Category: Issue Comments

Brompton Funds Limited has announced:

that at special meetings of preferred and class A shareholders (“Shareholders”) of Dividend Growth Split Corp. (“DGS”) and Brompton Split Banc Corp. (“SBC”) held today, Shareholders approved special resolutions to implement amendments to update and modernize the investment objectives, investment strategies and investment restrictions of DGS and SBC as well as certain other matters set out in the joint management information circular dated July 27, 2018 (the “Circular”).
…
For SBC, the changes to the investment objectives, strategy and restrictions are primarily designed to accomplish the following:
i) allow the Manager to rebalance and/or reconstitute the portfolio more frequently than annually, at its discretion, for reasons other than mergers or fundamental corporate actions, so that SBC may respond to security or market developments on a timely basis; and
ii) provide for up to 10% of the portfolio to be invested, from time to time, in global financial companies.

Further information relating to these and other changes are described in more detail in the Circular. These changes are expected to be implemented as soon as reasonably possible.

I do not view this loosening of restrictions as being material.

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

the applicable dividend rates for its Non-cumulative Rate Reset Class 1 Shares Series 13 (the “Series 13 Preferred Shares”) (TSX: MFC.PR.K) and Non-cumulative Floating Rate Class 1 Shares Series 14 (the “Series 14 Preferred Shares”).

With respect to any Series 13 Preferred Shares that remain outstanding after September 19, 2018, holders thereof 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 September 20, 2018, and ending on September 19, 2023, will be 4.41400% per annum or $0.275875 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at August 21, 2018, plus 2.22%, as determined in accordance with the terms of the Series 13 Preferred Shares.

With respect to any Series 14 Preferred Shares that may be issued on September 19, 2018 in connection with the conversion of the Series 13 Preferred Shares into the Series 14 Preferred Shares, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, 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 three-month period commencing on September 20, 2018, and ending on December 19, 2018, will be 0.91773% (3.68100% on an annualized basis) or $0.229433 per share, being equal to the sum of the three-month Government of Canada Treasury bill yield as at August 21, 2018, plus 2.22%, as determined in accordance with the terms of the Series 14 Preferred Shares.

Beneficial owners of Series 13 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 September 4, 2018. The news release announcing such conversion right was issued on August 10, 2018 and can be viewed on SEDAR or Manulife’s website. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1‑800-783-9495.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 14 Preferred Shares effective upon conversion. Listing of the Series 14 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 14 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.K is a FixedReset, 3.80%+222, that commenced trading 2013-6-21 after being announced 2013-6-17. The announcement of extension has been previously reported. The issue is tracked by HIMIPref™ and is assigned to the FixedReset subindex. Since it is an insurance holding company issue without a NVCC clause, a Deemed Maturity at par as of 2025-1-31 has been added to the redemption schedule as is my normal practice.

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., MFC.PR.K and the FloatingReset, MFC.PR.S, 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).

Click for Big

The market appears to be relatively uninterested in floating rate product; the implied rates until the next interconversion bracket the current 3-month bill rate as the averages for investment-grade and junk issues are at +1.32% and +1.45%, 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 MFC.PR.K FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart, MFC.PR.S, 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 be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of MFC.PR.K continue to hold the issue and not to convert, but I will wait until it’s closer to the September 4 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 the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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 none of Enbridge’s outstanding Cumulative Redeemable Preference Shares, Series H (Series H Shares) will be converted into Cumulative Redeemable Preference Shares, Series I of Enbridge (Series I Shares) on September 1, 2018.

After taking into account all conversion notices received from holders of its outstanding Series H Shares by the August 17, 2018 deadline for the conversion of the Series H Shares into Series I Shares, less than the 1,000,000 Series H Shares required to give effect to conversions into Series I Shares were tendered for conversion.

