the aggregate purchase price payable pursuant to the Offer, with such options including, but not limited to, further repurchases of the Corporation’s securities, including without limitation, its Class A Subordinate Voting Shares and Cumulative Floating Rate First Preference Shares, Series 3 (“Series 3 Shares”). 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. In line with the Corporation’s longer-term strategy and commitment to creating value for the Corporation, the Board believes that the purchase of Series 2 Shares under the Offer represents an attractive investment opportunity for Dundee and will be welcomed by certain holders of Series 2 Shares who may wish to reduce their share ownership positions.

Additional Details of the Offer

If the Purchase Price is determined to be C$16.00 per Series 2 Share (which is the minimum Purchase Price under the Offer), the maximum number of Series 2 Shares that may be purchased by the Corporation under the Offer is 2,750,000 Series 2 Shares, which represents approximately 88.25% of the Series 2 Shares issued and outstanding as at July 21, 2020. If the Purchase Price is determined to be C$18.50 per Series 2 Share (which is the maximum Purchase Price under the Offer), the maximum number of Series 2 Shares that may be purchased by the Corporation under the Offer is 2,378,378 Series 2 Shares, which represents approximately 76.33% of the Series 2 Shares issued and outstanding as at July 21, 2020.

If Series 2 Shares with an aggregate purchase price of more than C$44,000,000 are properly tendered and not properly withdrawn, the Corporation will purchase the Series 2 Shares on a pro rata basis after giving effect to “odd lot” tenders (of holders beneficially owning fewer than 100 Series 2 Shares), which will not be subject to pro-ration. In that case, all Series 2 Shares tendered at or below the finally determined Purchase Price will be purchased, subject to pro-ration, at the same Purchase Price determined pursuant to the terms of the Offer. Series 2 Shares that are not purchased, including all Series 2 Shares tendered pursuant to auction tenders at prices above the Purchase Price, will be returned to shareholders.

The Offer and all deposits of Series 2 Shares are subject to the terms and conditions set forth in the offer to purchase, the accompanying issuer bid circular and the related letter of transmittal and notice of guaranteed delivery (all such documents, as amended or supplemented from time to time, collectively constitute and are herein referred to as, the “Offer Documents”). Further details of the Offer, including the terms and conditions thereof and instructions for tendering Series 2 Shares, are included in the Offer Documents. The Offer Documents will be mailed to shareholders, filed with the applicable Canadian securities regulatory authorities and made available without charge on SEDAR at www.sedar.com in accordance with applicable securities laws, as well as being posted on the Corporation’s website at www.dundeecorp.com, on the date of this news release.

As at July 21, 2020, the Corporation had 3,115,978 Series 2 Shares issued and outstanding. The Series 2 Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “DC.PR.B”. On July 21, 2020, the last full trading day prior to the day the terms of the Offer were publicly announced, the closing price of the Series 2 Shares on the TSX was C$16.26.

The Corporation expects to fund any purchases of Series 2 Shares under the Offer using the Corporation’s available cash on hand. All Series 2 Shares purchased by the Corporation under the Offer will be cancelled.

The Offer is not conditional upon any minimum number of Series 2 Shares being deposited. However, the Offer is subject to certain conditions that are customary for transactions of this nature.

…

DC.PR.B closed at 17.75 today, near the top of the range for the offer and up 9.16% on the day.

There was a very long thread of comments about Dundee and its preferreds on an unrelated thread in mid-May, 2020.

I find it fascinating that they are leaving the issue’s FloatingReset counterparts, DC.PR.D, out of the offer. The dividend on DC.PR.D is a little more than that of DC.PR.B at the moment ($0.35777 vs. $0.33025 as of June 4, according to their recent dividend announcement) although I confess I don’t quite see how that works, given that the five-year Canada yield was well above 1% at the end of August, 2019, when the reset rate was calculated. Regardless, I would have thought that the additional offerings they would get by taking the DC.PR.D on equal terms (or maybe at some discount) with DC.PR.B would lower the total price sufficiently to outweigh any such short-term concerns.

Update2020-7-24: Regarding the dividend rate on DC.PR.D … the quarterly period ending June 30 commenced on the last day of March, 2020, and the rate was calculated 30 days prior to this. The Bank of Canada reports a 3-Month T-Bill yield of 1.61% on February 26, and 1.14% on March 4, 2020, before dropping even further, so the dividend quoted for the Series 3, DC.PR.D, is not unreasonable. The next one will be a lot lower!

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. Now, DC.PR.B will reset at 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.