Category: Issue Comments

The Toronto-Dominion Bank has announced (on September 17):

that it does not intend to exercise its right to redeem all or any part of the currently outstanding 8 million Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 9 (Non-Viability Contingent Capital (NVCC)) (the “Series 9 Shares”) of TD on October 31, 2020. As a result and subject to certain conditions set out in the prospectus supplement dated April 17, 2015 relating to the issuance of the Series 9 Shares, the holders of the Series 9 Shares have the right to convert all or part of their Series 9 Shares, on a one-for-one basis, into Non-Cumulative Floating Rate Preferred Shares, Series 10 (NVCC) (the “Series 10 Shares”) of TD on November 2, 2020 (being the first business day following the conversion date of October 31, 2020, which falls on a Saturday). Holders who do not exercise their right to convert their Series 9 Shares into Series 10 Shares on such date will continue to hold their Series 9 Shares.

The foregoing conversion right is subject to the conditions that: (i) if TD determines that there would be less than 1,000,000 Series 10 Shares outstanding after taking into account all shares tendered for conversion on November 2, 2020, then holders of Series 9 Shares will not be entitled to convert their shares into Series 10 Shares, and (ii) alternatively, if TD determines that there would remain outstanding less than 1,000,000 Series 9 Shares after taking into account all shares tendered for conversion on November 2, 2020, then all remaining Series 9 Shares will automatically be converted into Series 10 Shares on a one-for-one basis on November 2, 2020. In either case, TD will give written notice to that effect to holders of Series 9 Shares no later than October 26, 2020 (being the first business day following the notice date of October 24, 2020, which falls on a Saturday).

The dividend rate applicable to the Series 9 Shares for the 5-year period from and including October 31, 2020 to but excluding October 31, 2025, and the dividend rate applicable to the Series 10 Shares for the 3-month period from and including October 31, 2020 to but excluding January 31, 2021, will be determined and announced by way of a press release on October 1, 2020.

Beneficial owners of Series 9 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from October 1, 2020 until 5:00 p.m. (Toronto time) on October 16, 2020.

Inquiries should be directed to TD’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (or in Toronto 416-682-3860).

TD.PF.E is a FixedReset, 3.70%+287, that commenced trading 2015-4-24 after being announced 2015-4-15. It is tracked by HIMIPref™ and is assigned to the FixedReset (Discount) subindex.

The Toronto-Dominion Bank has announced:

that it will exercise its right to redeem all of its 6,000,000 outstanding Non-cumulative Class A First Preferred Shares, Series 11 (Non-Viability Contingent Capital) (the “Series 11 Shares”) on October 31, 2020 at the price of $26.00 per Series 11 Share for an aggregate total of approximately $156 million.

On August 27, 2020, TD announced that dividends of $ 0.30625 per Series 11 Share had been declared. These will be the final dividends on the Series 11 Shares, and will be paid in the usual manner on October 31, 2020 to shareholders of record on October 9, 2020, as previously announced. After October 31, 2020, the Series 11 Shares will cease to be entitled to dividends and the only remaining rights of holders of such shares will be to receive payment of the redemption amount.

Beneficial holders who are not directly the registered holder of Series 11 Shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Inquiries should be directed to our Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (or in Toronto 416-682-3860).

TD.PF.F is a 4.90% NVCC-compliant Straight Perpetual that commenced trading 2015-7-21 after being announced 2015-7-9. It is currently assigned to the PerpetualPremium sub-index.

This is a noteworthy event for two reasons: firstly, this is the first time an NVCC-compliant issue has been redeemed and secondly because as of the close 2020-9-28 it was quoted at 25.19-28, meaning that holders have captured a large capital gain overnight, given that it is quoted 2020-9-29 at 26.23-26.

It is something of a puzzle as to why it has been redeemed, but a look at the TD Annual Report for 2019 provides a clue. This report discloses Risk-Weighted Assets of 456-billion and preferred share capital of 5.8-billion. It will be remembered that the total allowance for Alternative Tier 1 Capital is 1.5% of RWA, of which up to half may be the new LRCN structure.

This implies that the AT1 Limit for TD Bank is 6.84-billion; given that preferred share capital is already 5.8-billion, they only have room for 1-billion in LRCN issuance unless they redeem something. TD may well have decided that redeeming this $150-million preferred share issue, even at a premium, was worthwhile. Note, however that TD.PF.E, a FixedReset 3.70%+287, will be extended, so there are limits to TD’s desire to expand their LRCN issuance room!

Brompton Group has announced:

Brompton Split Banc Corp. (the “Company”) is pleased to announce it is undertaking an overnight treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively).

The sales period for this overnight offering will end at 9:00 a.m. (ET) on Tuesday, September 29, 2020. The offering is expected to close on or about October 6, 2020 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Class A Shares will be offered at a price of $9.10 per Class A Share for a distribution rate of 13.2% on the issue price, and the Preferred Shares will be offered at a price of $9.95 per Preferred Share for a yield to maturity of 5.3%. (1) The closing price on the TSX for each of the Class A and Preferred Shares on September 25, 2020 was $9.31 and $10.12, respectively. The Class A Share and Preferred Share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company (“Unit”) (calculated as at September 24, 2020), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

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.

The investment objectives for the Class A Shares are to provide holders with regular monthly cash distributions targeted to be at least $0.10 per Class A Share and to provide the opportunity for growth in the net asset value per Class A Share.

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.125 per Preferred Share, and to return the original issue price to holders of Preferred Shares on November 29, 2022.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank.

The NAVPU was 18.24 on 2020-9-24 and this offering is for Whole Units at 19.05, so the premium is 4.44% – not the biggest ever seen, but quite enough to be worth doing!

Update, 2020-9-30: They raised 23.6-million.

Partners Value Split Corp. has announced a new issue and as part of the announcement stated:

The net proceeds of the offering will be used to partially fund the redemption of the Company’s Class AA Preferred Shares, Series 6.

The Series 6 Preferreds that are going to be redeemed are PVS.PR.D, currently redeemable at 25.50, redeemable commencing 2020-10-8 at 25.25 and maturing 2021-10-8 at 25.00. It only pays 4.50%, so it’s a bit surprising that they’re going to call it at a premium – although that is not yet 100% certain. PVS.PR.D was originally issued as BNA.PR.F, which commenced trading 2014-7-4 after being announced 2014-6-16.

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce the Preferred Share dividend rate for the fiscal year beginning December 1, 2020. Monthly payments to the FFN.PR.A Preferred Share will be $0.05625 per Share for an annual yield of 6.75% on their $10 redemption value. This is an increase of one and a quarter percent over the current rate.

The Company invests in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal	National Bank of Canada	Bank of America Corp.
The Bank of Nova Scotia	Manulife Financial Corporation	Citigroup Inc.
Canadian Imperial Bank of Commerce	Sun Life Financial Services of Canada Inc.	Goldman Sachs Group Inc.
Royal Bank of Canada	Great-West Lifeco Inc.	JP Morgan Chase & Co.
The Toronto-Dominion Bank	CI Financial Corp.	Wells Fargo & Co.

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.