Category: Issue Comments

TC Energy Corporation has announced:

that it has notified the registered shareholder of the applicable dividend rates for Cumulative Redeemable First Preferred Shares, Series 9 (Series 9 Shares) and the Cumulative Redeemable First Preferred Shares, Series 10 (Series 10 Shares).

As previously announced in our news release dated September 18, 2019, holders of the Series 9 Shares have the right on October 30, 2019 to convert, on a one-for-one basis, any or all of their Series 9 Shares into Series 10 Shares and receive a floating rate quarterly dividend, or retain any or all of their Series 9 Shares and receive a new fixed rate quarterly dividend.

Should a holder of Series 9 Shares choose to retain their shares, such shareholders will receive the new annual fixed dividend rate applicable to the Series 9 Shares of 3.762% for the five-year period commencing October 30, 2019 to, but excluding, October 30, 2024.

Should a holder of Series 9 Shares choose to convert their shares to Series 10 Shares, holders of Series 10 Shares will receive the floating quarterly dividend rate applicable to the Series 10 Shares of 3.974% for the first quarterly floating rate period commencing effective October 30, 2019 to, but excluding, January 30, 2020. The floating quarterly dividend rate will be reset every quarter.

Beneficial owners of Series 9 Shares who do not provide notice or communicate with their broker or other nominee by 5 p.m. (EDT) on October 15, 2019 will retain their Series 9 Shares and receive the new annual fixed dividend rate applicable to the Series 9 Shares stated above.

The foregoing conversions are subject to the conditions that: (i) if TC Energy determines that there would be less than one million Series 9 Shares outstanding after October 30, 2019, then all remaining Series 9 Shares will automatically be converted into Series 10 Shares on a one-for-one basis on October 30, 2019 and (ii) alternatively, if TC Energy determines that there would be less than one million Series 10 Shares outstanding after October 30, 2019, no Series 9 Shares will be converted into Series 10 Shares. In either case, TC Energy will issue a news release to that effect no later than October 23, 2019.

For more information on the terms of, and risks associated with an investment in the Series 9 Shares and the Series 10 Shares, please see the Corporation’s prospectus supplement dated January 13, 2014 which is available on sedar.com or on our website.

TRP.PR.E is a FixedReset, 4.25%+235, that commenced trading 2014-1-20 after being announced 2014-1-13. Notice of extension was provided on 2019-9-18. It is tracked by HIMIPref™ and assigned to the FixedReset-Discount subindex.

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., TRP.PR.E 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 +0.66% and +0.75%, respectively. 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 TRP.PR.E 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, TRP.PR.E. Therefore, it seems likely that I will recommend that holders of TRP.PR.E continue to hold the issue and not to convert, but I will wait until it’s closer to the October 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.

AltaGas Ltd. has announced:

that 1,114,177 of its 8,000,000 Cumulative Redeemable Five-Year Fixed Rate Reset Preferred Shares, Series G (the “Series G Preferred Shares”) (TSX:ALA.PR.G) were tendered for conversion into Cumulative Floating Rate Preferred Shares, Series H (the “Series H Preferred Shares”). As a result of the conversion AltaGas has 6,885,823 Series G Preferred Shares and 1,114,177 Series H Preferred Shares issued and outstanding. The Series G Preferred Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol ALA.PR.G. The Series H Preferred Shares will begin trading on the TSX today under the symbol ALA.PR.H.

The Series G Preferred Shares will continue to pay on a quarterly basis, for the five-year period beginning on September 30, 2019, as and when declared by the Board of Directors of AltaGas, a fixed dividend based on an annual fixed dividend rate of 4.242 percent.

The Series H Preferred Shares will pay a floating quarterly dividend for the five-year period beginning on September 30, 2019, as and when declared by the Board of Directors of AltaGas. The floating quarterly dividend rate for the Series H Preferred Shares for the first quarterly floating rate period (being the period from September 30, 2019 to but excluding, December 31, 2019) is 4.698 percent and will be reset every quarter.

