Category: Issue Comments

Brompton Group has announced (on June 7):

Global Dividend Growth Split Corp. (the “Company”) has determined the exchange ratios for the exchange option (the “Exchange Option”) with respect to its initial public offering. Under the Exchange Option, prospective purchasers could purchase Class A shares or Units (consisting of one Class A and one Preferred share) of the Company by an exchange of freely tradable equity securities (“Exchange Securities”) of the issuers listed below (the “Exchange Eligible Issuers”). The Exchange Option deadline was 5:00 p.m. on May 24, 2018.

The following table indicates the adjusted volume weighted average trading price (“Adjusted VWAP”) and exchange ratio for the Exchange Securities of each Exchange Eligible Issuer as calculated in the manner described in the Company’s prospectus dated May 23, 2018. The adjusted volume weighted average trading price and exchange ratios are rounded to four decimal places. Fractional Class A shares/Units will not be issued.

Company Name (Exchange Ticker Symbol)	CUSIP	ISIN	Adjusted VWAP (C$ Equiv.)	Exchange Ratio Per Class A Share	Exchange Ratio Per Unit
Global Equities
APPLE INCORPORATED (AAPL)	37833100	US0378331005	$249.4883	20.7734	11.3404
BCE (BCE)	05534B760	CA05534B7604	$54.4520	4.5339	2.4751
CARNIVAL CORPORATION (CCL)	143658300	PA1436583006	$79.9122	6.6538	3.6324
CISCO SYSTEMS INCORPORATED (CSCO)	17275R102	US17275R1023	$56.6722	4.7188	2.5760
ENBRIDGE (ENB)	29250N105	CA29250N1050	$40.3859	3.3627	1.8357
HSBC HOLDINGS (HSBC)	404280406	US4042804066	$63.6714	5.3015	2.8942
IBM CORPORATION (IBM)	459200101	US4592001014	$186.5488	15.5328	8.4795
INTEL CORPORATION (INTC)	458140100	US4581401001	$73.4187	6.1131	3.3372
JOHNSON & JOHNSON (JNJ)	478160104	US4781601046	$158.4643	13.1944	7.2029
JP MORGAN CHASE & CO. (JPM)	46625H100	US46625H1005	$141.7487	11.8026	6.4431
MANULIFE FINANCIAL (MFC)	56501R106	CA56501R1064	$24.6940	2.0561	1.1225
NOVARTIS AG (NVS)	66987V109	US66987V1098	$97.7830	8.1418	4.4447
PFIZER INCORPORATED (PFE)	717081103	US7170811035	$47.2153	3.9313	2.1462
PROCTER & GAMBLE CO. (PG)	742718109	US7427181091	$96.5067	8.0355	4.3867
SANOFI SA (SNY)	80105N105	US80105N1054	$50.0553	4.1678	2.2752
SUN LIFE FINANCIAL INCORPORATED (SLF)	866796105	CA8667961053	$54.4145	4.5308	2.4734
TELUS CORPORATION (T)	87971M103	CA87971M1032	$45.4713	3.7861	2.0669
TEXAS INSTRUMENTS INCORPORATED (TXN)	882508104	US8825081040	$151.1907	12.5887	6.8723
TORONTO-DOMINION BANK (TD)	891160509	CA8911605092	$75.2690	6.2672	3.4213
Other
ALIMENTATION COUCHE-TARD INCORPORATED (ATD)	01626P403	CA01626P4033	$55.1488	4.5919	2.5068
ARC RESOURCES LIMITED (ARX)	00208D408	CA00208D4084	$13.0453	1.0862	0.5930
BARRICK GOLD CORPORATION (ABX)	67901108	CA0679011084	$16.8209	1.4006	0.7646
BLACKBERRY LIMITED (BB)	09228F103	CA09228F1036	$15.6563	1.3036	0.7117
CRESCENT POINT ENERGY CORPORATION (CPG)	22576C101	CA22576C1014	$10.0508	0.8369	0.4569
EMERA INCORPORATED (EMA)	290876101	CA2908761018	$40.1965	3.3469	1.8271
ENCANA CORPORATION (ECA)	292505104	CA2925051047	$15.9743	1.3301	0.7261
FIRST QUANTUM MINERALS LIMITED (FM)	335934105	CA3359341052	$21.5054	1.7906	0.9775
FRANCO-NEVADA CORPORATION (FNV)	351858105	CA3518581051	$91.7520	7.6396	4.1705
INTER PIPELINE FUND (IPL)	45833V109	CA45833V1094	$24.4985	2.0398	1.1136
KINROSS GOLD CORPORATION (K)	496902404	CA4969024047	$4.6261	0.3852	0.2103
PEMBINA PIPELINE CORPORATION (PPL)	706327103	CA7063271034	$44.7449	3.7256	2.0339
SHAW COMMUNICATIONS INCORPORATED (SJR.B)	82028K200	CA82028K2002	$26.5114	2.2074	1.2051
TRANSCANADA CORPORATION (TRP)	89353D107	CA89353D1078	$53.9139	4.4891	2.4506
VALEANT PHARMACEUTICALS INTERNATIONAL INCORPORATED (VRX)	91911K102	CA91911K1021	$30.8004	2.5646	1.4000
Exchange-Traded Funds
ISHARES CORE S&P 500 INDEX ETF (XUS)	46434R109	CA46434R1091	$44.7166	3.7233	2.0326
ISHARES CORE S&P/TSX CAPPED COMPOSITE INDEX ETF (XIC)	46430J101	CA46430J1012	$25.7062	2.1404	1.1685
ISHARES MSCI EAFE INDEX ETF (XIN)	46428L100	CA46428L1004	$26.7373	2.2263	1.2153
ISHARES MSCI EUROPE IMI INDEX ETF (XEU)	46434W108	CA46434W1086	$24.9395	2.0766	1.1336
ISHARES MSCI WORLD INDEX ETF (XWD)	46430Y108	CA46430Y1088	$50.5080	4.2055	2.2958
ISHARES S&P/TSX 60 INDEX ETF (XIU)	46428D108	CA46428D1087	$23.9088	1.9907	1.0868
VANGUARD S&P 500 INDEX ETF (VFV)	92205Y105	CA92205Y1051	$63.4257	5.2811	2.8830

