Category: Issue Comments

Enbridge Inc. has announced (on May 19):

that none of its outstanding Cumulative Redeemable Preference Shares, Series 13 (Series 13 Shares) will be converted into Cumulative Redeemable Preference Shares, Series 14 of Enbridge (Series 14 Shares) on June 1, 2020.

After taking into account all conversion notices received from holders of its outstanding Series 13 Shares by the May 19, 2020 deadline for the conversion of the Series 13 Shares into Series 14 Shares, less than the 1,000,000 Series 13 Shares required to give effect to conversions into Series 14 Shares were tendered for conversion.

ENB.PF.E is a FixedReset, 4.40%+266, that commenced trading 2014-7-17 after being announced 2014-7-8. The issue reset to 3.043% effective 2020-6-1. It is tracked by HIMIPref™ and has been assigned to the Scraps – FixedReset (Discount) subindex on credit concerns.

DBRS has announced that it:

placed the Preferred Shares issued by Dividend 15 Split Corp. II (the Company) Under Review with Negative Implications. The Company invests in a portfolio of securities (the Portfolio) funded by issuing two classes of shares: dividend-yielding Preferred Shares and capital shares (the Capital Shares). In such structure, the Preferred Shares normally benefit from the downside protection provided by the net asset value (NAV) of the Capital Shares. Following the stock market sell-off in response to the worldwide spread of the Coronavirus Disease (COVID-19) and various geopolitical news, the Preferred Shares experienced substantial declines in their downside protection. As a result, DBRS Morningstar has placed the Preferred Shares Under Review with Negative Implications. DBRS Morningstar will take further rating action on the Preferred Shares once a longer-term trend has been established for the NAV of the Company.

This rating action was based on factors that included additional analysis and, where appropriate, additional assumptions were applied to expected performance as a result of the global efforts to contain the spread of the coronavirus. On April 16, 2020, the DBRS Morningstar Sovereigns group published its outlook on the impact on key economic indicators for the 2020–22 time frame. For details see https://www.dbrsmorningstar.com/research/359679. For the current rating action, DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced commentary.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The NAVPU was 11.67 as of May 15, so it’s no real surprise!

DBRS has announced (on May 15):

DBRS Limited (DBRS Morningstar) discontinued and withdrew its rating on the Preferred Shares issued by Brompton Oil Split Corp. following the downgrade of the Preferred Shares rating to D on April 9, 2020.

About 70% of the fund disappeared following the preferred shareholders exercise of their special retraction rights. There was widespread confusion over the calculated redemption price on this retraction, but it’s because they have two ways of determining security value for NAV calculation purposes, depending on the purpose of the calculation:

the value of any security, that is listed or traded upon a stock exchange (or if more than one, on the principal stock exchange for the security, as determined by the Manager) shall be determined by taking the latest available sale price of recent date, or lacking any recent sales or any record thereof, the simple average of the latest available offer price and the latest available bid price (unless in the opinion of the Manager such value does not reflect the value thereof and in which case the latest offer price or bid price shall be used), as at the NAV Valuation Date on which the NAV of the Company is being determined, all as reported by any means in common use. For a retraction or redemption of the Company’s shares, the value of the common shares will be equal to the weighted average trading price of such shares over the last three business days of the relevant month;

At one point, long ago, I discussed “gating” of mutual fund redemptions in times of serious illiquidity and suggested that the approaches being discussed were wrong; it wasn’t enough to delay the redemption, I argued, one also had to take an average of the daily prices over the delay period to calculate the final redemption price, because a simple delay simply moved the problem from “You are assumed to be selling all your securities at this particular price” to “You are assumed to be selling all your securities at that particular price.” For gating to be fair and effective, you have to calculate the price in a manner similar to that in which you expect the manager to accomplish the liquidation.

Unfortunately, I can’t find the posts where I discussed this. It has me very upset.

Brompton Group announced (on May 19):

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 Wednesday, May 20, 2020. The offering is expected to close on or about May 27, 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 $8.00 per Class A Share for a distribution rate of 15% on the issue price, and the Preferred Shares will be offered at a price of $9.60 per Preferred Share for a yield to maturity of 7.1%.(1) The closing price on the TSX for each of the Class A and Preferred Shares on May 15, 2020 was $7.72 and $9.59, 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 (calculated as at May 15, 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.

They later announced (on May 20):

Brompton Split Banc Corp. (the “Company”) is pleased to announce a successful overnight treasury offering of class A shares and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively). Gross proceeds of the offering are expected to be approximately $22.9 million. The offering is expected to close on or about May 27, 2020 and is subject to certain closing conditions. 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 up to an additional 15% of the number of Class A Shares and Preferred Shares issued at the closing of the offering.