ENB.PR.H is a FixedReset, 4.00%+212, that commenced trading 2012-3-29 after being announced 2012-3-20. It will reset to 4.376% effective 2018-9-1. The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Aimia Inc. has announced:

Air Canada, TD, CIBC, Visa and Aimia Reach Agreement in Principle for Acquisition of Aeroplan Loyalty Business

•Purchase price consists of $450 million in cash and the assumption of approximately $1.9 billion of Aeroplan Miles liability
•Agreement in principle was unanimously approved by Aimia’s Board of Directors and is supported by Mittleman Brothers
•Transaction would provide value for Aimia and its shareholders and continuity for Aeroplan members and customers of Air Canada, TD, CIBC and Visa
•Transaction subject to negotiation of definitive agreements and other conditions; completion expected fall 2018

TORONTO, Aug. 21, 2018 /CNW Telbec/ – Air Canada, The Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce (“CIBC”), Visa Canada Corporation (“Visa”) (collectively, “the Consortium”) and Aimia Inc. (“Aimia”) announced today that they have entered into an agreement in principle for the acquisition of Aimia’s Aeroplan loyalty business.
…
Mittleman Brothers, LLC, Aimia’s largest shareholder who owns approximately 17.6% of Aimia’s common shares, has provided a lock-up and support agreement under which it has agreed to vote in favour of the proposed transaction.

The aggregate purchase price consists of $450 million in cash and is on a cash-free, debt-free basis and includes the assumption of approximately $1.9 billion of Aeroplan Miles liability.

The Canadian Press points out:

Aimia’s recent Aeroplan partnership agreements with three Canadian airlines — Air Transat, Flair Airlines and Porter Airlines — are now up in the air.

“Those were perhaps part of the negotiations and trying to build the pressure on getting a transaction,” said AltaCorp Capital analyst Chris Murray.

Aimia had also been in discussions with the Oneworld airline alliance, whose members include British Airways, American Airlines and Cathay Pacific.

Gabor Forgacs, associate professor at the Ted Rogers School of Management at Ryerson University, said the key incentive for Canada’s largest airline is customer data that can be used to encourage more member spending.

“Every time a member of the loyalty program goes to make a purchase and taps or swipes that card, he or she would earn points — however, they will agree to give away the information,” Forgacs said. “They will know where I was, what I bought, how much I spent.”

AIM preferreds jumped on the news:

All three issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

Aimia’s been in the news quite a bit lately … it began when preferred dividends were suspended in June, 2017, continued through dark muttering from DBRS in February, 2018, reached a nadir when S&P declared the preferreds in default, but then got happier when the initial bid for Aeroplan was followed by a bid for the Mexican assets.

Note that the bids are not for the company, just for most of its assets. If successful, the bid will change the balance sheet significantly – and just how good the preferreds will look at that point will be the topic of much speculation and puzzling over the balance sheet.

Update, 2018-08-22: DBRS comments:

DBRS notes that although the Consortium’s proposal is not for Aimia shares, the sale of the Aeroplan program could be sufficient in size to trigger a change-of-control provision in Aimia’s Senior Secured Debt that requires the occurrence of both a change of control and a rating event (i.e., a rating downgrade of the Senior Secured Debt). If triggered, the provision requires that an offer be made to repurchase at a price equal to 101% of the outstanding Senior Secured Debt of the Company.

DBRS notes that as of Q2 2018, Aimia had approximately $329 million of debt, $249 million of cash, $22 million of restricted cash and $260 million invested in corporate and government bonds. The debt consists of $250 million of Senior Secured Notes due May 2019 and $80 million (including $9 million of letters of credit) drawn on the credit facility, which matures in 2020. Following the Transaction, Aimia would be meaningfully smaller in size and consist of Proprietary Loyalty Canada and Insights & Loyalty Solutions (which includes Air Miles Middle East), along with investments in PLM Premier, S.A.P.1. de C.V.; Cardlytics; and Think Big Digital. The Company would have approximately $720 million of cash and $260 million of bond investments that would be sufficient to repay the outstanding debt.

DBRS will proceed with its review as more information becomes available.