The Toronto Stock Exchange has conditionally approved the listing of the Class A and Preferred shares, subject to the Company fulfilling all customary requirements. Trading under the symbols GDV and GDV.PR.A is expected to commence on the closing date, June 15, 2018.

The Company will invest in a diversified portfolio (the “Portfolio”) of equity securities of large capitalization global dividend growth companies selected by the Manager. In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing of the Portfolio, each global dividend growth company included in the Portfolio must (i) have a market capitalization of at least US$10 billion; and (ii) have a history of dividend growth or, in the Manager’s view, have high potential for future dividend growth.

The Manager expects that at least 20 global dividend growth companies will comprise the Portfolio. The indicative portfolio includes: Airbus SE, Apple Inc., AstraZeneca plc, BCE Inc., Carnival Corporation, Cisco Systems Inc., Deutsche Post AG, Enbridge Inc., HSBC Holdings plc, Intel Corporation, IBM Corporation, Johnson & Johnson, JP Morgan Chase & Co., Manulife Financial Corporation, Novartis AG, Pfizer Inc., Proctor & Gamble Co., Sanofi SA, Siemens AG, Sun Life Financial Inc., TELUS Corporation, Texas Instruments Inc., Toronto-Dominion Bank, UBS Group AG, and Vinci SA.

The investment objectives for the Class A shares are to provide their holders with regular monthly non-cumulative cash distributions and the opportunity for capital appreciation through exposure to the Portfolio. The monthly cash distribution is targeted to be $0.10 per Class A share representing a yield on the issue price of the Class A shares of 10.0% per annum.

The investment objectives for the Preferred shares are to provide their holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders on June 30, 2021, subject to extension for successive terms of up to five years as determined by the board of directors of the Company. The quarterly cash distribution will be $0.1250 per Preferred share ($0.50 per annum, or 5.0% per annum on the issue price of $10.00 per preferred share), until June 30, 2021. The Preferred shares have been provisionally rated Pfd-3 (high) by DBRS Limited.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and includes BMO Capital Markets, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Echelon Wealth Partners., Industrial Alliance Securities Inc., Desjardins Securities Inc., and Mackie Research Capital Corporation.