For more information on the terms of, and risks associated with an investment in, the Series G Preferred Shares and the Series H Preferred Shares, please see the prospectus supplement dated June 25, 2014 which is available on SEDAR at www.sedar.com.

ALA.PR.G is a FixedReset, 4.75%+306, that commenced trading 2014-7-3 after being announced 2014-6-23. Notice of extension was announced 2019-8-29. The issue will reset at 4.242% effective September 30, 2019. I recommended against conversion. News that some were converted was reported on 2019-9-24. The issue is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns. In December, 2018, the issue was downgraded to Pfd-3(low) by DBRS and to P-3 by S&P.

Assiduous Readers will remember that there was an 14% Conversion from the FixedReset ALA.PR.G to the FloatingReset ALA.PR.H. I had advised readers not to convert, but to continue holding the ALA.PR.G, which have reset to 3.415%.

ALA.PR.H will pay dividends at a rate of 3-Month Canada Treasury Bills plus 306bp, reset quarterly.

The issue was listed today, but didn’t trade – this is largely due to the banks’ hegemony over the Canadian financial system (approved by both securities regulators and the Competition-haha Board) and their total lack of interest in providing competent service to stinking investor scum such as yourselves. These exchanges do not hit client accounts until the day after the company gives effect to them – however, investors can complain to the exchange-owned CDS and the (mostly) bank-owned brokerages about this lackadaisical attitude toward client assets and see how far it gets them.

The most logical way to analyze the relative value of ALA.PR.G vs ALA.PR.H 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., ALA.PR.G and the FloatingReset ALA.PR.H). 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).

Click for Big

The break-even T-Bill yield for the ALA.PR.G / ALA.PR.H pair is now -0.80% (given bid prices of 15.86 and 14.00, respectively; but note that there is no offer for ALA.PR.H and therefore the bid may be regarded with some suspicion even without considering how this relates to other FloatingResets, or other pairs).

Brompton Group has announced:

that the special meeting (the “Meeting”) of holders of Class A Shares and Preferred Shares (the “Shareholders”) of Brompton Lifeco Split Corp. (the “Fund”) scheduled to be held at 9:00 a.m. on Thursday September 26, 2019, has been cancelled. The purpose of the Meeting was to consider and vote upon an extraordinary resolution to implement amendments to update and modernize the investment objectives, investment guidelines and investment restrictions of the Fund (the “Amendments”). The Amendments, as set out in Appendix A of the management information circular dated August 23, 2019, will not be implemented.

At the voting deadline today, a majority of both the Class A Shares and the Preferred Shares were voted in favor of the Amendments. However, the Amendments required a two thirds majority by both Class A Shareholders and Preferred Shareholders, voting separately as individual classes, to approve the Amendments. Approximately 43% of the issued and outstanding Preferred Shares were voted and the two thirds approval threshold was exceeded. Approximately 32% of the issued and outstanding Class A Shares were voted, however, the two thirds approval threshold was not met.

The Fund will continue to operate as it does currently. The Fund invests, on an approximately equally weighted basis, in a portfolio consisting of common shares of Canada’s four largest publicly traded life insurance companies: Great-West Lifeco Inc., iA Financial Group, Manulife Financial Corporation and Sun Life Financial Inc. The Fund provides a low cost, efficient way to gain exposure to Canadian life insurance companies, with the added benefit of a proprietary covered call option strategy employed by the Manager which can lower portfolio volatility along with generating cash flows for distribution to Shareholders.

LCS.PR.A was added to the HIMIPref™ database in October, 2014, backdated to 2014-5-1, following its term extension and treasury offering earlier in the year. Capital Units dividends were suspended in January 2015, but reinstated in November, 2016. Only two of the scheduled monthly Capital Unit distributions has been made since the September, 2018, payment became due. The company announced the five year extension in March, 2018. A mandate change was proposed in August, 2019. The issue reset to 6.25% with an end-date of 2024-4-29 in April, 2019. The issue is tracked by HIMIPref™ but relegated to the Scraps – Splitshares subindex on credit concerns.

