Category: Issue Comments

Aimia has received another bid for some of its assets:

Aimia Inc. has received its second hostile bid in as many days − this time for its large stake in Mexico’s leading frequent-flyer program.

The day after Air Canada launched a hostile offer for Aeroplan, the loyalty-rewards program owned by Aimia, Grupo Aeromexico announced its own bid to acquire Aimia’s 49-per-cent stake in PLM Premier for US$180-million, or $235-million.

PLM runs Club Premier, Mexico’s frequent-flyer program, which has partnered with national airline Aeromexico. The airline already controls the majority stake in PLM.

Aimia turned down the offer in a matter of hours, arguing that Aeromexico undervalued the asset.

Aeromexico’s press release highlights the unusual circumstance that Aimia will actually have made some money on its investment:

Grupo Aeromexico (“Aeromexico”) informs that, as a current shareholder of 51.145% of PLM Premier, S.A.P.I. de C.V. (“PLM”), it has made a non-binding proposal for the acquisition of the shares currently held by Aimia Inc (“Aimia”), representing 48.855% on a fully diluted basis, of the outstanding shares of capital stock (the “Stock”) of PLM (the “Proposed Transaction”) for an amount of $180 million US dollars. This amount, including dividends and marketing fees paid to Aimia since its investment, represents an annualized rate of return for Aimia of approximately 18%.

And, as noted in the news story, Aimia scorned the idea:

Aimia Inc. (TSX: AIM), a data-driven marketing and loyalty analytics company, today confirms that it has received a non-binding offer (the “Offer”) from Grupo Aeromexico S.A.B. de C.V. (“Aeromexico”) to acquire for US$180 million Aimia’s 48.855% stake in PLM Premier, S.A.P.I. de C.V. (“PLM”), the owner and operator of Aeromexico’s Club Premier frequent flyer program. Aimia also announces that it has formally notified Aeromexico that the Offer has been rejected.

The Company has promptly rejected the Offer as it believes that its stake in PLM is worth significantly more than the Offer price, which reflected no improvement whatsoever to the terms previously proposed by Aeromexico to Aimia in prior discussions between the parties. By way of reminder, PLM generated Adjusted EBITDA of US$77.4 million in 20171 and the current contract term between PLM and Aeromexico runs to 2030.

All this follows yesterday’s bid for the Aeroplan Canadian operation. I’m not sure why the newspapers persist in calling these ‘hostile bids’. It’s unusual that they’re public, of course, but management and the board have sole discretion regarding what to do, as far as I understand it. Shareholders will not get a vote.

AIM preferreds jumped on the news:

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

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.

Air Canada wants Aeroplan back:

Air Canada has made a hostile bid to buy back Aeroplan at a heavily discounted price, 13 years after it spun off the popular Canadian loyalty rewards program.
…
Rather than starting from scratch, the airline and its partners Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. are now offering to pay $250-million in cash to Aimia for a program that in 2005 had a $2-billion valuation through an initial public offering.

In response to Air Canada’s announcement, Aimia’s stock surged on Wednesday, climbing 36 per cent. Air Canada’s shares had a much more muted reaction, rising 1.4 per cent.

In the the offer announced Wednesday, Air Canada and its partners would assume a $2-billion outstanding liability on Aimia’s books for loyalty points that have not yet been redeemed. Aimia currently has $300-million in cash reserved to cover these liabilities.

Air Canada has set up a Q&A page on their website in addition to the consortium’s press release:

Air Canada, The Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce (“CIBC”), and Visa Canada Corporation (“Visa”), on behalf of a corporation to be formed, have made a proposal to Aimia Inc. (“Aimia”) to acquire its Aeroplan loyalty business (including approximately $2 billion of Aeroplan points liability at March 31, 2018) for $250 million in cash (the “Proposed Transaction”), representing a total purchase price of approximately $2.25 billion.

The Proposed Transaction, if accepted by Aimia, will ensure value and continuity for their members as well as customers of Air Canada, TD, CIBC and Visa. The proposal implies an estimated market equivalent value of $3.64 per Aimia share, a 52.3% premium to the 30-day VWAP and a 45.6% premium to spot closing price as of July 24, 2018. The market equivalent value is comprised of the Aeroplan loyalty business proposal value of $1.64 per Aimia common share plus non Aeroplan loyalty program net assets valued at $2.00 per common share based on fair market value estimates contained in Mittleman Investment Management’s Q1 2018 investor letter.

