Category: Issue Comments

Standard & Poor’s has announced:

• Halifax, Nova Scotia-based utility holding company Emera Inc. has closed on the sale of its Emera Maine subsidiary to ENMAX Corp.
• Although we expect the sale to improve Emera Inc.’s consolidated financial measures in the near term, the transaction does not fully mitigate other factors that weigh on the company’s credit quality, including our expectation that the company’s funds from operation (FFO) to debt will be consistently above 12%.
• As a result, we no longer expect Emera to maintain its financial measures at the upper end of its financial risk category, removing support for our use of a positive comparable ratings analysis modifier.
• Therefore, we are lowering our issuer credit rating on Emera to ‘BBB’ from ‘BBB+’. The outlook is stable.
• At the same time, we are lowering the senior unsecured debt rating to ‘BBB-‘ from ‘BBB’, subordinated notes rating to ‘BB+’ from ‘BBB-‘, and preferred shares rating to ‘BB+’ from ‘BBB-‘ on the global scale and to ‘P-3 (High)’ from ‘P-2 (Low)’ on the Canada National Scale ratings.
• We are also downgrading intermediate holding company TECO Energy Inc. (TECO) and financing company TECO Finance Inc. to ‘BBB’ from ‘BBB+’.
• We also reviewed our ratings on operating subsidiaries Nova Scotia Power Inc. (NSPI) and Tampa Electric Co. (TEC) and conclude that the cumulative value of the structural protections in place between these two operating companies and parent Emera are sufficient to insulate our issuer credit rating on both entities for up to one notch from the group credit profile of parent Emera.
• As such, we are affirming our ratings on NSPI and TEC, including the ‘BBB+’ issuer credit ratings.
• For NSPI, we are affirming the A-1 (Low) Canadian National Scale Commercial Paper Ratings.
• For TEC, are affirming the ‘A-2’ short-term ratings.
• The stable outlook on all these entities largely reflects our expectation that Emera will maintain its financial measures, including FFO to debt at about 11% over the next two years.

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We could downgrade Emera over the next 12-24 months if the company’s financial measures deteriorates with FFO to debt of below 10% with no prospect for improvement. This could happen if there are material adverse regulatory outcomes, a material delay in the completion of capital projects, or if the COVID-19 pandemic persists and has a material long-term impact on the company’s financial measures.

We could raise ratings on Emera if its financial measures improve with FFO to debt approaching 13% on a sustained basis, indicative of the higher end of the financial risk profile category.

Affected issues are EMA.PR.A, EMA.PR.B, EMA.PR.C, EMA.PR.E, EMA.PR.F and EMA.PR.H.

Brompton Life & Banc Split Corp. has released its Semi-Annual Report to June 30, 2019.

Figures of interest are:

MER: “The MER per unit, excluding Preferred share distributions (which were covered by the portfolio’s dividend income and issue costs), was 0.92% for the first six months of 2019, compared to 0.91% for 2018.”

Average Net Assets: We need this to calculate portfolio yield. There was issuance of units on April 4, 2019, so our first estimate is calculated as [412.0-million (NAV at beginning of period) + 470.4-million (NAV at end of period)] / 2 = 441.2-million. The second estimate is based on total preferred share dividends of 7.246-million divided by 0.2725/share, implies 26.590-million units outstanding, with an initial NAVPU of 15.91 and a final NAVPU of 17.23, average 16.57, implies average assets of 440.6-million, which is surprisingly good agreement! Call it average Net Assets of $440.9-million.

Underlying Portfolio Yield: (9.886-million dividends + negligible securities income) times two because it’s only half a year divided by average net assets of 440.9-million is 4.48%

Income Coverage: Net Investment Income (excluding capital gains and issuance costs; and after expenses) of 7.766-million divided by Preferred Share Distributions of 7.246-million is 107%.

Brompton Split Banc Corp. has released its Semi-Annual Report to June 30, 2019.

Figures of interest are:

MER: “The MER per unit, excluding Preferred share distributions, agents’ fees and issuance costs, was 1.02% for the first six months of 2019, compared to 0.98% in 2018.”

Average Net Assets: We need this to calculate portfolio yield. There was issuance of units in early 2019, so our first estimate is calculated as [162.0-million (NAV at beginning of period) + 192.1-million (NAV at end of period)] / 2 = 177.0-million. The second estimate is based on total preferred share dividends of 2.177-million divided by 0.25/share, implies 8.708-million units outstanding, with an initial NAVPU of 20.66 and a final NAVPU of 22.06, average 21.36, implies average assets of 186.0-million, which is surprisingly good agreement! Call it average Net Assets of $182-million.

