Category: Issue Comments

Pembina Pipeline Corporation has announced (on November 15):

that none of Pembina’s Cumulative Redeemable Rate Reset Class A Preferred Shares, Series 7 (“Series 7 Shares”) (TSX: PPL.PR.G) will be converted into Cumulative Redeemable Floating Rate Class A Preferred Shares, Series 8 of Pembina (“Series 8 Shares”) on December 2, 2019.

After taking into account all conversion notices received from holders of its outstanding Series 7 Shares by the November 15, 2019 deadline for the conversion of the Series 7 Shares into Series 8 Shares, less than the 1,000,000 Series 7 Shares required to give effect to conversions into Series 8 Shares were tendered for conversion.

PPL.PR.G is a FixedReset, 4.50%+294, that commenced trading 2014-9-11 after being announced 2014-9-2. The issue resets to 4.380% effective 2019-12-1. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Manulife Financial Corporation has announced (on November 8):

that it does not intend to exercise its right to redeem all or any of its currently outstanding 14,000,000 Non-cumulative Rate Reset Class 1 Shares Series 17 (the “Series 17 Preferred Shares”) (TSX: MFC.PR.M) on December 19, 2019. As a result, subject to certain conditions described in the prospectus supplement dated August 11, 2014 relating to the issuance of the Series 17 Preferred Shares (the “Prospectus”), the holders of the Series 17 Preferred Shares have the right, at their option, to convert all or part of their Series 17 Preferred Shares on a one-for-one basis into Non-cumulative Floating Rate Class 1 Shares Series 18 of Manulife (the “Series 18 Preferred Shares”) on December 19, 2019. A formal notice of the right to convert Series 17 Preferred Shares into Series 18 Preferred Shares will be sent to the registered holders of the Series 17 Preferred Shares in accordance with the share conditions of the Series 17 Preferred Shares. Holders of Series 17 Preferred Shares are not required to elect to convert all or any part of their Series 17 Preferred Shares into Series 18 Preferred Shares. Holders who do not exercise their right to convert their Series 17 Preferred Shares into Series 18 Preferred Shares on such date will retain their Series 17 Preferred Shares, unless automatically converted in accordance with the conditions below.

The foregoing conversion right is subject to the conditions that: (i) if, after December 4, 2019, Manulife determines that there would be less than 1,000,000 Series 17 Preferred Shares outstanding on December 19, 2019, then all remaining Series 17 Preferred Shares will automatically be converted into an equal number of Series 18 Preferred Shares on December 19, 2019, and (ii) alternatively, if, after December 4, 2019, Manulife determines that there would be less than 1,000,000 Series 18 Preferred Shares outstanding on December 19, 2019, then no Series 17 Preferred Shares will be converted into Series 18 Preferred Shares. In either case, Manulife will give written notice to that effect to any registered holders of Series 17 Preferred Shares affected by the preceding minimums on or before December 11, 2019.

The dividend rate applicable to the Series 17 Preferred Shares for the 5-year period commencing on December 20, 2019, and ending on December 19, 2024, and the dividend rate applicable to the Series 18 Preferred Shares for the 3-month period commencing on December 20, 2019, and ending on March 19, 2020, will be determined and announced by way of a news release on November 20, 2019. Manulife will also give written notice of these dividend rates to the registered holders of Series 17 Preferred Shares.

Beneficial owners of Series 17 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on December 4, 2019. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-783-9495.

Subject to certain conditions described in the Prospectus, Manulife may redeem the Series 17 Preferred Shares, in whole or in part, on December 19, 2024 and on December 19 every five years thereafter and may redeem the Series 18 Preferred Shares, in whole or in part, after December 19, 2019.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 18 Preferred Shares effective upon conversion. Listing of the Series 18 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 18 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.M is a FixedReset, 3.90%+236, that commenced trading 2014-8-15 after being announced 2014-8-11. It is tracked by HIMIPref™ and has been assigned to the FixedReset (Insurance non-NVCC) subindex, but will move shortly to the FixedReset (Discount) subindex as the imposition of NVCC rules for insurers can no longer be considered probable.

