Category: Issue Comments

Emera Incorporated has announced:

that it will issue 12,000,000 Cumulative Minimum Rate Reset First Preferred Shares, Series H (the “Series H Preferred Shares”) at a price of $25.00 per share and at an initial annual dividend rate of 4.90 per cent, for aggregate gross proceeds of $300 million on a bought deal basis to a syndicate of underwriters in Canada led by Scotiabank, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc. Emera has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series H Preferred Shares at a price of $25.00 per share (the “Underwriters Option”). If the Underwriters Option is exercised in full, the aggregate gross proceeds to Emera will be $350 million.

The holders of the Series H Preferred Shares will be entitled to receive fixed cumulative preferential cash dividends at an annual rate of $1.225 per share, payable quarterly, as and when declared by the board of directors of Emera, yielding 4.90 per cent per annum, for the initial period ending on August 15, 2023. The first of such dividends, if declared, shall be payable on August 15, 2018, and shall be $0.25507 per Series H Preferred Share, based on the anticipated closing of the offering on May 31, 2018. The dividend rate will be reset on August 15, 2023 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.54 per cent, provided that, in any event, such rate shall not be less than 4.90 per cent per annum. The Series H Preferred Shares are redeemable by Emera, at its option, on August 15, 2023 and on August 15 of every fifth year thereafter.

The holders of Series H Preferred Shares will have the right to convert their shares into Cumulative Floating Rate First Preferred Shares, Series I (the “Series I Preferred Shares”), subject to certain conditions, on August 15, 2023 and on August 15 of every fifth year thereafter. The holders of the Series I Preferred Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the board of directors of Emera, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.54 per cent.

The offering is subject to the receipt of all necessary regulatory and stock exchange approvals. The net proceeds of the offering will be used for general corporate purposes.

This issue was announced almost simultaneously with a new issue from Intact Financial Corporation, a FixedReset 4.90%+255. Barry Critchley remarks:

While the two deals shared similar terms, investors treated them differently. By early afternoon only Intact’s order was completely filled. But sources indicated investors could still post expressions of interest for the Emera offering. On TD Investing’s website, the offering is indicated as open.

This seems quite rational, since the new issue is ridiculously expensive.

according to Implied Volatility Analysis:

Click for Big

According to the analysis above, the fair value is a bit under $24.00 … 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.
…
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.

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 today’s GOC-5 yield of 2.33% – 4.17%. It was quoted today at 19.09-25, an Expected Future Current Yield of 5.46%, which ain’t bad for investment grade!

It will be recalled that ENB.PR.F will reset at 4.689% effective June 1.

ENB.PR.F is a FixedReset, 4.00%+251, that 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.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., ENB.PR.F 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).

Click for Big

The market appears to be relatively uninterested in floating rate product; most of the implied rates until the next interconversion are scattered around the current 3-month bill rate and the averages for investment-grade and junk issues are quite different, at +1.13% and +0.72%, respectively – although these break-even rates are much closer to the market rate than has often been the case! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

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

If we plug in the current bid price of the ENB.PR.F 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 be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of ENB.PR.F continue to hold the issue and not to convert.

If you do wish to convert, note that the deadline for notifying the company is 5:00 p.m. (EST) on May 17, 2018.. Brokerages and other intermediaries will normally set their internal deadlines a few days prior to this, so if you want to convert don’t waste any time! Such intermediaries may accept instructions after their internal deadline (but prior to the company deadline, of course) if you grovel in a sufficiently entertaining fashion, but this will only be done on a ‘best efforts’ basis.

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 (emphasis added):

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series F (Series F Shares) (TSX: ENB.PR.F) on June 1, 2018. As a result, subject to certain conditions, the holders of the Series F Shares have the right to convert all or part of their Series F Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series G of Enbridge (Series G Shares) on June 1, 2018. Holders who do not exercise their right to convert their Series F Shares into Series G Shares will retain their Series F Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series F Shares outstanding after June 1, 2018, then all remaining Series F Shares will automatically be converted into Series G Shares on a one-for-one basis on June 1, 2018; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series G Shares outstanding after June 1, 2018, no Series F Shares will be converted into Series G Shares. There are currently 20,000,000 Series F Shares outstanding.