Underlying Portfolio Yield: (3.689-million dividends + negligible securities income) times two because it’s only half a year divided by average net assets of 182-million is 4.05%

Income Coverage: Net Investment Income (excluding capital gains and issuance costs; and after expenses) of 2.798-million divided by Preferred Share Distributions of 2.177-million is 129%.

Husky Energy has announced:

that 40,800 Cumulative Redeemable Preferred Shares, Series 5 (Series 5 Shares) were tendered for conversion, which is less than the one million shares required to give effect to conversions into Cumulative Redeemable Preferred Shares, Series 6 (Series 6 Shares). As a result, none of the Series 5 Shares will be converted into Series 6 Shares on March 31, 2020.

HSE.PR.E is a FixedReset, 4.50%+357, that commenced trading 2015-3-12 after being announced 2015-3-4. It will reset at 4.591% effective 2020-3-31. I made a preliminary recommendation not to convert. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset (Discount) subindex.

Brookfield Asset Management Inc. has announced:

that after having taken into account all election notices received by the March 16, 2020 deadline for the conversion of its Cumulative Class A Preference Shares, Series 38 (the “Series 38 Shares”) (TSX: BAM.PF.E) into Cumulative Class A Preference Shares, Series 39 (the “Series 39 Shares”), there were 33,415 Series 38 Shares tendered for conversion, which is less than the one million shares required to give effect to conversions into Series 39 Shares. Accordingly, there will be no conversion of Series 38 Shares into Series 39 Shares, and holders of Series 38 Shares will retain their Series 38 Shares.

BAM.PF.E is a FixedReset, 4.40%+255, that commenced trading 2014-3-13 after being announced 2014-3-6. It will reset to 3.568% effective 2020-4-1. I made a preliminatry recommendation not to convert. The issue is tracked by HIMIPref™ and is assigned to the FixedReset (Discount) subindex.

The Bank of Nova Scotia has announced:

its intention to redeem all outstanding Non-cumulative 5-Year Rate Reset Preferred Shares Series 30 (“Series 30 Shares”) and Non-cumulative Floating Rate Preferred Shares Series 31 (“Series 31 Shares”) of Scotiabank on April 26, 2020 at a price equal to $25.00 per share (the “Redemption Price”), together with all declared and unpaid dividends to the date fixed for redemption. Formal notice will be issued to the shareholders in accordance with the share conditions.

The redemption has been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank. This redemption is part of the Bank’s ongoing management of its Tier 1 capital.

On February 25, 2020, the Board of Directors of Scotiabank declared quarterly dividends of $0.113750 per Series 30 Share and $0.166480 per Series 31 Share. These will be the final dividends on the Series 30 Shares and Series 31 Shares, respectively, and will be paid on the date of redemption, April 26, 2020, to shareholders of record at the close of business on April 7, 2020, as previously announced. After April 26, 2020, the Series 30 Shares and the Series 31 Shares will cease to be entitled to dividends.

BNS.PR.Y was issued as a FixedReset, 3.85%+100, NVCC non-compliant, that commenced trading 2010-4-12 after being announced 2010-3-25. Extension was announced in March, 2015 and the issue issue reset to 1.82% effective 2015-4-26. I recommended against conversion, but 42% converted to the FloatingReset, BNS.PR.D.

BNS.PR.D is a FloatingReset, 3-Month Bills + 100, NVCC non-compliant, that resulted from a 42% conversion from BNS.PR.Y.

It will be noted that there has been (relatively!) heavy trading in these issues lately, with about 40,000 shares of BNS.PR.Y trading this week with a VWAP of under $24.00, together with about 55,000 shares of BNS.PR.D trading with a VWAP of under 23.00.

I’ll bet a nickel that Scotia made this announcement a few days in advance of original intentions, just to put an end to this nonsense.

On March 16 GMP Capital announced:

In light of the ongoing COVID-19 outbreak and recent market volatility, the Company, RFGL and the two elected investment advisor representatives on the board of Richardson GMP no longer expect that the definitive agreement concerning the Potential RGMP Transaction will be entered into in the time period initially anticipated and, therefore, the special meeting of common shareholders called for April 21, 2020 has been postponed. The parties are continuing to work toward entering into a definitive agreement and remain hopeful that they will do so in the future.

And now DBRS announced that:

DBRS Limited (DBRS Morningstar) maintained its 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 initially put GMP’s rating Under Review with Developing Implications on June 18, 2019, following the Company’s announcement that it had agreed to sell substantially all of its capital markets business to Stifel Financial Corp. DBRS Morningstar first maintained its Under Review status on September 18, 2019, as the sale transaction had yet to close, then again on December 17, 2019, as the Company was still in discussions with Richardson Financial Group Limited (RFGL) to consolidate full ownership of Richardson GMP Limited (Richardson GMP).
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KEY RATING CONSIDERATIONS
The continued Under Review period considers that the consolidation of GMP with Richardson GMP has yet to be finalized. 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.

GMP was downgraded to Pfd-4(high) by DBRS in 2016. It was put on Review-Developing in June, 2019 and the review was extended in September, 2019 and again in December, 2019.

Aimia Inc. has announced:

that all of its 2,161,865 Cumulative Floating Rate Preferred Shares, Series 2 (the “Series 2 Preferred Shares”) will be converted into Cumulative Rate Reset Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) on March 31, 2020. During the conversion notice period, which commenced on March 2, 2020 and ended at 5:00 p.m. (Montreal time) on March 16, 2020, 1,774,254 Series 2 Preferred Shares were tendered for conversion into Series 1 Preferred Shares. In accordance with the rights, privileges, restrictions and conditions attaching to the Series 2 Preferred Shares and the Series 1 Preferred Shares, since there would be fewer than 1,000,000 Series 2 Preferred Shares outstanding on March 31, 2020, after having taken into account all Series 2 Preferred Shares tendered for conversion into Series 1 Preferred Shares, all Series 2 Preferred Shares will be automatically converted into Series 1 Preferred Shares on March 31, 2020.

In addition, despite the fact that, during the conversion notice period, 17,370 Series 1 Preferred Shares were tendered for conversion into Series 2 Preferred Shares, since there would be fewer than 1,000,000 Series 2 Preferred Shares outstanding on March 31, 2020, after having taken into account all Series 1 Preferred Shares tendered for conversion into Series 2 Preferred Shares, holders of Series 1 Preferred Shares who elected to tender their shares for conversion will not have their Series 1 Preferred Shares converted into Series 2 Preferred Shares on March 31, 2020 in accordance with the rights, privileges, restrictions and conditions attaching to the Series 1 Preferred Shares and the Series 2 Preferred Shares. As a result, no Series 2 Preferred Shares will be issued on March 31, 2020, all 2,161,865 Series 2 Preferred Shares will be automatically converted into Series 1 Preferred Shares on March 31, 2020 and no Series 2 Preferred Shares will remain issued and outstanding after March 31, 2020. As a result of the foregoing, after March 31, 2020, there will be 5,083,140 issued and outstanding Series 1 Preferred Shares, all of which will be listed on the Toronto Stock Exchange.

AIM.PR.A is a FixedReset, 4.50%+375, assigned to the Scraps-FixedReset (Discount) subindex. It commenced trading as AER.PR.A with an initial dividend rate of 6.50% on 2010-1-20 after being announced 2010-1-12. AIM.PR.A changed its ticker from AER.PR.A in October, 2011. The first extension was reported on PrefBlog and the reset to 4.50% was announced 2015-3-2. I recommended against conversion. There was a 43% conversion to the FloatingReset, AIM.PR.B in 2015. The 2020 extension was announced 2020-2-25. AIM.PR.A will reset to 4.802% effective 2020-3-31; at that time I opined that a decision on whether to convert or hold should be made according to each investor’s circumstances.

AIM.PR.B commenced trading 2015-3-31 as the result of the 43% conversion from AIM.PR.A noted above. I opined that a decision on whether to convert or hold should be made according to each investor’s circumstances. AIM.PR.B will cease to exist on 2020-3-31.

DBRS has announced that it:

downgraded the rating of the Preferred Shares issued by Brompton Oil Split Corp. (the Company) to Pfd-5 (low) from Pfd-5. As of March 5, 2020, the downside protection available to Preferred Shareholders was –18.3%. It has been gradually decreasing since the last review in December 2019 because of the depressed price of energy stocks as the oil market continues to suffer from lower demand and oversupply. Recent geopolitical developments, including negative impacts from the accelerated global spread of Coronavirus (COVID-19), have added further stress to stock prices.