I will have more to say one the reset rate has been determined November 20.

Manulife Financial Corporation has announced (on November 8):

that it does not intend to exercise its right to redeem all or any of its currently outstanding 14,000,000 Non-cumulative Rate Reset Class 1 Shares Series 17 (the “Series 17 Preferred Shares”) (TSX: MFC.PR.M) on December 19, 2019. As a result, subject to certain conditions described in the prospectus supplement dated August 11, 2014 relating to the issuance of the Series 17 Preferred Shares (the “Prospectus”), the holders of the Series 17 Preferred Shares have the right, at their option, to convert all or part of their Series 17 Preferred Shares on a one-for-one basis into Non-cumulative Floating Rate Class 1 Shares Series 18 of Manulife (the “Series 18 Preferred Shares”) on December 19, 2019. A formal notice of the right to convert Series 17 Preferred Shares into Series 18 Preferred Shares will be sent to the registered holders of the Series 17 Preferred Shares in accordance with the share conditions of the Series 17 Preferred Shares. Holders of Series 17 Preferred Shares are not required to elect to convert all or any part of their Series 17 Preferred Shares into Series 18 Preferred Shares. Holders who do not exercise their right to convert their Series 17 Preferred Shares into Series 18 Preferred Shares on such date will retain their Series 17 Preferred Shares, unless automatically converted in accordance with the conditions below.

The foregoing conversion right is subject to the conditions that: (i) if, after December 4, 2019, Manulife determines that there would be less than 1,000,000 Series 17 Preferred Shares outstanding on December 19, 2019, then all remaining Series 17 Preferred Shares will automatically be converted into an equal number of Series 18 Preferred Shares on December 19, 2019, and (ii) alternatively, if, after December 4, 2019, Manulife determines that there would be less than 1,000,000 Series 18 Preferred Shares outstanding on December 19, 2019, then no Series 17 Preferred Shares will be converted into Series 18 Preferred Shares. In either case, Manulife will give written notice to that effect to any registered holders of Series 17 Preferred Shares affected by the preceding minimums on or before December 11, 2019.

The dividend rate applicable to the Series 17 Preferred Shares for the 5-year period commencing on December 20, 2019, and ending on December 19, 2024, and the dividend rate applicable to the Series 18 Preferred Shares for the 3-month period commencing on December 20, 2019, and ending on March 19, 2020, will be determined and announced by way of a news release on November 20, 2019. Manulife will also give written notice of these dividend rates to the registered holders of Series 17 Preferred Shares.

Beneficial owners of Series 17 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on December 4, 2019. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-783-9495.

Subject to certain conditions described in the Prospectus, Manulife may redeem the Series 17 Preferred Shares, in whole or in part, on December 19, 2024 and on December 19 every five years thereafter and may redeem the Series 18 Preferred Shares, in whole or in part, after December 19, 2019.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 18 Preferred Shares effective upon conversion. Listing of the Series 18 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 18 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.M is a FixedReset, 3.90%+236, that commenced trading 2014-8-15 after being announced 2014-8-11. It is tracked by HIMIPref™ and has been assigned to the FixedReset (Insurance non-NVCC) subindex, but will move shortly to the FixedReset (Discount) subindex as the imposition of NVCC rules for insurers can no longer be considered probable.

I will have more to say one the reset rate has been determined November 20.

Atlantic Power Corporation and Atlantic Power Preferred Equity Ltd. have announced (on November 14):

that, in accordance with Preferred Equity’s Articles of Incorporation, as amended, the dividend rate on Preferred Equity’s outstanding Cumulative Rate Reset Preferred Shares, Series 2 (the “Series 2 Shares”), will be reset on December 31, 2019.

The new dividend rate for Series 2 Shares will be calculated on November 29, 2019, using a fixed dividend rate (the “Fixed Dividend Rate”), which will equal the sum of the Canadian Government five-year bond yield as of that date plus 4.18%.