With respect to any Series F Shares that remain outstanding after June 1, 2018, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series F Shares for the five-year period commencing on June 1, 2018 to, but excluding, June 1, 2023 will be 4.689 percent, being equal to the five-year Government of Canada bond yield of 2.179 percent determined as of today plus 2.51 percent in accordance with the terms of the Series F Shares.

With respect to any Series G Shares that may be issued on June 1, 2018, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series G Shares for the three-month floating rate period commencing on June 1, 2018 to, but excluding, September 1, 2018 will be 0.93764 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 1.21 percent plus 2.51 percent in accordance with the terms of the Series G Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series F Shares who wish to exercise their right of conversion during the conversion period, which runs from May 2, 2018 until 5:00 p.m. (EST) on May 17, 2018, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.F is a FixedReset, 4.00%+251, that 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.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., ENB.PR.F 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).

Click for Big

The market appears to be relatively uninterested in floating rate product; the implied rates until the next interconversion are approximately equal to the current 3-month bill rate and the averages for investment-grade and junk issues reflect this, at +1.21% and +1.08%, 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 ENB.PR.F 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 be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of ENB.PR.F continue to hold the issue and not to convert, but I will wait until it’s closer to the May 17 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.

Standard & Poor’s has announced:

• •We believe that TransCanada Corp. (TCC) will not achieve adjusted funds from operations (AFFO)-to-debt of 18%, a requirement we set for the ‘A-‘ rating.
• •In addition, the company has an increasing U.S. asset portfolio that will account for 35%-40% of EBITDA by 2020, and that TCC’s credit measures are
  weaker than many lower-rated diversified U.S. peers.

• •As a result, we are lowering our ratings on TCC and its subsidiary TransCanada PipeLines Ltd., including our long-term corporate credit rating on each to ‘BBB+’ from ‘A-‘.
• •The stable outlook reflects our view that, over the next two years, AFFO-to-debt will be in the 15%-17% range, and debt-to-EBITDA will be approximately 4.5x.

S&P Global Ratings today lowered its ratings on TransCanada Corp. (TCC) and its subsidiary TransCanada PipeLines
Ltd., including its long-term corporate credit rating on both to ‘BBB+’ from ‘A-‘. The outlook is stable.

At the same time, we lowered our global and Canadian national scale preferred share ratings to ‘BBB-‘ and ‘P-2(Low)’ from ‘BBB’ and ‘P-2’ respectively. We also lowered our ratings on the senior unsecured debt to ‘BBB+’ from ‘A-‘ and
the junior subordinated debt to ‘BBB-‘ from ‘BBB’.

Finally, we affirmed our short term and commercial paper rating at ‘A-2’.

Affected issues are TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H, TRP.PR.I, TRP.PR.J and TRP.PR.K.

Standard & Poor’s has announced:

• •On Dec. 5, 2017, Montreal-based Laurentian Bank of Canada disclosed mortgage documentation and client representation issues in connection with mortgages sold to a third-party purchaser, which resulted in some repurchase actions and raised concerns around the rigor of the company’s underwriting procedures and risk control functions.
• •Since then, the bank has undertaken a sample review of its mortgage portfolio. While the review is still ongoing, company disclosures available so far suggest to us that widespread underwriting lapses or mortgage document falsification issues are unlikely to emerge.
• •We understand that the documentation issues largely pertain to documentation deficiencies as opposed to intentional client fraud and misrepresentations. We expect the bank’s recent remedial initiatives to enhance its quality control functions and underwriting procedures, and note the company has not recorded any deterioration in loan performance.
• •We are therefore removing the long- and short-term ratings from CreditWatch negative and affirming them at ‘BBB/A-2’.
• •The negative outlook primarily reflects LBC’s relatively concentrated position in Canadian residential mortgages and our concern over a potential reduction in the company’s projected risk-adjusted capital ratio.