An eMailed inquiry to AltaGas Ltd. regarding the recently expired conversion option for ALA.PR.G resulted in the following reply (in part):

We will announce the full details of the election on September 30th, but at this time we can confirm that there were enough Series G shares tendered for conversion into floating rate Series H shares and therefore Series H shares will be issued on September 30th.

ALA.PR.G is a FixedReset, 4.75%+306, that commenced trading 2014-7-3 after being announced 2014-6-23. Notice of extension was announced 2019-8-29. The issue will reset at 4.242% effective September 30, 2019. I recommended against conversion. The issue is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns. In December, 2018, the issue was downgraded to Pfd-3(low) by DBRS and to P-3 by S&P.

Well! This is interesting news – there hasn’t been a new FloatingReset issue since ENB.PR.B partially converted in May, 2017 although there was some minor adjustment with the DC.PR.B / DC.PR.D conversion earlier this month.

Valener Inc. has announced:

that following the regulatory approval process led by Noverco Acquisition, Inc. (the “Acquirer”) before the Vermont Public Utility Commission (“VPUC”), the VPUC has given its approval to the Acquirer, a wholly-owned subsidiary of Noverco Inc., to proceed with the acquisition of all of the issued and outstanding common shares and all of the issued and outstanding preferred shares of Valener (the “Transaction”). The parties are now authorized to complete the Transaction pursuant to the terms of the arrangement agreement publicly announced on March 27, 2019 (the “Arrangement”).

Following the evidentiary hearing that took place on July 23, 2019 and the review of the Transaction, the VPUC, in a binding decision, concluded that the “proposed acquisition by Noverco Inc. of an additional indirect ownership interest in Vermont Gas System Inc., Green Mountain Power Corporation (“GMP”) and subsidiaries of GMP will promote the public good and is approved by the Commission pursuant to 30 V.S.A. 107.”

Filing of Articles of Arrangement with the Director of Corporations Canada

Obtaining the VPUC approval for the Acquirer represented the last condition of a regulatory nature required to close the Transaction.

Therefore, pursuant to the terms of the Arrangement, Valener will file within five business days the articles of arrangement with the Director of Corporations Canada as required under Section 192 of the Canada Business Corporations Act, which means closing is scheduled to occur on or before September 27, 2019, at 12:01 a.m..The effective date of the Transaction, which is the date that will appear on the certificate of arrangement issued by the Director of Corporations Canada pursuant to applicable legislation (the “Certificate”), will be confirmed in a subsequent press release once the Certificate has been received by Valener.

The proposed acquisition at par was announced in March and approved by holders in June. The previous progress report was reported in early August.

The issue commenced trading 2012-6-6 as a FixedReset, 4.35%+281, after being announced 2012-5-15. It reset to 4.62% effective 2017-10-15. I recommended against conversion and there was no conversion to FloatingResets. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

Brompton Group has announced:

As previously announced, the board of directors of Dividend Growth Split Corp. (the “Fund”) extended the maturity date of the class A and preferred shares of the Company for a period of up to five years beyond the current maturity date of November 28, 2019. The board of directors is pleased to announce that the new term of the Fund will be to September 27, 2024. In addition, the Fund announces that the distribution rate for the preferred shares (the “Preferred Shares”) for the new term from November 29, 2019 to September 27, 2024 has been increased to $0.55 per Preferred Share per annum (5.5% on the original issue price of $10) payable quarterly. The Preferred Share distribution rate is based on current market rates for preferred shares with similar terms.

The term extension offers preferred shareholders the opportunity to enjoy preferential cash dividends until September 27, 2024. Since inception in December 2007 to August 31, 2019, the Preferred Share has delivered a 5.4%(1) per annum return. In addition, the Fund intends to maintain the targeted monthly Class A Share distribution rate of at least $0.10 per Class A Share when the net asset value per unit (consisting of one Class A Share and one Preferred Share) is greater than $15.00, after taking into consideration the payment of the Class A Share distribution.