The Class A Shares were offered at a price of $8.00 per Class A Share for a distribution rate of 15.0% on the issue price, and the Preferred Shares were offered at a price of $9.60 per Preferred Share for a yield to maturity of 7.1%.(1) 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 (calculated as at May 15, 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 syndicate of agents for the offering was led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and includes BMO Capital Markets, TD Securities Inc., Canaccord Genuity Corp., Stifel Nicolaus Canada Inc., Raymond James Ltd., Echelon Wealth Partners Inc., Hampton Securities Limited, Industrial Alliance Securities Inc., Desjardins Securities Inc., and Mackie Research Capital Corporation.

The NAVPU on May 20 was 16.49, indicated a premium on this offering of 6.7% … not a bad business, when it works!

Royal Bank of Canada has announced:

that during the conversion notice period, which ran from April 24, 2020 to May 11, 2020, 325,968 Non-Viability Contingent Capital (NVCC) Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series BD (the “Series BD shares”) were tendered for conversion, on a one-for-one basis, into NVCC Non-Cumulative Floating Rate First Preferred Shares, Series BE (the “Series BE shares”). As per the conditions set out in the prospectus supplement dated January 27, 2015, since less than 1,000,000 Series BE shares would be outstanding after May 24, 2020, holders of Series BD shares will not be entitled to convert their shares into Series BE shares. As a result, Series BE shares will not be issued at this time and holders of Series BD shares will retain their shares.

On May 24, 2020, Royal Bank of Canada will have 24,000,000 Series BD shares issued and outstanding. The Series BD shares are currently listed on the Toronto Stock Exchange under the symbol RY.PR.J.

RY.PR.J is a FixedReset, 3.60%+274, NVCC-compliant, that commenced trading 2015-1-30 after being announced 2015-1-26. It will reset to 3.20% effective 2020-5-24. The issue is tracked by HIMIPref™ and is assigned to the FixedReset (Discount) subindex.

Dividend 15 Split Corp. has released its Annual Report to November 30, 2019.

Figures of interest are:

MER: “A separate base management expense ratio has been presented to reflect the normal operating expenses of the Company excluding any one time offering expenses. Management expense ratio is based on total expenses for the stated year and is expressed as an annualized percentage of average net asset value during the year.” The figure reported for 2019 is 1.14%

Average Net Assets: The fund increased in size (measure by Whole Units outstanding) by about 20% in 2019; Net Asset Values at the end and beginning of the year were $968.3-million and $778.2-million, for an average of 873.2-million. Preferred share distributions for the year were 25,917,422; at 0.525 per preferred share, this implies an average of 49.367-million units outstanding; the average NAVPU was (18.01 + 17.31)/2 = 17.66; so this calculation implies average net assets of 871.8-million. There’s pretty close agreement between the two methods; call it Average Net Assets of 872.5-million.

Underlying Portfolio Yield: Dividends received of 33.088-million + interest of 0.696-million is 33.784-million divided by average net assets of 872.5-million is 3.87%

Income Coverage: Net Investment Income of 23.555-million divided by Preferred Share Distributions of 25.917-million is 91%.

Enbridge Inc. has announced (on May 4):

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series 13 (Series 13 Shares) (TSX: ENB.PF.E) on June 1, 2020. As a result, subject to certain conditions, the holders of the Series 13 Shares have the right to convert all or part of their Series 13 Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series 14 of Enbridge (Series 14 Shares) on June 1, 2020. Holders who do not exercise their right to convert their Series 13 Shares into Series 14 Shares will retain their Series 13 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 13 Shares outstanding after June 1, 2020, then all remaining Series 13 Shares will automatically be converted into Series 14 Shares on a one-for-one basis on June 1, 2020; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series 14 Shares outstanding after June 1, 2020, no Series 13 Shares will be converted into Series 14 Shares. There are currently 14,000,000 Series 13 Shares outstanding.

With respect to any Series 13 Shares that remain outstanding after June 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 13 Shares for the five-year period commencing on June 1, 2020 to, but excluding, June 1, 2025 will be 3.043 percent, being equal to the five-year Government of Canada bond yield of 0.383 percent determined as of today plus 2.66 percent in accordance with the terms of the Series 13 Shares.

With respect to any Series 14 Shares that may be issued on June 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 14 Shares for the three-month floating rate period commencing on June 1, 2020 to, but excluding, September 1, 2020 will be 0.73650 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 0.27 percent plus 2.66 percent in accordance with the terms of the Series 14 Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series 13 Shares who wish to exercise their right of conversion during the conversion period, which runs from May 1, 2020 until 5:00 p.m. (EST) on May 19, 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.PR.E is a FixedReset, 4.40%+266, that commenced trading 2014-7-17 after being announced 2014-7-8. It is tracked by HIMIPref™ and has been assigned to the Scraps – FixedReset (Discount) subindex on credit concerns.

DBRS has announced that it:

changed the trend for all ratings of Fortis Inc. (Fortis) to Positive from Stable and confirmed the ratings as listed below. The Positive trends reflect (1) a significant reduction of nonconsolidated corporate debt following the sale of a 51% interest in the Waneta Hydroelectric Expansion (the Waneta Expansion) and the $1.2 billion common equity issuance in December 2019, (2) solid consolidated credit metrics in 2019 and expected solid consolidated metrics in the near-to-medium term, and (3) a continued strong business risk profile at regulated utilities. The current ratings take into account Fortis’ structural subordination and mitigation factors such as the diversification of regulatory jurisdictions and the size, stability, and sustainability of cash flow.

The confirmations incorporate DBRS Morningstar’s expectation that the ongoing Coronavirus Disease (COVID-19) pandemic will not have a material impact on Fortis’ operations and its major capital projects, as well as its 2020 credit metrics. Most of Fortis’ assets are essential services and are extremely important to maintain the continual economic activities and social and health safety. The coronavirus pandemic is not expected to significantly affected Fortis’ volume distributions as most of Fortis’ regulated utilities either benefit from deferral accounts or decoupling, which significantly reduces the impact of volume volatility. Capital project executions are not expected to experience significant delays at this time but they could face some delays if the coronavirus-related restrictions continue for a longer period of time, and in that case, capital expenditure (capex) is expected to shift to subsequent years of the 2020–24 capex plan. DBRS Morningstar expects any potential cost overruns can be recovered through regulatory applications because the costs are beyond management’s control and expectation.
…
DBRS Morningstar would upgrade Fortis to A (low) if (1) it can maintain its current business risk profile through this challenging period and the macro environment stabilizes; and (2) Fortis can keep its consolidated metrics stable around the current levels, as well as sustain its nonconsolidated debt-to-capital and cash flow-to-nonconsolidated debt ratios in the low-20% range and at least 12.5%, respectively.

Affected issues are FTS.PR.F, FTS.PR.G, FTS.PR.H, FTS.PR.I, FTS.PR.J, FTS.PR.K and FTS.PR.M.

DBRS has announced that it:

confirmed the ratings of National Bank of Canada (National or the Bank) and its related entities, including the Bank’s Long-Term Issuer Rating at AA (low) and Short-Term Issuer Rating at R-1 (middle). DBRS Morningstar also changed the trend on all ratings to Stable from Positive. National’s Long-Term Issuer Rating is composed of an Intrinsic Assessment of A (high) and a Support Assessment of SA2, reflecting the expectation of timely systemic support from the Government of Canada (rated AAA with a Stable trend by DBRS Morningstar). The SA2 designation results in a one-notch uplift to the Long-Term Issuer Rating. Once the Bank has issued a sufficient level of Bail-inable Senior Debt to provide for an adequate buffer for other obligations under the Canadian Bank Recapitalization Regime, DBRS Morningstar expects to remove the uplift from systemic support.

KEY RATING CONSIDERATIONS
The change in trend to Stable from Positive reflects DBRS Morningstar’s concern regarding the negative impact of the Coronavirus Disease (COVID-19) pandemic on the Bank’s revenue, earnings, and asset quality, reflecting the wide and growing scale of the economic disruption it has caused. Nevertheless, there has been unprecedented support measures put in place by governments and regulators around the globe, which will mitigate some of the negative impacts of this crisis. Additionally, National is entering this downturn from a position of strength with a strong balance sheet.
…
Capitalization is strong as National continues to organically generate sufficient capital to support its balance sheet growth and enable the Bank to support its customers during this period. As at January 31, 2020, National’s Common Equity Tier 1 ratio stood at 11.7%, well above the Office of the Superintendent of Financial Institutions’ (OSFI) minimum requirements and at the top range of large Canadian bank peers. On March 13, 2020, OSFI lowered the Domestic Stability Buffer (DSB) requirement for Domestic Systemically Important Banks (D-SIBs) to 1.0%, which effectively reduces the CET1 regulatory minimum to 9.0%. As the DSB was intended, OSFI is providing the D-SIBs with more flexibility to extend loans to their customers during the coronavirus pandemic. Simultaneously, OSFI announced that it expects all D-SIBs to halt any new dividend increases and common share buyback activity.

Affected issues are: NA.PR.A, NA.PR.C, NA.PR.E, NA.PR.G, NA.PR.S, NA.PR.W and NA.PR.X.