Such Fixed Dividend Rate will commence with the March 31, 2020 dividend payment to the holders of the Series 2 Shares and continue through the December 31, 2024 dividend payment to the holders of the Series 2 Shares, at which time such Fixed Dividend Rate will again be reset.

The dividend rate for the Cumulative Floating Rate Preferred Shares, Series 3 (the “Series 3 Shares”) will be calculated on November 29, 2019 and will equal the sum of the Canadian Government 90-day Treasury Bill yield (using the three-month average results) plus 4.18%. Such dividend rate will be effective with the March 31, 2020 dividend payment to the holders of the Series 3 Shares. The Series 3 Shares dividend rate is reset each quarter.

On December 31, 2019 and again on December 31 of every fifth year thereafter, the holders of Series 2 Shares have the right to convert their Series 2 Shares, on a one-for-one basis, into Series 3 Shares and the holders of Series 3 Shares have the right to convert their Series 3 Shares, on a one-for-one basis, into Series 2 Shares.

Holders of Series 2 Shares or Series 3 Shares who wish to convert such securities to Series 3 Shares or Series 2 Shares, respectively, should contact the financial institution, broker or other intermediary through which they hold the Series 2 Shares or Series 3 Shares to exercise this conversion privilege. Notice of the exercise of the conversion privilege (an “Election Notice”) must be received by Preferred Equity not earlier than December 1, 2019 and not later than 5:00 p.m. (Toronto time) on December 16, 2019.

Automatic Conversion and Restrictions on Conversion

Series 2 Shares

If, after giving effect to all Election Notices, there would remain outstanding less than 1 million Series 2 Shares, then all remaining outstanding Series 2 Shares will automatically convert into Series 3 Shares, on a one-for-one basis on December 31, 2019. Holders of the Series 2 Shares will not be permitted to convert their Series 2 Shares into Series 3 Shares if, after giving effect to all Election Notices, there would be outstanding less than 1 million Series 3 Shares.

Series 3 Shares

If, after giving effect to all Election Notices, there would remain outstanding less than 1 million Series 3 Shares, then all remaining outstanding Series 3 Shares will automatically convert into Series 2 Shares, on a one-for-one basis on December 31, 2019. Holders of the Series 3 Shares will not be permitted to convert their Series 3 Shares into Series 2 Shares if, after giving effect to all Election Notices, there would be outstanding less than 1 million Series 2 Shares.

Inquiries should be directed to Preferred Equity’s registrar and transfer agent, Computershare Investor Services Inc., at 1-800-564-6253.

AZP.PR.B used to be CZP.PR.B, which used to be EPP.PR.B, and throughout these changes was a FixedReset, 7.00%+418, which commenced trading 2009-11-2 after being announced 2009-10-13. You can’t tell your players without a programme! Notice of extension was provided in November, 2014, and it reset to 5.57% effective 2014-12-31. I recommended in favour of conversion and the conversion rate was 42%.

AZP.PR.C resulted from the partial conversion of AZP.PR.B and commenced trading 2014-12-31.

I will have more to say once the reset dividend rate is known.

Bank of Montreal has announced (on November 14):

that none of its 12 million Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 31 (the “Preferred Shares Series 31”) will be converted on November 25, 2019 into Non-Cumulative Floating Rate Class B Preferred Shares, Series 32 of the Bank (the “Preferred Shares Series 32”).

During the conversion period which ran from October 28, 2019 to November 12, 2019, 69,570 Preferred Shares Series 31 were tendered for conversion into Preferred Shares Series 32, which is less than the minimum 1,000,000 required to give effect to the conversion, as described in the Preferred Shares Series 31 prospectus supplement dated July 23, 2014. As a result, no Preferred Shares Series 32 will be issued on November 25, 2019 and holders of Preferred Shares Series 31 will retain their shares.

The Preferred Shares Series 31 are currently listed on the Toronto Stock Exchange under the symbol BMO.PR.W. As previously announced on October 28, 2019, the dividend rate for the five-year period commencing on November 25, 2019, and ending on November 24, 2024, will be 3.851%.

BMO.PR.W is a FixedReset, 3.80%+222, that commenced trading 2014-7-30 after being announced 2014-7-22. Notice of extension was given 2019-9-27. BMO.PR.W will reset at 3.851% effective November 25, 2019. I recommended against conversion. It is tracked by HIMIPref™ and has been assigned to the FixedReset – Discount subindex.

Enbridge Inc. has announced (on November 18):

that none of its outstanding Cumulative Redeemable Preference Shares, Series 9 (Series 9 Shares) will be converted into Cumulative Redeemable Preference Shares, Series 10 of Enbridge (Series 10 Shares) on December 1, 2019.

After taking into account all conversion notices received from holders of its outstanding Series 9 Shares by the November 18, 2019 deadline for the conversion of the Series 9 Shares into Series 10 Shares, less than the 1,000,000 Series 9 Shares required to give effect to conversions into Series 10 Shares were tendered for conversion.

ENB.PF.A is a FixedReset, 4.40%+266, that commenced trading 2014-3-13 after being announced 2014-3-4. It reset to 4.097% effective 2019-12-1. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Fortis Inc. has announced that it (on November 1, although only on its share information page, not as a press release):

provides notice to the holders of its Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M of the Corporation (the “Series M Shares”) of the following dividend rates, in each case payable if, as and when declared by the Board of Directors of the Corporation:

i. $0.2445625 per Series M Share, being the fixed dividend rate payable quarterly on the first day of March, June, September and December of each year during the five-year period from and including December 1, 2019 to but excluding December 1, 2024; and

ii. $0.25816575 per share on the Cumulative Redeemable Floating Rate First Preference Shares, Series N of the Corporation (the “Series N Shares”), being the floating dividend rate applicable to the Series N Shares for the 3-month period from and including December 1, 2019 and ending on and including February 29, 2020, in each case determined in accordance with the corresponding rights, privileges, conditions and restrictions attached to the Series M Shares and Series N Shares, respectively, as a class, as set out in the short form prospectus of the Corporation dated September 11, 2014 relating to the issuance of the Series M Shares.

Beneficial owners of Series M Shares wishing to convert to Series N Shares should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from November 1, 2019, until 5:00 p.m. (EST) on November 18, 2019.

Inquiries should be directed to Ms. Karen Gosse, Vice President, Treasury and Planning, Fortis at 709.737.2865.

FTS.PR.M is a FixedReset, 4.10%+248, that commenced trading 2014-9-19 after being announced and supersized 2014-9-3. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedResets (Discount) subindex.

Note that the reset rate is inconsistent with the rate for ENB.PF.A and the rate for PPL.PR.G; it has been shown on PrefBlog that FixedReset Prospectuses Are Imprecise!

I am pleased to note that Fortis has reconsidered its previous policy of selective disclosure.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., FTS.PR.M and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market has lost enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.47% and +1.44%, respectively, after removal of the outlying pair FFH.PR.C / FFH.PR.D from the junk group. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the FTS.PR.M FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, FTS.PR.M. Therefore, it seems likely that I will recommend that holders of FTS.PR.M continue to hold the issue and not to convert, but I will wait until it’s closer to the November 18 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Quadravest has announced:

Dividend 15 Split Corp. (the “Company”) today announced it has received approval for an at-the-market equity program (“ATM Program”) that allows the Company to issue shares of the Company to the public from time to time, at the Company’s discretion effective until July 4, 2020, unless terminated prior to such date by the Company. Any Class A Shares or Preferred Shares sold in the ATM Program will be sold through the Toronto Stock Exchange (the “TSX”) or any other marketplace in Canada on which the Class A Shares and Preferred Shares are listed, quoted or otherwise traded at the prevailing market price at the time of sale.

Sales of Class A Shares and Preferred Shares through the ATM Program will be made pursuant to the terms of an equity distribution agreement dated October 29, 2019 (the “Equity Distribution Agreement”) with National Bank Financial Inc. (the “Agent”). Sales of Class A Shares and Preferred Shares will be made by way of “at-the-market distributions” as defined in National Instrument 44-102 Shelf Distributions on the TSX or on any marketplace for the Class A Shares and Preferred Shares in Canada. Since the Class A Shares and Preferred Shares will be distributed at the prevailing market prices at the time of the sale, prices may vary among purchasers during the period of distribution. The ATM Program is being offered pursuant to a prospectus supplement dated October 29, 2019 to the Company’s short form base shelf prospectus dated June 1, 2018. The maximum gross proceeds from the issuance of the shares will be $93,000,000. Copies of the prospectus supplement and the short form base shelf prospectus may be obtained from your registered financial advisor using the contact information for such advisor, or from representatives of the Agent and are available on SEDAR at www.sedar.com.

The volume and timing of distributions under the ATM Program, if any, will be determined at the Company’s sole discretion. The Company intends to use the proceeds from the ATM Program in accordance with the investment objectives and investment strategies of the Company, subject to the investment restrictions of the Company.

The Company invests in a high quality portfolio of leading Canadian dividend-yielding stocks as follows: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, CI Financial Corp., BCE Inc., Manulife Financial, Enbridge, Sun Life Financial, TELUS Corporation, Thomson Reuters Corporation, TransAlta Corporation, TC Energy Corporation.

ATM offerings have been possible (theoretically, anyway!) for a number of years, but I don’t recall having ever seen one announced in the Canadian preferred share space.

Given that DFN.PR.A recently had a traditional overnight offering at a 5.6% premium to NAVPU, the attractiveness of this route to financing is obvious.

Pembina Pipeline Corporation has announced:

that it does not intend to exercise its right to redeem the currently outstanding Cumulative Redeemable Rate Reset Class A Preferred Shares, Series 7 (“Series 7 Shares”) (TSX: PPL.PR.G) on December 2, 2019 (the “Conversion Date”).

As a result, and subject to certain terms of the Series 7 Shares, the holders of the Series 7 Shares will have the right to elect to convert all or any of their Series 7 Shares into Cumulative Redeemable Floating Rate Class A Preferred Shares, Series 8 of Pembina (“Series 8 Shares”) on the basis of one Series 8 Share for each Series 7 Share on the Conversion Date.

Pursuant to the terms of the Series 7 Shares, as December 1, 2019, the conversion date for the Series 7 Shares, is not a business day, the actual conversion date will be the next succeeding business day, December 2, 2019.

With respect to any Series 7 Shares that remain outstanding after December 2, 2019, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate for the Series 7 Shares for the five-year period from and including December 1, 2019 to, but excluding, December 1, 2024 will be 4.38%, being equal to the five-year Government of Canada bond yield of 1.44% determined as of today plus 2.94%, in accordance with the terms of the Series 7 Shares.

With respect to any Series 8 Shares that may be issued on December 2, 2019, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate for the 3-month floating rate period from and including December 1, 2019 to, but excluding, March 1, 2020 will be 4.602%, being equal to the annual rate of interest for the most recent auction of 90-day Government of Canada treasury bills of 1.662% plus 2.94%, in accordance with the terms of the Series 8 Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

As provided in the terms of the Series 7 Shares: (i) if Pembina determines that there would remain outstanding immediately following the conversion less than 1,000,000 Series 7 Shares, all remaining Series 7 Shares will be converted automatically into Series 8 Shares on a one-for-one basis effective December 2, 2019; or (ii) if Pembina determines that there would remain outstanding immediately following the conversion less than 1,000,000 Series 8 Shares, holders of Series 7 Shares will not be entitled to convert their Series 7 Shares into Series 8 Shares on the Conversion Date. There are currently 10,000,000 Series 7 Shares outstanding.

The Series 7 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 7 Shares is the Canadian Depositary for Securities Limited (“CDS”). All rights of holders of Series 7 Shares must be exercised through CDS or the CDS participant through which the Series 7 Shares are held. The deadline for the registered shareholder (CDS) to provide notice of exercise of the right to convert Series 7 Shares into Series 8 Shares is 3:00 p.m. (MT) / 5:00 p.m. (ET) on November 15, 2019. Any notices received after this deadline will not be valid. As such, holders of Series 7 Shares who wish to exercise their right to convert their Series 7 Shares into Series 8 Shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with the time to complete the necessary steps.

If Pembina does not receive an election notice from CDS during the time fixed therefor, then the Series 7 Shares shall be deemed not to have been converted (except in the case of an automatic conversion). Holders of Series 7 Shares will have an opportunity to convert their shares again on December 1, 2024, and every five years thereafter as long as the shares remain outstanding.

As previously announced, the dividend payable on December 2, 2019 to holders of the Series 7 Shares of record on November 1, 2019 will be $0.281250 per Series 7 Share, consistent with the dividend rate in effect since issuance of the Series 7 Shares. For more information on the terms of the Series 7 Shares and the Series 8 Shares, please see Pembina’s prospectus supplement dated September 4, 2014 which can be found on SEDAR at www.sedar.com.

PPL.PR.G is a FixedReset, 4.50%+294, that commenced trading 2014-9-11 after being announced 2014-9-2. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Note that the reset rate is inconsistent with the rate for ENB.PF.A; it has been shown on PrefBlog that FixedReset Prospectuses Are Imprecise!

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., PPL.PR.G and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market has lost enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.73% and +1.03%, respectively, after removal of the outlying pair FFH.PR.C / FFH.PR.D from the junk group. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the PPL.PR.G FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, PPL.PR.G. Therefore, it seems likely that I will recommend that holders of PPL.PR.G continue to hold the issue and not to convert, but I will wait until it’s closer to the November 15 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series 9 (Series 9 Shares) (TSX: ENB.PF.A) on December 1, 2019. As a result, subject to certain conditions, 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 Cumulative Redeemable Preference Shares, Series 10 of Enbridge (Series 10 Shares) on December 1, 2019. Holders who do not exercise their right to convert their Series 9 Shares into Series 10 Shares will retain their Series 9 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 9 Shares outstanding after December 1, 2019, then all remaining Series 9 Shares will automatically be converted into Series 10 Shares on a one-for-one basis on December 1, 2019; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series 10 Shares outstanding after December 1, 2019, no Series 9 Shares will be converted into Series 10 Shares. There are currently 11,000,000 Series 9 Shares outstanding.

With respect to any Series 9 Shares that remain outstanding after December 1, 2019, 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 9 Shares for the five-year period commencing on December 1, 2019 to, but excluding, December 1, 2024 will be 4.097 percent, being equal to the five-year Government of Canada bond yield of 1.437 percent determined as of today plus 2.66 percent in accordance with the terms of the Series 9 Shares.

With respect to any Series 10 Shares that may be issued on December 1, 2019, 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 10 Shares for the three-month floating rate period commencing on December 1, 2019 to, but excluding, March 1, 2020 will be 1.07704 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 1.66 percent plus 2.66 percent in accordance with the terms of the Series 10 Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series 9 Shares who wish to exercise their right of conversion during the conversion period, which runs from November 1, 2019 until 5:00 p.m. (EST) on November 18, 2019, 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.A is a FixedReset, 4.40%+266, that commenced trading 2014-3-13 after being announced 2014-3-4. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Note that the reset rate is inconsistent with the rate for PPL.PR.G; it has been shown on PrefBlog that FixedReset Prospectuses Are Imprecise!

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., ENB.PF.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

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The market has lost enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.73% and +1.03%, respectively, after removal of the outlying pair FFH.PR.C / FFH.PR.D from the junk group. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the ENB.PF.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, ENB.PF.A. Therefore, it seems likely that I will recommend that holders of ENB.PF.A continue to hold the issue and not to convert, but I will wait until it’s closer to the November 18 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.