Since inception in December 2007 to August 31, 2019, the Class A share has delivered a 7.4%(1) per annum return, which outperformed the S&P/TSX Composite Index by 2.8% per annum. Since inception to August 31, 2019, Class A shareholders have received cash distributions of $12.89. Class A shareholders also have the option to reinvest their cash distributions in a dividend reinvestment plan which is commission free to participants. Class A shareholders can enroll in the DRIP program by contacting their investment advisor.

The Fund invests, on an approximately equally-weighted basis, in a portfolio consisting primarily of equity securities of Canadian dividend growth companies. In addition, DGS may hold up to 20% of the total assets of the portfolio in global dividend growth companies for diversification and enhanced return potential.

In connection with the extension, shareholders who do not wish to continue their investment in the Fund, may retract their Preferred Shares and Class A Shares on November 28, 2019 pursuant to a special retraction right and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on November 28, 2019. Pursuant to this option, the retraction price may be less than the market price if the security is trading at a premium to net asset value. Notice must be provided to your investment dealer by October 31, 2019 at 5:00 p.m. (Toronto time) in order to exercise this right; however, investment dealers may have earlier deadlines. Alternatively, shareholders may sell their shares through their securities dealer 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.

DGS.PR.A approved a term extension in 2011 which became official in 2013 and took effect in 2014 (these guys like to plan ahead!) with the dividend rate unchanged at 5.25%. The current extension was announced in September, 2018. The manager’s mandate expanded slightly in August, 2018.

DGS.PR.A is tracked by HIMIPref™ but relegated to the Scraps – SplitShare index on credit concerns.

DBRS has announced:

that the Under Review with Developing Implications status has been maintained for GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares at Pfd-4 (high). The rating was put Under Review with Developing Implications on June 18, 2019, following the announcement that GMP had agreed to sell substantially all of its capital markets business to Stifel Financial Corp. (Stifel).

On June 17, 2019, GMP announced that it was selling substantially all of its capital markets business to Stifel for a cash consideration of tangible book value of the business plus $45 million, subject to adjustment and pending shareholder and regulatory approval. It was later announced that Harris Fricker, then Chief Executive Officer (CEO) of GMP, and other key personnel agreed to join Stifel. On August 6, 2019, the majority of shareholders voted to approve the sale during a special meeting.

Furthermore, under the leadership of Interim President and CEO, Kish Kapoor, the Company announced that it is in discussions to consolidate the ownership of Richardson GMP. Richardson GMP is the Company’s wealth management joint venture in Canada, which will become a wholly owned subsidiary and the cornerstone of GMP’s business upon closing this second transaction. The acquisition will only take place once the capital markets business transaction closes and is also subject to separate shareholder and regulatory approval.
…
The rating could be upgraded if GMP’s franchise prospects and its pro forma financials post-transactions are deemed to be stronger as a result of shedding the capital markets businesses, which have been highly volatile and loss-making.

The rating could be downgraded if the transactions fail to be completed as proposed — including if GMP is not able to acquire majority control of Richardson GMP, which might limit its wealth management growth strategy — or if GMP’s credit fundamentals post-transaction are deemed to be weaker.

GMP.PR.B and GMP.PR.C were initially placed on Review-Developing in June, 2019.

GMP.PR.B was issued as a FixedReset, 5.50%+289, that commenced trading 2011-2-22 after being announced 2011-2-1. Notice of extension was published 2016-2-23, followed by the announcement of a reset to 3.611%. I recommended against conversion, but there was a 22% conversion into GMP.PR.C anyway.

As indicated above, GMP.PR.C is a FloatingReset, +289, that came into being in 2016 via a 22% conversion into GMP.PR.C.

TC Energy Corporation has announced:

that it does not intend to exercise its right to redeem its Cumulative Redeemable First Preferred Shares, Series 9 (Series 9 Shares) on October 30, 2019. As a result, subject to certain conditions, the holders of Series 9 Shares have the right to choose one of the following options with regard to their shares:

to retain any or all of their Series 9 Shares and continue to receive a fixed rate quarterly dividend; or

to convert, on a one-for-one basis, any or all of their Series 9 Shares into Cumulative Redeemable First Preferred Shares, Series 10 (Series 10 Shares) of TC Energy and receive a floating rate quarterly dividend.
The dividend rate applicable to the Series 9 Shares for the five-year period commencing on October 30, 2019 to, but excluding, October 30, 2024 will equal the Government of Canada five-year bond yield on October 1, 2019 plus 2.35 per cent. The dividend rate applicable to the Series 10 Shares for the three-month period commencing on October 30, 2019 to, but excluding, January 30, 2020 will equal the Government of Canada 90-day treasury bill rate on October 1, 2019 plus 2.35 per cent. Both rates will be calculated according to the terms of the prospectus supplement dated January 13, 2014 and announced by way of a news release on October 1, 2019.

Beneficial owners of Series 9 Shares who want to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5 p.m. (EDT) on October 15, 2019. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide the broker or other nominee with time to complete the necessary steps.

The foregoing conversions are subject to the conditions that: (i) if TC Energy determines that there would be less than one million Series 9 Shares outstanding after October 30, 2019, then all remaining Series 9 Shares will automatically be converted into Series 10 Shares on a one-for-one basis on October 30, 2019 and (ii) alternatively, if TC Energy determines that there would be less than one million Series 10 Shares outstanding after October 30, 2019, no Series 9 Shares will be converted into Series 10 Shares. In either case, TC Energy will issue a news release to that effect no later than October 23, 2019.

Beneficial owners of Series 9 Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series 9 Shares and receive the new annual fixed dividend rate applicable to the Series 9 Shares, subject to the conditions stated above.

Holders of the Series 9 Shares and the Series 10 Shares will have the opportunity to convert their shares again on October 30, 2024 and every five years thereafter as long as the shares remain outstanding.

For more information on the terms of, and risks associated with an investment in the Series 9 Shares and the Series 10 Shares, please see the Corporation’s prospectus supplement dated January 13, 2014 which is available on sedar.com or on the Corporation’s website.

TRP.PR.E is a FixedReset, 4.25%+235, that commenced trading 2014-1-20 after being announced 2014-1-13. It is tracked by HIMIPref™ and assigned to the FixedReset-Discount subindex.

I will have more to say once the reset rate is announced October 1.

Dundee Corporation has announced:

that 651,862 of its Cumulative 5-Year Rate Reset First Preference Shares, Series 2 (“Series 2 Shares”) will be converted, on a one for one basis, into Cumulative Floating Rate First Preference Shares, Series 3 (“Series 3 Shares”) of the Company and 349,755 Series 3 Shares will be converted into Series 2 Shares, in each case effective September 30, 2019. As a result, on September 30, 2019, Dundee will have 3,177,278 Series 2 Shares and 2,022,722 Series 3 Shares issued and outstanding, less any Series 2 Shares and Series 3 Shares purchased by the Company for cancellation pursuant to the previously announced normal course issuer bids.

Holders will again have the opportunity to convert their Series 2 Shares into Series 3 or to convert their Series 3 Shares into Series 2 Shares on September 30, 2024, and every five years thereafter as long as the Series 2 Shares and Series 3 Shares remain outstanding.

So that’s a net conversion of just under 6% from DC.PR.B, the FixedReset, to DC.PR.D, the FloatingReset, leaving DC.PR.B with about 61% of the total.

DC.PR.B is a FixedReset, 5.688%+410, that commenced trading 2009-9-15 with a 6.75% coupon after being announced 2009-8-25. It reset to 5.688% effective 2014-09-30. I made no recommendation regarding conversion. Now, DC.PR.B will reset at 5.284% effective September 30, 2019. I recommended retaining, or converting to, DC.PR.B. It is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

DC.PR.D is a FloatingReset, +410, that came into existence via a partial conversion from DC.PR.B. It is tracked by HIMIPref™ but relegated to the Scraps – FloatingReset subindex on credit concerns.