Today, Brompton announced:

Brompton Funds Limited (the “Manager”) is pleased to announce that Global Dividend Growth Split Corp. (the “Company”) has completed its initial public offering of 3,550,000 Class A shares and 3,550,000 Preferred shares for total gross proceeds of $78.1 million. The Class A and Preferred shares will commence trading today on the Toronto Stock Exchange under the symbols GDV and GDV.PR.A, respectively.

The Company will invest in a diversified portfolio (the “Portfolio”) of equity securities of large capitalization global dividend growth companies selected by the Manager. In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing of the Portfolio, each global dividend growth company included in the Portfolio must (i) have a market capitalization of at least US$10 billion; and (ii) have a history of dividend growth or, in the Manager’s view, have high potential for future dividend growth.
The investment objectives for the Class A shares are to provide their holders with regular monthly non-cumulative cash distributions and the opportunity for capital appreciation through exposure to the Portfolio. The monthly cash distribution is targeted to be $0.10 per Class A share representing a yield on the issue price of the Class A shares of 10.0% per annum.

The investment objectives for the Preferred shares are to provide their holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders on June 30, 2021, subject to extension for successive terms of up to five years as determined by the board of directors of the Company. The quarterly cash distribution will be $0.1250 per Preferred share ($0.50 per annum, or 5.0% per annum) on the issue price of $10.00 per Preferred share, until June 30, 2021. The Preferred shares have been provisionally rated Pfd-3 (high) by DBRS Limited.

Brompton Funds Limited acts as the manager and portfolio manager of the Company. The Manager currently manages five split share corporations with combined assets of over $1.3 billion.

The syndicate of agents for the offering was led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and includes BMO Capital Markets, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Echelon Wealth Partners., Industrial Alliance Securities Inc., Desjardins Securities Inc., and Mackie Research Capital Corporation.

DBRS has finalized the Pfd-3(high) rating:

DBRS Limited (DBRS) finalized the provisional rating of Pfd-3 (high) assigned to the Preferred Shares issued by Global Dividend Growth Split Corp. (the Company). The Company issued an equal number (3,550,000) of the Preferred Shares and the Class A Shares at an issue price of $10.00 per Preferred Share and $12.00 per Class A Share. From to time or during the events of issuance and redemption, the number of the Class A Shares outstanding may exceed the number of the Preferred Shares outstanding. It is expected that such excess will not be more than 10% and the excess of over 10% should not be outstanding for more than 15 days. Both classes of shares are scheduled to mature on June 30, 2021. The term of the Company may be extended beyond the maturity date for additional terms of five years each as determined by the Company’s board of directors.
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Based on the initial asset coverage of 2.1x, the net asset value of the Company would have to fall by approximately 53% for the holders of the Preferred Shares to be in a loss position. The initial dividend coverage ratio is 0.6x.

GDV.PR.A commenced marketing in late April and issued a final prospectus on May 24. It is a 5% three-year SplitShare and will be tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

The issue traded 154,447 shares today in a range of 9.90-00 before closing at 10.00-01. Vital statistics are:

National Bank of Canada has announced:

that it has closed its domestic public offering of non-cumulative 5-year rate reset first preferred shares series 42 (non-viability contingent capital (NVCC)) (the “Series 42 Preferred Shares”). National Bank issued 12 million Series 42 Preferred Shares at a price of $25.00 per share to raise gross proceeds of $300 million.

The offering was underwritten by a syndicate led by National Bank Financial Inc.

The Series 42 Preferred Shares will commence trading on the Toronto Stock Exchange today under the ticker symbol NA.PR.G.

The Series 42 Preferred Shares were issued under a prospectus supplement dated June 4, 2018 to National Bank’s short form base shelf prospectus dated November 21, 2016.

NA.PR.G is a FixedReset, 4.95%+277, NVCC compliant, announced 2018-05-31. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 711,342 shares today in a range of 24.85-96 before closing at 24.94-95. The slight discount to par isn’t bad, given that TXPR is down about 0.25% from the close immediately prior to the announcement date. Vital statistics are:

The new issue is ridiculously expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair value of the new issue on June 11 is 23.86.

Capital Power Corporation has announced (on May 31):

that it has notified registered shareholders of its Cumulative Rate Reset Preference Shares, Series 5 (Series 5 Shares) (TSX: CPX.PR.E) of the Conversion Privilege and Dividend Rate Notice.

Subject to certain conditions, beginning on May 31, 2018 and ending at 5:00 p.m. (Toronto time) on June 15, 2018, each registered holder of Series 5 Shares will have the right to elect to convert any or all of their Series 5 Shares into an equal number of Cumulative Floating Rate Preference Shares, Series 6 (Series 6 Shares) by delivering an Election Notice to the Corporation.

If Capital Power does not receive an Election Notice from a holder of Series 5 Shares during the time fixed therefor, then the Series 5 Shares shall be deemed not to have been converted (except in the case of an Automatic Conversion, see below). Holders of the Series 5 Shares and the Series 6 Shares will have the opportunity to convert their shares again on June 30, 2023, and every five years thereafter as long as the shares remain outstanding.

Effective June 30, 2018, on May 31, 2018, the Annual Fixed Dividend Rate for the Series 5 Shares was set for the next five-year period at 5.23800%. Effective June 30, 2018, on May 31, 2018, the Floating Quarterly Dividend for the Series 6 Shares was set for the first Quarterly Floating Rate Period (being the period from and including June 30, 2018, to but excluding September 30, 2018) at 1.12164%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 5 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 5 Shares is CDS Clearing and Depository Services Inc. (CDS). All rights of beneficial holders of Series 5 Shares must be exercised through CDS or the CDS participant through which the Series 5 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 5 Shares into Series 6 Shares is 3:00 p.m. (MDT) / 5:00 p.m. (EDT) on June 15, 2018. Any Election Notices received after this deadline will not be valid. As such, beneficial holders of Series 5 Shares who wish to exercise their rights to convert their 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 time to complete the necessary steps.

After June 15, 2018, (i) if Capital Power determines that there would remain outstanding on June 30, 2018, less than 1,000,000 Series 5 Shares, all remaining Series 5 Shares will be automatically converted into Series 6 Shares on a one-for one basis effective June 30, 2018 (an Automatic Conversion); or (ii) if Capital Power determines that there would remain outstanding after June 30, 2018, less than 1,000,000 Series 6 Shares, no Series 5 Shares will be permitted to be converted into Series 6 Shares effective June 30, 2018. There are currently 8,000,000 Series 5 Shares outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series 6 Shares effective upon conversion. Listing of the Series 6 Shares is subject to the Capital Power fulfilling all the listing requirements of the TSX and upon approval, the Series 6 Shares will be listed on the TSX under the trading symbol CPX.PR.F.

CPX.PR.E is a FixedReset, 4.50%+315, that commenced trading 2013-3-14 after being announced 2013-3-5. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

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., CPX.PR.E and the FloatingReset, CPX.PR.F, 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 +1.01% and +1.34%, 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 CPX.PR.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart, CPX.PR.F, 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 CPX.PR.E continue to hold the issue and not to convert, but I will wait until it’s closer to the June 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 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.

Emera Incorporated has announced (on May 31):

that it has completed its bought deal offering of 12,000,000 Cumulative Minimum Rate Reset First Preferred Shares, Series H at a price of $25.00 per share for aggregate gross proceeds of $300 million. The syndicate of underwriters was led by Scotiabank, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc., as joint bookrunners, and also included BMO Capital Markets, National Bank Financial Inc., Industrial Alliance Securities Inc. and Raymond James Ltd. The net proceeds of the offering will be used for general corporate purposes.

EMA.PR.H is a FixedReset, 4.90%+254M490, announced May 17. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,345,583 shares on its May 31 opening day in a range of 24.65-95 before closing at 24.88-92. Vital Statistics are:

The new issue is somewhat expensive according to Implied Volatility Analysis:

Click for Big

According to the analysis above, the fair value is $24.50 … note, however, that complainers will triumphantly point out that this assigns a value of zero to the Floor Rate Guarantee. But as I stated in the February, 2018, edition of PrefLetter:

It is often asserted that a horrific fall of FixedReset prices is a completely logical expectation; that the 2014-16 bear market was completely justified; that similar experiences will happen again; and that floor rates are an excellent way to protect investors from the decline in income.

This assertion does not make a lot of sense to me. Suppose an investor holds a FixedReset with a coupon rate of 5% and that a decline in government yields makes a reduction to 4% seem both likely and imminent. If the bear market scenario is to play out, this investor and many like him will be selling to avoid experiencing the reset.

But where is this money to be deployed? Yields are already down in the government market and all other fixed income markets will be affected to some degree; corporate-government spreads increased during the recent episode (see Chart FR-63 ), but corporate yields did decline – they just didn’t decline as much. I see no reason for an expectation that FixedReset yields should magically remain constant if the face of global interest rate declines.
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However, any increase in the price of the floor-rate issue is capped by the call price. In the simplest scenario, the non-floor issue will remain priced at par and reset to a 4% distribution, while the floored issue will be called; the investor will then have to reinvest his funds … and find that he is reinvesting at contemporary rates and experiencing transaction costs that are not borne by the investor in the non-floored issue. It’s not much of a win!

In order for the floor rate to have value, both issues must be trading at a discount to par; this will give the floored issue room to rise in price on the secondary market. Such a price rise will be determined by the excess yield to be gained over the next five years until the next reset plus, perhaps, an allowance for the possibility that current conditions will persist and give the holder another chance to reset. The benefit will be capped by the distribution rate difference multiplied by the Modified Duration of the issues (which will normally be in the range of 20 to 25), so a price difference of between 20% and 25% for a one percent decline in government yields. However, this potential gain is capped by the potential for a call, so the issues must already be trading at a 20%-25% discount to par for this maximum to be reached … and to work out the value of this scenario, we must then calculate the probability of such a decline in government yields.

Once we see floor-rate issues trading at large discounts in an environment in which a significant decline in government rates has a reasonable probability, I will revisit my opinion of the value of such guarantees. I’m not holding my breath.

Now, against the above we have actual empirical data regarding the prices of the EMA FixedResets since the announcement date:

This has accompanied the fall in the GOC-5 yield from 2.33% on May 17 to 2.10% on May 31 (which, proponents will gleefully point out, has made the floor rate on the new issue a matter of great interest). For now, the situation remains murky.

However, even those unimpressed by all that “Implied Volatility” blather and tiresome pettifogging regarding Floor Guarantees should be, at the very least, tempted by EMA.PR.A in preference to the new issue. Sure, it only pays 2.555% at present … but it will reset on 2020-8-15 at GOC-5 + 184, or – given the May 31 GOC-5 yield of 2.10% – 3.94%. It was quoted May 31 at 19.10-31, an Expected Future Current Yield of 5.16%, which ain’t bad for investment grade!

DBRS has announced that it:

changed the trend to Positive from Stable and confirmed the Issuer Rating of Bombardier Inc. (Bombardier or the Company) at B. This action reflects an improvement in DBRS’s projected financial profile expectations for 2018 and 2019 since the last rating action taken in November 2017 as a result of the Company’s performance over the last two quarters; a change in DBRS’s view regarding the Company’s ability to reach free cash flow breakeven status in 2018 (according to the Company’s definition, which includes changes in working capital), which DBRS now views as achievable (previously “aggressive”); greater comfort with the new management team’s ability to deliver on goals/targets when this had been a challenge in past years; continued margin improvement in the business aircraft (BBA) and aerostructures/engineering (BAES) divisions while Bombardier Transportation (BT; the rail division) continued to post EBIT margins above 8% as a result of the ongoing transformation initiative; less risk associated with the C Series program and partnership with Airbus SE after the U.S. International Trade Commission announced in January 2018 that U.S. aircraft producers were not injured in the complaint brought forth by The Boeing Company; and the Company’s explicit comments regarding the focus on deleveraging, as well as DBRS’s view that this is realistic.
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DBRS believes that the Company’s business risk profile benefited from the de-risking of the C Series program and will benefit from a successful launch of the Global 7500, which currently has a backlog running through 2021. Further improvements from the transformation program would also be mildly supportive. The financial risk profile should improve over the next 12 months to 24 months as the Company moves into its “Deleveraging Phase” in 2019 and operating performance improves, supported by continued strong performance at BT, early signs of firming in the business jet market, continued steady contributions from the Company’s Q400 and CRJ regional jet product lines and improved results from the C Series program as deliveries and orders rise and the program approaches a cash breakeven position over the next few years. Key metrics are projected to improve within the B rating category in F2018, with certain metrics possibly achieving the BB rating level. DBRS projects that key credit metrics should be in the high B to BB range in 2019.

Bombardier’s liquidity position is more than adequate for current needs after a $500 million equity raise in Q1 2018, and the sale of its non-core Downsview property in Toronto, which is expected to close in Q2 2018 and net the Company $550 million.

Affected issues are BBD.PR.B, BBD.PR.C and BBD.PR.D

DBRS has announced that it:

placed the following ratings Under Review with Negative Implications:

— Kinder Morgan Canada Limited (KML), Preferred Shares – Cumulative rating of Pfd-3 (high)
— Kinder Morgan Cochin ULC (KMU), Issuer Rating of BBB (high)

The rating action follows the announcement by KML’s board that the Government of Canada (Rated AAA with Stable trend by DBRS) has agreed to purchase the existing Trans Mountain Pipeline System and the $7.4 billion Trans Mountain Expansion Project (TMEP) for $4.5 billion. As part of the agreement, the Government of Canada has agreed to fund the resumption of TMEP planning and construction work by guaranteeing TMEP’s expenditures under a separate federal government recourse credit facility until the transaction closes. The parties expect to close the transaction by late Q3 2018 or early Q4 2018, subject to KML shareholder and applicable regulatory approvals.
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DBRS’s view is that, following the sale of the Trans Mountain Pipeline System and TMEP to the Government of Canada, KMU’s residual assets may not be supportive of the BBB (high) rating. The Company will continue to operate an integrated network of crude oil tank storage and rail terminals in Alberta; the Vancouver Wharves Terminal, a mineral concentrate export/import facility; and the Canadian portion of the Cochin Pipeline system, which transports light condensate originating from the United States to Fort Saskatchewan. Although the TMEP project overhang and legal risks are removed for the Company, the remaining assets have a relatively weaker credit profile compared with the assets being sold. The existing assets are contractually supported, but they lack the scale, diversification and the rate-regulated underpinnings that the Company had prior to the sale. Furthermore, the contract duration for the remaining assets are shorter, with a mix of investment grade and non-investment counterparties. DBRS notes that the Company had minimal debt at Q1 2018 and the capital expenditure requirements going forward are expected to be reasonable.

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

Standard & Poor’s has announced:

• •Fairfax Financial Holdings Ltd. and its subsidiaries’ (collectively, FFH)
  operating earnings outlook is improving as the company redeploys its substantial cash and short-term holdings.

• •Our view of its competitive position has strengthened in the past few years due to the addition of strong operating assets that complement FFH’s insurance platform.
• •We are revising our outlook on FFH to positive from stable, and affirming all of our ratings.
• •The positive outlook means that we could upgrade FFH by one notch during the next 24 months if the group improves its fixed charge coverage, supported by a stable-to-declining trend in financial leverage, and maintains very strong capitalization redundant at the ‘AA’ level.

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The positive outlook reflects the expansion of operating earnings primarily driven by an increase in investment earnings that should lead to steady improvement in debt serviceability and support prospective capitalization in the next two-to-three years. In addition, we expect FFH to build on its competitive position, leveraging further the strength of its combined insurance operating platform. We also expect group enterprise risk management (ERM) practices to continue to develop reflective of a large and complex organization.

Affected issues are FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.J, FFH.PR.K and FFH.PR.M.

Intact Financial Corporation has announced:

that it has closed its previously announced bought deal offering (the “Offering”) of Non-cumulative Rate Reset Class A Shares, Series 7 (the “Series 7 Preferred Shares”) underwritten by a syndicate of underwriters (the “Underwriters”) led by TD Securities Inc. together with BMO Capital Markets, CIBC Capital Markets and National Bank Financial, resulting in aggregate gross proceeds (including the proceeds resulting from the exercise of their option) to IFC of $250 million. The net proceeds from the Offering will be used by IFC for general corporate purposes.

The holders of Series 7 Preferred Shares will be entitled to receive fixed non-cumulative preferential cash dividends, as and when declared by the Board of Directors of IFC, on a quarterly basis (with the first quarterly dividend, covering the period from issuance to September 30, 2018, to be paid on September 28, 2018), for the initial fixed rate period ending on June 30, 2023, based on an annual rate of 4.90%. The dividend rate will be reset on June 30, 2023 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 2.55%.

Holders of the Series 7 Preferred Shares will have the right, at their option, to convert their Series 7 Preferred Shares into Non-cumulative Floating Rate Class A Shares, Series 8 (the “Series 8 Preferred Shares”), subject to certain conditions, on June 30, 2023 and on June 30 every five years thereafter. The holders of Series 8 Preferred Shares will be entitled to receive floating rate non-cumulative preferential cash dividends, as and when declared by the Board of Directors of IFC, at a rate equal to the 90-day Canadian Treasury Bill rate plus 2.55%.

DBRS Limited has assigned a rating of Pfd-2 with a Stable trend for the Series 7 Preferred Shares.

The Series 7 Preferred Shares will commence trading on the Toronto Stock Exchange on May 29, 2018 under the symbol IFC.PR.G.

IFC.PR.G is a FixedReset, 4.90%+255, announced 2018-5-17. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

As this issue is not NVCC compliant, it will be analyzed as having a Deemed Retraction – that is, a “DeemedMaturity” on 2025-1-31 will be assumed. This date may change in the future. Note, however, that this carries more uncertainty than it does with most other insurers because Intact is a P&C insurer, not a life company.

The issue traded 463,145 shares today in a range of 24.70-92 before closing at 24.80-82. Vital statistics are:

The TXPR price index is down 1.45% since the close prior to announcement (that is, from the close on May 16 until the close May 29), so the issue held its own against the overall market.

p> Enbridge Inc. has announced :

that none of Enbridge’s outstanding Cumulative Redeemable Preference Shares, Series F (Series F Shares) will be converted into Cumulative Redeemable Preference Shares, Series G of Enbridge (Series G Shares) on June 1, 2018.

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

It will be recalled that ENB.PR.F will reset to 4.689% effective 2018-6-1 and will hence be referred to as a FixedReset, 4.689%+251.

ENB.PR.F commenced trading 2012-1-18 after being announced 2012-1-9. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It will be further recalled that I recommended against conversion.

Quadravest Capital Management has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC World Markets Inc., Scotia Capital Inc. and RBC Capital Markets, and will also include BMO Capital Markets, Canaccord Genuity Corp., Industrial Alliance Securities Inc., Echelon Wealth Partners, GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation, and Manulife
Securities Incorporated.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.6% and the Class A Shares will be offered at a price of $10.30 per Class A Share to yield 14.6%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on May 22, 2018 was $10.13 and $10.49, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $7.60 per share and the aggregate dividends paid on the Class A Shares have been $17.89 per share, for a combined total of $25.49. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal	National Bank of Canada	Bank of America Corp.
The Bank of Nova Scotia	Manulife Financial Corporation	Citigroup Inc.
Canadian Imperial Bank of Commerce	Sun Life Financial Services of Canada Inc.	Goldman Sachs Group Inc.
Royal Bank of Canada	Great-West Lifeco Inc.	JP Morgan Chase & Co.
The Toronto-Dominion Bank	CI Financial Corp.	Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 5.50% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until
2020; and
ii. on or about the termination date, currently December 1, 2020 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2020 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share

The sales period of this overnight offering will end at 9:00 a.m. EST on May 24, 2018. The offering is expected to close on or about May 31, 2018 and is subject to certain closing conditions including approval by the TSX.

So Whole Units are being offered for 20.20 and the NAVPU as of May 15 was 17.76! That’s a premium of a little under 14%! Holy smokes, but it’s a nice business when it works, eh?

Update, 2018-5-26: The offering was successful:

Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 5,159,000 Preferred Shares and up to 5,159,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $104.2 million.