In addition, it will be noted that the company has $315.8-million worth (par value) of preferreds outstanding, which have so far accumulated $17-million of unpaid cumulative dividends, which continue to accumulate at $17-million p.a.

In addition, the company reports a pension funding deficit of $21.3-million, and “Other Employee Future Benefits” of $21.6-million.

Global Champions Split Corp. has announced:

its intention to redeem all of its outstanding Class A Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) (TSX: GCS.PR.A) for cash on August 20, 2018 the “Redemption Date”) in accordance with the terms of the Series 1 Preferred Shares.

The redemption price per Series 1 Preferred Share will be equal to C$25.25 plus accrued and unpaid dividends as of the Redemption Date of C$0.1374 per share, representing a total redemption price of C$25.3874 per Series 1 Preferred Share (the “Redemption Price”).

Notice will be delivered to holders of Series 1 Preferred Shares in accordance with the terms of the Series 1 Preferred Shares.

From and after the Redemption Date the Series 1 Preferred Shares will cease to be entitled to dividends or any other participation in any distribution of the assets of the Company and the holders thereof shall not be entitled to exercise any of their other rights as shareholders in respect thereof except to receive the Redemption Price (less any tax required to be deducted and withheld by the Company). It is expected that the Toronto Stock Exchange will halt trading on the Series 1 Preferred Shares at the opening of business on the Redemption Date and delist such Series 1 Preferred Shares at the close of business on the Redemption Date.

Although this press release was dated 2018-8-2, it does not yet appear on their website; nor is there anything on their website to suggest that anything unusual is happening with the company. The press release is available only – as far as I can tell – on SEDAR, which (as I’m sure everybody remembers) prohibits direct linking to these public documents as the Canadian Securities Administrators appear to believe that dissemination of material investment information should be made as difficult as possible. So interested parties will have to search for “Global Champions Split Corp. Aug 2 2018 17:25:19 ET News release – English PDF 309 K”

This is an appalling example of non-existent communication by the company.

The directors are the following clowns:Frank N.C. Lochan, Brian D. Lawson, John P. Barratt, James L.R. Kelly.

The following idiots are officers of the company:

• Brian D. Lawson, Chairman and President
• Adil Mawani, Chief Financial Officer
• Loretta M. Corso, Corporate Secretary

Assiduous Readers with good memories will single out the following dolts for special scorn:

• Frank N.C. Lochan
• Brian D. Lawson
• John P. Barratt
• James L.R. Kelly

… who were also directors of Partners Value Split Inc. when it did a completely shitty job of reporting to shareholders. Loretta M. Corso was also an officer of PVS at that time.

Pretty crap work, guys. Incompetent scum.

Update: DBRS discontinues rating:

DBRS Limited (DBRS) discontinued the rating on the Class A Preferred Shares, Series 1 (the Preferred Shares) issued by Global Champions Split Corp. as the Preferred Shares were fully repaid on August 20, 2018.

Update: I see the August 2 press release is now available on the company website. About time, assholes.

DBRS has announced that it:

confirmed the Cumulative Preferred Shares rating of Canaccord Genuity Group Inc. (CF or the Company) at Pfd-3 (low). The trend has been revised to Stable from Negative. The Company’s Support Assessment is SA3.
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The ratings also consider the headwinds facing CF that have driven weak results and low returns in recent years. DBRS sees inconsistent profitability as a concern at the current rating level and will look for continued success in the wealth management business to drive consistent earnings. While CF’s wealth management expansion is contributing to earnings stability, it has also resulted in increased debt levels and lower tangible common equity, which is also factored into the current rating level.
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Demonstrating its franchise diversification, CF reported 71% of its capital-markets revenues were generated outside Canada and 88% of investment-banking and advisory revenues were from sectors outside resources. The Company’s increasing business and geographic diversification has helped to offset headwinds in its traditional Canadian market.
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DBRS notes the risk in managing important relationships and, although the Company has procedures in place to manage its inventory positions, it maintains aged positions resulting from activities undertaken to support clients that bring important business to CF. These positions have the potential to experience mark-to-market losses. Given the challenging operating environment, properly assessing counterparty risk, including a counterparty’s ability to meet margin calls, remains critical.
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Given the nature of the business and a relatively liquid balance sheet that includes cash and other liquid assets, liquidity is good. As of June 30, 2018, the Company had sufficient cash and liquid assets to meet any short-term liability needs. Furthermore, cash flows have generally been positive and the fixed-charge coverage ratio continues to improve.