…
Our negative outlook, however, incorporates our view that the company continues to be exposed to risks associated with its more concentrated exposure to Canadian residential mortgages relative to peers’, with meaningful exposure to the non-prime segment (approximately 8% of total mortgage loans) at a time when we have concerns around consumer indebtedness (see: “Canada Economic Risk Higher On Elevated House Prices And Household Debt And Mortgage Fraud; No Ratings Affected,” published Feb. 23, 2018, on RatingsDirect). LBC’s total loans, net of allowances, stood at C$36.7 billion as at Jan. 31, 2018, of which C$18.6 billion (or approximately 50.7%) are Canadian residential mortgages (commercial loans make up about 33.5% of the loan book). This concentration in residential mortgages contributes to a meaningfully larger proportion of operating revenues being derived from net interest income (approximately 66.9% in first-quarter 2018) relative to the average of the larger Canadian banks (approximately 51.9% for the same period). LBC’s residential mortgage loans through independent brokers and advisors grew by 19% year-over-year as of first-quarter 2018. We will continue to monitor LBC’s asset quality metrics in a moderating housing market. As well, we note that LBC’s funding and liquidity ratios remain among the weakest of its peer banks, with a customer loans to deposits ratio, stable funding ratio, and broad liquid assets to short-term wholesale funding ratio of 156.4%, 91.82%, and 0.8x, respectively, compared with a peer average of 113.4%, 109.94%, and 1.38x, respectively). However, given the bank’s growth strategy and funding plans, we expect these metrics to improve over time.

In addition, we believe that LBC could experience some changes to its capital planning process as it adopts the advanced internal rating-based (AIRB) approach to credit risk measurement (projected for fiscal 2020), from the current standardized approach. The bank indicated that the implementation of the AIRB approach remains a key initiative of its transformation plan in order to optimize regulatory capital, and because its regulatory ratios are expected to increase (the exact extent is still not known), we believe that capital optimization strategies may negatively affect the risk-adjusted capital (RAC) ratio.

The outlook is negative, largely reflecting our view of LBC’s risks associated with a relatively concentrated position in Canadian residential mortgages consistent with our concerns around elevated house prices, household debt, and mortgage fraud. The negative outlook also reflects a potential reduction in LBC’s projected RAC ratio as a result of its expected transition to the AIRB approach to credit risk measurement, from the current standardized approach, which would likely reduce its regulatory capital requirements.

Affected issues are LB.PR.H and LB.PR.J

Canoe Financial has announced (bolding from original):

Canoe EIT Income Fund (the “Fund”) (TSX – EIT.UN, EIT.PR.A, EIT.PR.B) announced today that it has closed the previously announced offering of 4.80% Cumulative Redeemable Series 2 Preferred Units (the “Series 2 Preferred Units”). The Series 2 Preferred Units were offered to the public through a syndicate of underwriters led by Scotiabank which also included CIBC Capital Markets, RBC Capital Markets, BMO Capital Markets, TD Securities Inc., National Bank Financial Inc., Industrial Alliance Securities Inc., Canaccord Genuity Corp., and Manulife Securities Incorporated.

The Fund issued 2,800,000 Series 2 Preferred Units at a price of $25.00 per Series 2 Preferred Unit for gross proceeds of $70,000,000. The Fund has also granted the underwriters an option, exercisable at the offering price for a period of 30 days from today’s date, to purchase up to an additional 420,000 Series 2 Preferred Units to cover over-allotments, if any. Holders of the Series 2 Preferred Units will be entitled to fixed cumulative preferential cash distributions of $1.20 per Series 2 Preferred Unit per annum, as and when declared, which will accrue from the date of issue and will be payable quarterly on the 15th day of March, June, September and December in each year with the initial distribution, if declared, payable on June 15, 2018. The Series 2 Preferred Units are listed for trading on the Toronto Stock Exchange under the symbol “EIT.PR.B”.

The Fund intends to use the proceeds from the Offering in accordance with the investment objectives and investment strategies of the Fund, subject to the investment restrictions of the Fund.

The Fund’s regular monthly distribution of $0.10 per unit for unitholders of EIT.UN units remains unchanged. The Fund has maintained the $0.10 per unit monthly distribution since August 2009, through varying market conditions. The Fund’s annual voluntary redemption feature for unitholders of EIT.UN units remains unchanged. Once a date has been set for the 2018 annual redemption, the Fund will issue a news release with the details.