Aimia has acknowledged receipt of the proposal:

Aimia Inc. (TSX: AIM), a data-driven marketing and loyalty analytics company, today confirms that it has received a conditional proposal from a consortium (the “Consortium”) consisting of Air Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and VISA Canada Corporation to acquire the Aeroplan loyalty program business (the “Proposal”), and acknowledges the press release issued by the Consortium earlier today with respect to the Proposal.

This public Proposal follows prior private engagement and discussions between Aimia and the Consortium. The Board of Directors of Aimia had formed a special committee of independent directors (the “Special Committee”) some time ago in connection with such engagement and discussions and had engaged legal and financial advisors. Further to its ongoing mandate, the Special Committee will consider this Proposal in consultation with its legal and financial advisors to assess whether the Proposal is in the best interests of shareholders and the Company as a whole and will make appropriate recommendations to the Board of Directors.

Given the nature of the Proposal, shareholders of Aimia do not need to and are advised not to take any action with respect to the Proposal at this time. Aimia intends to provide updates if and when necessary in accordance with applicable securities laws.

AIM preferreds jumped on the news:

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

Note that the bid is not for the company, but for the Aeroplan asset. 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.

It will be recalled that EMA.PR.C will reset at 4.721% effective August 15.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. The extension was announced 2018-07-06 and the reset rate was set 2018-07-16. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-2(low) by S&P. 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., EMA.PR.C 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 similar, at +1.37% and +1.20%, respectively – slightly below the market rate. 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 EMA.PR.C 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 EMA.PR.C 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. (EDT) on July 31, 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.

Emera Incorporated has announced:

the applicable dividend rates for its Cumulative Rate Reset First Preferred Shares, Series C (the “Series C Shares”) and Cumulative Floating Rate First Preferred Shares, Series D (the “Series D Shares”), in each case, payable if, as and when declared by the Board of Directors of the Company:
• 4.721% per annum on the Series C Shares ($0.29506 per Series C Share per quarter), being equal to the sum of the Government of Canada bond yield as at July 16, 2018, plus 2.65%, payable quarterly on the 15th of February, May, August and November of each year during the five-year period commencing on August 15, 2018 and ending on (and inclusive of) August 14, 2023; and
• 4.1140% on the Series D Shares of the Company (the “Series D Shares”) for the three-month period commencing on August 15, 2018 and ending on (and inclusive of) November 14, 2018 ($0.25924 per Series D Share for the quarter), being equal to the sum of the three-month Government of Canada treasury bill yield rate as at July 16, 2018, plus 2.65% (calculated on the basis of the actual number of days elapsed during the quarter divided by 365), payable on the 15th of November 2018. The quarterly floating dividend rate will be reset every quarter.

Holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Series D Shares on August 15, 2018 (the “Conversion Date”). On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares. The foregoing conversion right is subject to the following:
• if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and
• alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.

Beneficial owners of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2018 until 5:00 p.m. (EDT) on July 31, 2018.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. The extension was announced 2018-07-06. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-2(low) by S&P. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

Note that the July 31 notification deadline is that of the company; brokers will normally set their internal deadlines a day or two in advance of this date – so check, well in advance! If you miss the brokers’ deadline, but still have time to make the company deadline, brokers will usually attempt the conversion on a ‘best efforts’ basis, provided you grovel in a sufficiently entertaining fashion.

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., EMA.PR.C 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 +1.49% and +1.21%, 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 EMA.PR.C 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 EMA.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the July 31 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.

Bank of Montreal has announced (on June 28):

its intention to redeem all of its 6,267,391 outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 16 (“Series 16”) for an aggregate total of approximately $157 million and all of its 5,732,609 outstanding Non-Cumulative Floating Rate Class B Preferred Shares, Series 17 (“Series 17”) for an aggregate total of approximately $143 million on August 25, 2018. The redemption has been approved by the Office of the Superintendent of Financial Institutions.

The Series 16 and Series 17 are redeemable at Bank of Montreal’s option on August 25, 2018, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on August 27, 2018, the first business day following the redemption date, upon surrender of the Series 16 and Series 17.

On May 30, 2018, Bank of Montreal announced that dividends of $0.211875 per share for Series 16 and $0.179589 per share for Series 17 had been declared. These will be the final dividends on Series 16 and Series 17, and will be paid in the usual manner on August 27, 2018 to the shareholders of record on August 1, 2018, separately from the payment of the redemption price.

Notice will be delivered to holders of the Series 16 and Series 17 in accordance with the terms outlined in the Series 16 and 17 prospectus supplement.