On February 4, 2020, the Company announced a new term extension of three years on the Preferred Shares with the new maturity date of March 30, 2023. The distribution rate on the Preferred Shares increased to 6.5% per annum paid on the original price of $10.00. The targeted distributions to the Capital Shares remained unchanged at $1.20 per Capital Share per year, subject to a net asset value (NAV) test of 1.5 times (x). Because the NAV test is currently not being met, the Capital Share distributions have been suspended. The dividend coverage was 0x as the Portfolio is currently generating just enough income to cover expenses. Based on the value of the Company’s portfolio value as of March 5, 2020, the anticipated average grind is 8.62% per annum over the next three years.

On March 2, 2020, the Company announced that approximately 2.4 million Preferred Shares were tendered for a special retraction at the end of the current term (March 31, 2020). This amount will constitute approximately 75% of the currently outstanding Preferred Shares if they are not withdrawn from the retraction.

Considering the limited time remaining until maturity and the insufficient amount of downside protection, there is an increased likelihood that the original principal invested by Preferred Shareholders will not be fully repaid during the upcoming special retraction. As a result, DBRS Morningstar downgraded its rating of the Preferred Shares issued by the Company to Pfd-5 (low).

The Company invests in common shares of at least 15 large capitalization North American oil and gas issuers selected from the S&P 500 Index and the S&P/TSX Composite Index. The Company may also invest up to 25% of the Portfolio value in the common shares of issuers listed on the S&P 500 Index or the S&P/TSX Composite Index that satisfy its investment criteria (i.e., issuers that operate in energy subsectors including equipment, services, pipelines, transportation, and infrastructure). The Portfolio is approximately equally weighted, actively managed, and rebalanced at least semi-annually. A portion of the Portfolio’s investments are denominated in U.S. dollars; however, substantially all of this exposure is hedged back to Canadian dollars. The Company has the ability to write covered call options or engage in securities lending to generate additional income.

Extension details were announced in January following the March, 2019, notice of extension. In the former post, I strongly recommended retraction of the preferreds. As of 2020-2-28, the fund had only $8.38 in assets for every $10.00 of preferred share obligations. The company suffered a 75% retraction of its preferreds.

I reiterate my recommendation that preferred shares be retracted by their holders; as the notification deadline has passed, those who did not retract cannot follow this advice, but I want to emphasize that shares that have been tendered for retraction should not be “withdrawn from the retraction.” Those who hope that the underlying portfolio will recover and thereby return their par value of $10 are better advised to invest directly in a similar portfolio to that held by the company. The downside risk will be the same; but in the event of a strong recovery, those who hold the preferreds will be handing over their excess profits (if any, that exceed the $10 par value) to the Capital Unitholders.

Manulife Financial Corporation has announced (although not yet on their website):

that after having taken into account all election notices received by the March 4, 2020 deadline for conversion of its currently outstanding 10,000,000 Non-cumulative Rate Reset Class 1 Shares Series 19 (the “Series 19 Preferred Shares”) (TSX: MFC.PR.N) into Non-cumulative Floating Rate Class 1 Shares Series 20 of Manulife (the “Series 20 Preferred Shares”), the holders of Series 19 Preferred Shares are not entitled to convert their Series 19 Preferred Shares into Series 20 Preferred Shares. There were 110,669 Series 19 Preferred Shares elected for conversion, which is less than the minimum one million shares required to give effect to conversions into Series 20 Preferred Shares.

As announced by Manulife on February 19, 2020, after March 19, 2020, holders of Series 19 Preferred Shares 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 Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on March 20, 2020, and ending on March 19, 2025, will be 3.675% per annum or $0.229688 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at February 19, 2020, plus 2.30%, as determined in accordance with the terms of the Series 19 Preferred Shares.

Subject to certain conditions described in the prospectus supplement dated November 26, 2014 relating to the issuance of the Series 19 Preferred Shares, Manulife may redeem the Series 19 Preferred Shares, in whole or in part, on March 19, 2025 and on December 19 every five years thereafter.

MFC.PR.N is a FixedReset, 3.80%+230, that commenced trading 2014-12-3 after being announced 2014-11-26. The company provided notice of extension 2020-2-3. The issue will reset at 3.675% effective 2020-3-20. It is tracked by HIMIPref™ and is assigned to the FixedReset – Insurance non-NVCC subindex.

It is interesting to note that the recent declines in GOC-5 yields has actually resulted in an increase in the yield-spread between the notional non-callable MFC FixedReset and GOC-5 according to Implied Volatility Analysis:

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