Capitalization is satisfactory with a total assets/total common equity ratio of 6.9 times, which is generally in line with recent leverage levels. Tangible common equity has weakened with the acquisition of Hargreave Hale and the associated goodwill. As of Q1 2019, tangible common equity/tangible assets of 5.3% is low compared with historical levels, averaging 6.6% over the past five full fiscal years. Long-term debt as a percentage of total capitalization is also increasing with higher debt levels, though DBRS sees this as acceptable, given that leverage is used to grow the wealth management business. Importantly, working capital of $564 million is good and capital levels remain well above regulatory net-capital requirements.

Affected issues are CF.PR.A and CF.PR.C.

Assiduous Reader TS writes in and says:

James, first of all I do want to say that I check your prefblog regularly and do enjoy your content.

Attaboy, TS! That’s how you get your eMails answered!

With DC.A trading at 1.30 now I get a current value of 16.4125 for the series 5 prefs (DC.PR.E)

Thats assuming that Dundee would actually trigger the conversion option at $2.

From what I calculate they can trigger that option anytime prior to jun 30, 2019 at a pref price of

25.25/2 = 12.625 shares of DC.A per DC.PR.E pref

There are 3.29mil prefs outstanding so if they exercised that option they would issue

3.29×12.625=41.5mil shares of DC.A

There are 55.9mil shares of DC.A outstanding so my real question is…

Would they dilute themselves that much???

So let’s back up a little …

Dundee made an initial proposal in November 2015 to exchange its DC.PR.C shares for DC.PR.E, which would pay a little higher dividend and defer the soft-retraction privilege for three years; the proposal attracted some press coverage and an exhortation to consider exercising dissent rights. This led to reconsideration by Dundee despite a rather peculiar endorsement from a proxy advisor and led to a sweeter offer that attracted further commentary.

… and finally, the company announced a ringing endorsement from the shareholders … or perhaps it would be better to say “the shareholders’ advisors”, since the proxy solicitation fee was so high!

The proposal succeeded and DC.PR.E commenced trading on 2016-2-12. Some investors retracted on 2016-6-30, after filing the paperwork. A further 300,000-odd shares were redeemed on 2018-1-31 which comprised only about 8.4% of the total outstanding:

Dundee Corporation (TSX: DC.A and DC.PR.E) today completed the redemption of 303,265 first preference shares, series 5 (the “Series 5 Preferred Shares”), being all such shares tendered for redemption in accordance with the previously announced mandatory redemption provisions of the Series 5 Preferred Shares. The Series 5 Preferred Shares were redeemed at a price of $25.00 per share, or $7,581,625 in aggregate, plus accrued and unpaid dividends of $48,965. Following completion of the partial redemption, a total of 3,294,938 Series 5 Preferred Shares with a par value of $82.4 million remain issued and outstanding.

On August 14, the company announced some pretty awful operating results:

During the second quarter of 2018, the Corporation incurred a net loss attributable to owners of Dundee Corporation of $76.9 million, or a loss of $1.34 per share, compared to a net loss of $24.5 million or $0.45 per share generated in the second quarter of the prior year. Operating results in the second quarter of 2018 include losses from discontinued operations of $1.9 million, compared with earnings from discontinued operations of $4.3 million during the same quarter of the prior year.
…
• During the second quarter of 2018, loss from investments was $16.1 million, compared with loss from investments of $24.8 million in the same period of the prior year.
• Consolidated revenues were $43.5 million during the second quarter of 2018, compared with revenues of $51.4 million in the same quarter of the prior year.
• During the current quarter, the Corporation recognized a loss from its equity accounted investments of $38.6 million, compared with a gain of $0.1 million in the second quarter of 2017.
• On a year-to-date basis, the Corporation incurred a loss attributable to owners of the Corporation of $101.7 million, compared with net earnings attributable to owners of the Corporation of $5.0 million in the same period of 2017.
…
As previously disclosed, and as a result of a transfer out of $134.0 million of AUM to an external manager in May 2018, Goodman & Company, Investment Counsel Inc. (“GCIC”) reported its AUM of $66.9 million at June 30, 2018, compared with $194.1 million at December 31, 2017.

This news was not met with applause by holders of the Subordinate Voting Shares, DC.A:

Click for Big

… with holders of DC.PR.E being rather disapproving:

Click for Big

At today’s DC.A close of 1.23, the 12.5 DC.A shares to be received on shareholder-initiated conversion next June will be worth $15.375, and there will (maybe!) be four dividend payments in the interim totalling (maybe!) 1.875, for a total Future Value of $17.25, so the ratio is out of whack, given that the VWAP today was 20.46 on volume of 10,660.

So, basically, the company has three options:

• Pull a miracle out of its hat – ideally, of course, this miracle would be something along the lines of “earning a boat-load of money” or “attracting a takeover bid made of gold”, but they could always try to get another extension on their commitment and maybe get another rather peculiar endorsement from a proxy advisor, or
• Redeem DC.PR.E for cash – I suppose this is technically a separate option, but realistically I think it’s a detail of the ‘miracle’ option, above, or
• Allow DC.PR.E shareholders to convert to DC.A and thereby suffer enormous dilution of their subordinated shares.

In connection with the last option, we can review their 2017 Annual Information Form, which states in part:

The Company’s business and affairs are controlled by Mr. Ned Goodman, who directly or indirectly, owns shares representing approximately 99% of the votes attached to the Class B Common Shares and approximately 85% of the votes attached to all of the Company’s shares in aggregate. Accordingly, Mr. Goodman may be able to control the board of directors or to cause or prevent a change of control of the Company. Under Canadian law, an offer to purchase the Common Shares, depending on the offered price, would not necessarily result in an offer to purchase the Subordinate Voting Shares.

So he doesn’t care. Ned Goodman will continue to control the corporation and preside over important personnel decisions, such as whether Jonathan Goodman should continue as Executive Chairman and Director, whether David Goodman should continue as Chief Executive Officer and Director, whether Mark Goodman should continue as President and, perhaps most importantly, how to convince the market that the published book value per share of the company of $8.70 is entirely reasonable.

We shall see! However, I suspect that one very important scenario is that this plays out much along the lines of the saga of Quebecor World … in which repeated heavy conversions of the preferreds into common ultimately ended with a devastating restructuring.

Standard & Poor’s has announced:

•In the past few years, Bank of Montreal (BMO) has demonstrated good risk management with historically low loan losses and increased diversity in revenue streams and loan exposures, and has followed a conservative organic growth strategy.
•We are revising our stand-alone credit profile (SACP) on BMO to ‘a’ from ‘a-‘, to reflect improvements in its risk position. We are also revising our SACP on BMO Financial Corp. (BFC) to ‘bbb+’ from ‘bbb’, to reflect the substantial improvement in non-accruals and modest credit loss experience over the past several years.
•Given the improved stand-alone creditworthiness, we are raising our issue-level ratings on BMO’s non-viability contingent capital (NVCC) and non-NVCC subordinated and hybrid securities. We are affirming our ‘A+/A-1’ long- and short-term issuer credit ratings on BMO and its operating subsidiaries, including BFC.
•The stable outlook on BMO and its operating subsidiaries reflects our expectations that the bank’s financial performance and capitalization will remain stable, and its risk position will remain conservative with measured loan growth, stable credit metrics, and limited acquisition activity.