Series 16 is BMO.PR.M, a Fixed Reset +165bp that commenced trading 2008-6-23 at 5.20% after being announced 2008-6-12 and was reset to 3.39% in August, 2013.

Series 17 is BMO.PR.R, a FloatingReset, +165bp, that resulted from the 2013 conversion from BMO.PR.M at the time of reset.

Emera Incorporated has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Rate Reset First Preferred Shares, Series C of the Company (the “Series C Shares”) on August 15, 2018. There are currently 10,000,000 Series C Shares outstanding.

Subject to certain conditions set out in the prospectus supplement of the Company dated May 31, 2012, to the amended and restated short form base shelf prospectus dated February 18, 2011, relating to the issuance of the Series C Shares, the holders of the Series C Shares have the right, at their option, to convert all or any of their Series C Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series D of the Company (the “Series D Shares”) on August 15, 2018 (the “Conversion Date”).

On such date, holders who do not exercise their right to convert their Series C Shares into Series D Shares will continue to hold their Series C Shares.

The foregoing conversion right is subject to the following:

1. if the Company determines that there would be less than 1,000,000 Series D Shares outstanding on the Conversion Date, then holders of Series C Shares will not be entitled to convert their shares into Series D Shares, and

2. alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series C Shares on the Conversion Date, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on the Conversion Date.

In either case, Emera will give written notice to that effect to holders of Series C Shares no later than August 8, 2018.

The dividend rate applicable for the Series C Shares for the five-year period commencing on August 15, 2018 and ending on (and inclusive of) August 14, 2023, and the dividend rate applicable to the Series D Shares for the 3-month period commencing on August 15, 2018 and ending on (and inclusive of) November 14, 2018, will be determined on July 16, 2018 and notice of such dividend rates shall be provided to the holders of the Series C Shares on that day.

Beneficial owners of Series C Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2018 until 5:00 p.m. (EDT) on July 31, 2018.

EMA.PR.C is a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29.

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

Middlefield Group has announced:

Middlefield Group, on behalf of E Split Corp. (the “Company”), is pleased to announce the Company has completed its initial public offering of 3,200,000 class A shares and 3,200,000 preferred shares for total gross proceeds of $80 million. The Class A and Preferred shares are listed on the Toronto Stock Exchange under the symbols ENS and ENS.PR.A, respectively.

The Company will invest in common shares of Enbridge Inc., a North American oil and gas pipeline, gas processing and natural gas distribution company.

The Company’s investment objectives for the:
Class A shares are to provide holders with:
(i) non-cumulative monthly cash distributions; and
(ii) the opportunity for capital appreciation through exposure to the portfolio
Preferred shares are to:
(i) provide holders with fixed cumulative preferential quarterly cash distributions; and
(ii) return the original issue price of $10.00 to holders upon maturity.

The initial target distribution yield for the class A shares is 8% per annum based on the original subscription price (or $0.10 per month or $1.20 per annum).

The initial target distribution yield for the preferred shares is 5.25% per annum based on the original subscription price (or $0.13125 per quarter or $0.525 per annum).

Middlefield Capital Corporation, the advisor, will provide investment management advice to the Company.

The syndicate of agents was co-led by CIBC Capital Markets and RBC Capital Markets, and included BMO Capital Markets, Scotiabank, TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., National Bank Financial Inc., Raymond James Ltd., Industrial Alliance Securities, Manulife Securities Incorporated, Desjardins Securities Inc., Mackie Research Capital Corporation, and Middlefield Capital Corporation.

ENS.PR.A is a Split-Share, 5.25%, 5-Year, that commenced marketing 2018-5-18. It will be tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

DBRS has assigned a rating of Pfd-3(high):

DBRS Limited (DBRS) finalized the provisional rating of Pfd-3 (high) assigned to the Preferred Shares issued by E Split Corp. (the Company). The Company issued an equal number (3,200,000) of the Preferred Shares and the Class A Shares at an issue price of $10.00 per Preferred Share and $15.00 per Class A Share. The Preferred Shares and the Class A Shares are issued on the basis that an equal number of Preferred Shares and Class A Shares are outstanding at all material times. Thus, one Preferred Share and one Class A Share will comprise one unit (the Unit). The Maturity Date will be on June 30, 2023. 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.
…
No distributions will be paid on the Class A Shares if (1) the distributions payable on the Preferred Shares are in arrears or (2) in respect of a cash distribution by the Company, the net asset value (NAV) per Unit is less than $15.00.

Net proceeds from the offering will be used to invest in a portfolio which will comprise primarily common shares of Enbridge Inc. (the Portfolio) in accordance with the Company’s investment objectives, strategy and restrictions. Up to 10% of the Portfolio may be invested in securities of any other issuer as determined by the manager.