A final short form prospectus dated April 10, 2018 containing important information relating to the Series 2 Preferred Units has been filed with securities commissions or similar authorities in all provinces and territories of Canada. Copies of the final short form prospectus may be obtained from your registered financial advisor using the contact information for such advisor, or from representatives of the underwriters listed above.

EIT.PR.B is a 7-year Retractible, 4.80%, issue. I consider it to be a Split Share since it’s value is derived from an underlying portfolio of equities – it is not an operating company.

The prospectus is not (yet) available on the Canoe Financial website and I am not permitted to link to the public filing directly by the notoriously secretive Canadian Securities Administrators; those who want to see it will have to go through the ‘search’ rigamarole on SEDAR to find “Canoe EIT Income Fund Apr 10 2018 15:34:35 ET Final short form prospectus – English PDF 608 K”.

The prospectus is important because of the unusual tax treatment of distributions for this issue:

Historical Distributions
Set out below are the tax classifications of the historical distributions on the Units of the Fund (which were $0.10 per Unit per month for the entire period presented) for the past five years, and the Manager expects the Series 2 Preferred Units to have a similar breakdown:

%	2017	2016	2015	2014	2013
Capital gain	46.79%	53.10%	60.92%	59.89%	32.73%
Actual amount of eligible dividends	4.75%	8.89%	9.29%	5.33%	18.18%
Actual amount of ineligible dividends
Foreign income, net of tax
Other income
Return of Capital(1)	48.46%	38.01%	29.79%	34.78%	49.09%
Total	100.00%	100.00%	100.00%	100.00%	100.00%
(1) Includes warrants from 2013-2017.

…
Distributions in any given period may consist of net income, net capital gains and/or returns of capital. The Fund’s income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders. See “Principal Canadian Federal Income Tax Considerations”.

DBRS has rated the preferreds at Pfd-2(high):

DBRS Limited (DBRS) finalized the provisional rating of Pfd-2 (high) assigned to the Cumulative Redeemable Series 2 Preferred Units (the Series 2 Preferred Units) issued by Canoe EIT Income Fund (the Fund) and confirmed the rating of the previously issued Cumulative Redeemable Series 1 Preferred Units (the Series 1 Preferred Units, collectively with the Series 2 Preferred Units, the Preferred Units).
…
Following the new issue and assuming no capital distributions or special dividends paid, the net asset value of the Fund would have to fall by approximately 77% for the holders of the Preferred Units to be in a loss position. Considering the expected level of downside protection available to holders of the Preferred Units and the composition and diversification of the Fund’s portfolio, DBRS has finalized the provisional rating of Pfd-2 (high) assigned to the Series 2 Preferred Units and confirmed the Series 1 Preferred Units at Pfd-2 (high).

The main constraints to the rating are the following:

(1) The potential grind on the Portfolio arising from redemption rights and distributions to the Units.
(2) The foreign-exchange risk due to the absence of a hedge on some investments in foreign currencies.
(3) The priority of the lenders under the Credit Facility over the Fund’s assets up to the amount of credit outstanding.

The issue traded 330,753 shares today in a range of 24.96-05 before closing at 24.99-00. Vital statistics are:

Canoe EIT Income Fund has released its Annual Report to December 31, 2017.

Sadly, they did not publish a “whole fund” return.

Figures of interest are:

MER: “Management expense ratio excluding issue costs, interest, and distributions to preferred redeemable units” “as a percentage of net asset value” (which I take to mean, based only on the equity represented by the Capital Units).
1.63% “as a percentage of net asset value” (which I take to mean, based only on the equity represented by the Capital Units).

Average Net Assets: There was no particularly enormous change in either the number of capital units outstanding or of the net asset value per capital unit, so let’s just take the average of the year-beginning and year-ending NAVs: )(1,073-million + 1,151-million) / 2 = 1,112-million

Underlying Portfolio Yield: Dividends received of 32.122-million + interest of 1.084-million is 33.206-million divided by average net assets of 1,112-million is 3.00%

Income Coverage: Net Investment Income of 8.227-million divided by Preferred Share Distributions (annualized) of 6.544-million is 126%.

Asset Coverage: NET ASSETS ATTRIBUTABLE TO HOLDERS OF COMMON REDEEMABLE UNITS of 1,073-million + Preferred redeemable units of 136.3-million, all divided by Preferred redeemable units of 136.3-million is 8.9x.

Quadravest has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake an exchange offering for holders of units of SCITI Trust whereby one Class A Share of the Company will be offered in exchange for 1.17614 freely-tradable listed units of SCITI Trust (the “Exchange Offer”). The maximum number of Class A Shares to be issued by the Company in the Exchange Offer will be 2,917,000.

In conjunction with the Exchange Offer, the Company will also undertake to offer up to 2,917,000 Preferred Shares of the Company at a price of $9.90 per Preferred Share to yield 5.55%. The offering will be led by National Bank Financial Inc., CIBC Capital Markets and BMO Capital Markets.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on April 6, 2018 was $10.11 and $10.36, respectively. The closing price on the TSX of the SCITI Trust units on April 5, 2018 was $7.52.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $7.51 per share and the aggregate dividends paid on the Class A Shares have been $17.64 per share, for a combined total of $25.15. All distributions to date have been made in tax advantaged eligible Canadian dividends or capital gains dividends.

The Company will not receive cash proceeds from the issuance of the Class A Shares. In consideration for issuing each Class A Share, the Company will receive 1.17614 units of SCITI Trust. The investment fund manager of SCITI Trust confirmed on March 21, 2018 that SCITI Trust would be terminating on its scheduled termination date of April 30, 2018. At that time, SCITI Trust will distribute to its unitholders, including the Company to the extent it acquires SCITI Trust units under the Exchange Offer, the net asset value of SCITI Trust in cash.

The net proceeds of the offering, consisting of the net cash proceeds from the issuance of the Preferred Shares, and the net cash proceeds received on the wind-up of SCITI Trust in respect of the SCITI Trust units received as consideration for the issuance of the Class A Shares, 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 the Exchange Offer will end at 5:00 p.m. EST on April 16, 2018. The Exchange Offer is expected to close on or about April 24, 2018 and is subject to certain closing conditions including approval by the TSX.

The sales period for the offering of Preferred Shares will end at 9:00 a.m. EST on April 24, 2018. The offering of Preferred Shares is expected to close on or about April 30, 2018. The offering is subject to certain closing conditions including approval by the TSX.

The press release issued by SCITI Trust on March 21 makes no mention of the potential for an exchange offer.

Scotia Managed Companies Administration Inc. (the “Manager”) confirmed today that SCITI Trust (the “Trust”) (TSX: SIN.UN) will terminate on its scheduled termination date of April 30, 2018 (the “Termination Date”). The last day on which the Trust’s units will trade on the Toronto Stock Exchange (the “TSX”) is April 26, 2018.

After the close of business on the Termination Date, the Trust will distribute to its unitholders their pro rata share of the net assets of the Trust, being the net asset value per unit as of the close of business on the Termination Date after paying its final distribution. Prior to the Termination Date, the Trust will liquidate all of its assets.

Brompton Split Banc Corp. has released its Annual Report to December 31, 2017.

Figures of interest are:

MER: “The MER per unit, excluding Preferred share distributions, was 0.97% in 2017 and 0.99% for 2016. This
ratio is more representative of the ongoing efficiency of the administration of the Fund.”

Average Net Assets: We need this to calculate portfolio yield. MER of 0.97% Total Expenses of 2,160,416 implies $223-million net assets. Preferred Share distributions of 3,414,174 @ 0.50 / share implies 6.828-million shares out on average. Average Unit Value (beginning & end of year) = (24.46 + 23.10) / 2 = 23,67. Therefore 6.828-million @ 23.67 = 234-million average net assets. Good agreement – call it 228-million.

Underlying Portfolio Yield: Dividends received of 6.982-million divided by average net assets of 228-million is 3.06%

Income Coverage: Net Investment Income of 4.833-million divided by Preferred Share Distributions of 3.414-million is 142%.