…
Our stable outlook on BMO and its operating subsidiaries reflects our assumption that, over the next two years financial performance and capitalization will remain stable, and asset quality will remain relatively good, reflecting conservative risk management, measured loan growth, and limited acquisition activity. In addition, we expect that BMO will continue to demonstrate conservative underwriting and improving operating efficiency. We expect the bank’s capital ratios will remain stable with no outsize capital-intensive acquisitions. We expect our S&P Global Ratings RAC ratio for BMO will remain in the middle of the 7%-10% capital range, which we deem adequate.

We could lower our assessment of BMO’s stand-alone creditworthiness if we were to see signs of an elevated risk appetite (for example, double-digit loan growth in the U.S.). We would also lower our SACP on BMO if credit quality weakens materially (particularly in mid-market U.S. commercial lending), or if the bank were to undertake aggressive capital actions (such that the RAC ratio declined below 7% on a sustained basis). Nevertheless, given BMO’s high systemic importance in Canada, we would lower our ratings only if its stand-alone creditworthiness were to decline by more than two notches. An upgrade is unlikely over our two-year outlook horizon because our current ratings already factor in an expectation of continued improvement in operating expenses, consistently strong asset quality, and stable operating performance in BMO’s P&C and capital market segments.

Affected issues are:
NVCC-compliant (to P-2(low)): BMO.PR.B, BMO.PR.C, BMO.PR.D, BMO.PR.S, BMO.PR.T, BMO.PR.W, BMO.PR.Y, BMO.PR.Z

NVCC-non-compliant (to P-2): BMO.PR.A*, BMO.PR.M (called for redemption), BMO.PR.Q, BMO.PR.R* (called for redemption)

BMO.PR.A and BMO.PR.R, both FloatingResets that came into existence through partial exchange from BMO.PR.Q and BMO.PR.M, respectively, are not explicitly listed by S&P on their rating list. This is almost certainly merely sloppiness on S&P’s part.

Fortis Inc. has declared:

NOTICE OF ANNUAL FIXED DIVIDEND RATE

CUMULATIVE REDEEMABLE FIVE-YEAR FIXED RATE RESET

FIRST PREFERENCE SHARES, SERIES G

NOTICE IS HEREBY GIVEN that Fortis Inc. (the “Corporation”) has calculated the annual fixed dividend rate (the “Annual Fixed Dividend Rate”) for the five-year period from and including September 1, 2018 to but excluding September 1, 2023 (the “Subsequent Fixed Rate Period”) for the Corporation’s Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series G (the “Series G First Preference Shares”) in accordance with the terms of the Series G First Preference Shares incorporated in the provisions of its articles.

The Annual Fixed Dividend Rate for the Subsequent Fixed Rate Period shall be equal to 4.393% per annum, being equal to the 2.263% yield to maturity of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on August 2, 2018 on the display designated as page “GCAN5YR Index” on the Bloomberg Financial L.P. service, plus 2.13%.

During the Subsequent Fixed Rate Period, dividends on the Series G First Preference Shares shall, if, as and when declared by the directors of the Corporation, be payable quarterly at the Annual Fixed Dividend Rate.
Dated the 2nd day of August, 2018.

BY ORDER OF THE BOARD OF DIRECTORS
[signed]
James R. Reid
Executive Vice President, Chief Legal Officer and Corporate Secretary

This information is not on the Fortis website, nor is it on SEDAR. I obtained the document from Investor Relations. Presumably the company sent the notice to its only registered shareholder, CDS, with the hope that CDS would notify the brokerages and the brokerages would notify their clients. Ha-ha! We all know how careful the brokerages are to pass on every scrap of relevant information, don’t we?

FTS.PR.G commenced trading 2008-5-23 after being announced 2008-5-6 as a FixedReset, 5.25%+213. It reset to 3.883% in 2013.

Note that this issue does not have an option to convert into FloatingResets – the structure was very new at the time of issue and provisions had not yet standardized although, of course, there is nothing stopping a new issuer from coming out with an equivalent issue.