Holders of the Preferred Shares are expected to benefit from a strong asset coverage of approximately 2.4 times (x) and sufficient dividend coverage of 2.4x. Based on the asset coverage, the net asset value of the Company after the issuance would have to fall by approximately 58% for the holders of the Preferred Shares to be in a loss position.

The issue traded 348,717 shares today in a range of 10.03-14 before closing at 10.14-15. Vital statistics are:

Brompton Group has announced:

Life & Banc Split Corp. (TSX:LBS) (TSX:LBS.PR.A) (the “Company”) is pleased to announce it is undertaking an overnight treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively).

The sales period for this overnight offering will end at 9:00 a.m. (ET) on Wednesday, June 20, 2018. The offering is expected to close on or about July 4, 2018 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Class A Shares will be offered at a price of $9.80 per Class A Share for a distribution rate of 12.2% on the issue price, and the Preferred Shares will be offered at a price of $10.00 per Preferred Share for a yield to maturity of 4.9%.(1) The closing price on the TSX for each of the Class A and Preferred Shares on June 18, 2018 was $9.99 and $10.18, respectively. The Class A and Preferred Share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company (calculated as at June 18, 2018), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

The Company invests in a portfolio (the “Portfolio”) consisting of common shares of the six largest Canadian banks and the four major publicly traded Canadian life insurance companies:

The Bank of Nova Scotia	Royal Bank of Canada
National Bank of Canada	Industrial Alliance Insurance and Financial Services Inc.
The Toronto-Dominion Bank	Great-West Lifeco Inc.
Canadian Imperial Bank of Commerce	Manulife Financial Corporation
Bank of Montreal	Sun Life Financial Inc.

The investment objectives for the Class A Shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per Class A Share and to provide the opportunity for growth in the net asset value per Class A Share.

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.11875 per Preferred Share, and to return the original issue price plus accrued dividends (if any) to holders of Preferred Shares on November 29, 2018.

On September 25, 2017 the Company’s board of directors approved an extension of the maturity date of the Class A and Preferred Shares of the Company for an additional term to October 30, 2023. The Preferred Share dividend rate for the extended term will be announced at least 60 days prior to the original November 29, 2018 maturity date. The new dividend rate will be determined based on market yields for Preferred Shares with similar terms.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial and Scotiabank.

LBS.PR.A also had a treasury offering last September.

LBS / LBS.PR.A had an NAVPU of 19.15 on June 14, so the offering price of 19.80 per Whole Unit is a premium of 3.9% – certainly not as big as we’ve ever seen, but any kind of premium at all for a mutual fund is good business!

Update, 2018-6-20 They raised just over $50-million:

Life & Banc Split Corp. (the “Company”) is pleased to announce a successful overnight treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively). Gross proceeds of the offering are expected to be approximately $50.1 million. The offering is expected to close on or about July 4, 2018 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (the “TSX”). The Company has granted the Agents (as defined below) an over-allotment option, exercisable for 30 days following the closing date of the offering, to purchase up to an additional 15% of the number of Class A Shares and Preferred Shares issued at the closing of the offering.

Capital Power Corporation has announced (on June 18):

that after having taken into account all Election Notices following the June 15, 2018 conversion deadline, in respect of the Cumulative Rate Reset Preference Shares, Series 5 (Series 5 Shares) tendered for conversion into Cumulative Floating Rate Preference Shares, Series 6 (Series 6 Shares), the holders of Series 5 Shares were not entitled to convert their shares. There were approximately 236,824 Series 5 Shares tendered for conversion, which was less than the required one million shares required for conversion into Series 6 Shares.

There are eight million Series 5 Shares listed on the Toronto Stock Exchange (TSX) under the symbol CPX.PR.E. Effective June 30, 2018, the Annual Fixed Dividend Rate for the next five-year period has been reset to 5.23800%.

For more information on the terms of, and risks associated with an investment in the Series 5 Shares, please see Capital Power’s prospectus supplement dated March 7, 2013 which is available on sedar.com or on Capital Power’s website at capitalpower.com.

It will be recalled that CPX.PR.E will reset to 5.238% effective 2018-6-30 and will hence be referred to as a FixedReset, 5.238%+315.

CPX.PR.E is a FixedReset, 5.238%+315, that commenced trading 2013-3-14 at 4.50% after being announced 2013-3-5. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It will be further recalled that I recommended against conversion.

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.
…
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: