Category: Issue Comments

The Bank of Nova Scotia has announced:

that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 18 of Scotiabank (the “Series 18 Shares”) and Non-cumulative Preferred Shares Series 19 of Scotiabank (the “Series 19 Shares”) on April 26, 2018, at a price equal to $25.00 per share, together with all declared and unpaid dividends. Formal notice will be issued to holders of the Series 18 Shares and Series 19 Shares in accordance with the share conditions.

The redemption has been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank.

On February 27, 2018, the Board of Directors of Scotiabank announced a quarterly dividend of $0.209375 per Series 18 Share, and $0.181788 per Series 19 Share. This will be the final dividend on the Series 18 Shares and Series 19 Shares, and will be paid in the usual manner on April 26, 2018, to shareholders of record at the close of business on April 3, 2018, as previously announced. After April 26, 2018, the Series 18 Shares and Series 19 Shares will cease to be entitled to dividends.

BNS.PR.P is a FixedReset, that commenced trading 2008-03-26 as a 5.00%+205 issue after being announced 2008-03-06. At the 2013 Exchange Date it reset to 3.35%.

BNS.PR.A is the FloatingReset that resulted from the 2013 partial exchange from BNS.PR.P, and hence paid 3-month bills +205bp, reset quarterly.

Neither issue was NVCC-compliant.

DBRS has announced (on March 20) that it:

notes the impact of the announcement by the Federal Energy Regulatory Commission (FERC) that it will no longer allow master limited partnership (MLP) interstate natural gas and oil pipelines to recover an income tax allowance in cost of service (COS) rates on the following ratings of Enbridge Energy Partners, L.P. (EEP):

— Issuer Rating of BBB, Stable trend
— Senior Unsecured Notes rating of BBB, Stable trend
— Junior Subordinated Notes rating of BB (high), Stable trend
— Commercial Paper rating of R-2 (middle), Stable trend

DBRS estimates that the potential financial impact of the FERC decision and U.S. Tax Reform noted below would likely reduce EEP’s financial risk profile (on a DBRS modified-consolidated basis) to the low end of the BBB range in the absence of corrective measures. However, DBRS’s current business risk assessment of EEP as well as Enbridge Inc.’s (ENB; rated BBB (high) with a Stable trend by DBRS) history of supporting EEP through various measures are both supportive of the current ratings.

As an MLP, EEP’s credit metrics would be negatively affected by the implementation of the FERC decision, as some of the rates applicable to its expansion projects are tolled annually on a COS basis via the Lakehead Facility Surcharge Mechanism (FSM). EEP has indicated that, should FERC’s new policy be announced with an assumed implementation date of March 31, 2018, the 2018 financial impact to EEP is expected to be an approximate $100 million reduction in revenues and a $60 million reduction to distributable cash flow (DCF), net of non-controlling interests. Consequently, EEP has adjusted its 2018 DCF guidance range to $650 million — $700 million and 2018 total distribution coverage to approximately 1.0 times (x) from approximately 1.15x.

DBRS notes that the current 2018 Guidance adjustments follow previous 2018 Guidance adjustments announced on February 15, 2018 (concurrently with the Q4 2017 results announcement). In that case, as a result of U.S. Tax Reform, EEP adjusted its 2018 DCF guidance range to $720 million – $770 million from $775 million – $825 million and 2018 total distribution coverage to approximately 1.15x from approximately 1.2x.

On a combined basis, the impact of these 2018 Guidance adjustments would be to reduce mid-point 2018 DCF guidance by approximately 15.6%, eliminate the approximate 20% cushion on 2018 total distribution coverage (or, stated differently, to increase EEP’s payout ratio to 100% from 80%) and, in the absence of corrective measures, significantly weaken EEP’s key credit metrics. This would eliminate a significant portion of the remaining cushion currently embedded in EEP’s ratings. Please see DBRS’s rating report on EEP dated September 29, 2017, for further information.

This commentary has been picked up by the Financial Post:

Credit ratings agency DBRS Ltd. is warning that one of Enbridge Inc. subsidiary’s revenues could tumble by $100 million this year and its credit ratings hurt by new policies in the U.S., which have led to a sector-wide stock selloff.

DBRS said in a note Tuesday that said a recent decision by the U.S. Federal Regulatory Commission could “significantly weaken” the key credit metrics of Enbridge Energy Partners L.P. (EEP), a subsidiary of Calgary-based Enbridge.

Last week, the FERC announced that master limited partnerships (MLPs) — a tax-friendly corporate structure popular with pipeline firms — would no longer be able to recover an income tax allowance in certain pipeline service contracts.

… which printed a Canadian Press story on last week’s damage to the common after the ruling was announced:

Shares in Canadian pipeline companies Enbridge Inc. and TransCanada Corp. failed to recover fully Friday [March 16] from a steep sell-off on Thursday [March 15] after the U.S. said it would eliminate a tax break for owners of certain interstate pipelines.

Both Calgary-based companies hold such pipelines in the United States through master limited partnerships or MLPs.

The decision by the U.S. Federal Energy Regulatory Commission to no longer allow MLPs to recover an income tax allowance from cost of service tariffs came in response to a 2016 court ruling that found its long-standing tax policy could result in double recovery of costs.

Enbridge shares fell by 4.2 per cent to $41.06 on Thursday but recovered to close at $41.28 on Friday, up 22 cents, after it issued a statement that says it is not expecting a “material change” to its financial guidance over the next three years because of the FERC ruling.

The Globe also printed the CP story, and published three different perspectives on ENB common following the drop:

Enbridge Inc. shares skidded 4.2 per cent Thursday, adding to the frustration of shareholders who have seen more than a quarter of the company’s market capitalization wiped out in just the past year.

Investors have been worried about Enbridge’s high debt load – which sits at around $60-billion after the $37-billion acquisition of Spectra Energy Corp. that closed last year. The stock has also been pressured by a move out of dividend-paying stocks in a rising interest rate environment.
…
The Globe and Mail earlier this month talked to three portfolio managers with different views of Enbridge, as well as with the company about investors’ concerns.

ENB.PR.H (to pick one of their issues at random) has significantly underperformed the TXPR index in the past while:

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The fall in ENB preferreds generally has attracted comment on PrefBlog.

This is significant, because Enbridge’s issuance frenzy of about five years ago made them a very significant part of the market … they have about $7.25-billion (face value) of preferreds outstanding (including USD issues), call it about $5.8-billion market value, compared to a total estimated market capitalization of $76.1-billion. Their issues have a weight of just under 10% of the BMO-CM “50” Preferred Share Index (as of February, 2018) and just under 9% of TXPR (as of 2017-7-31).

Affected issues are (deep breath): ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PF.I, ENB.PF.K, ENB.PR.A, ENB.PR.B, ENB.PR.C, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y and the USD-denominated issues, ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V.

Standard & Poor’s has announced:

• •We reviewed the impact of the U.S. tax reform on Fortis Inc. (Fortis), and the company’s consolidated credit metrics are weaker than expected.
• •There are key pending regulatory decisions that add to the downside risk and could further stress credit metrics.
• •As a result, we are revising our outlook on Fortis and subsidiaries ITC Holdings Corp., Tucson Electric Power Co., FortisAlberta Inc., and Caribbean Utilities Co. Ltd. to negative from stable.
• •We are also affirming our ratings on the companies, including our ‘A-‘ long-term issuer credit ratings.

…
The negative outlook reflects S&P Global Ratings’ view of Fortis’ weak financial metrics over the next 12-24 months and the U.S. tax reform pushing back our expectation for financial improvement. In addition, the outlook reflects the risk that any adverse outcomes from pending regulatory decisions could further depress credit metrics. During our two-year outlook period, we forecast the company’s FFO-to-debt at about 9.5% in 2018 before improving to about 10.5% by 2020.

We could take a negative rating action on Fortis if the company’s FFO-to-debt were projected to stay below 10%. This could happen if the company experiences material delays and cost overruns in executing its capital programs, material adverse regulatory decisions, and significant debt-funded acquisitions or operational difficulties that lead to unexpected cost and debt increase. Any deterioration of business risk, including expansion of unregulated operations or acquisitions that increase the compnay’s reliance on generation within its integrated utility operations, could also lead to a downgrade.

We could revise the outlook to stable if Fortis improves its financial position, with FFO-to-debt remaining consistently around 11% or above, without any increase in business risk. This could happen if Fortis were to gradually improve its cash flow metrics with the benefit of favorable regulatory outcomes while maintaining its current business strategy.

Affected issues are FTS.PR.F, FTS.PR.G, FTS.PR.H, FTS.PR.I, FTS.PR.J, FTS.PR.K and FTS.PR.M.

DBRS has announced:

that the ratings of Element Fleet Management Corp. (Element or the Company), including its Long-Term Issuer Rating of BBB (high) are not impacted by the quarterly loss reported for 4Q17, or by the underlying drivers for the loss. For 4Q17, Element reported, on an IFRS basis, a net loss of $1.5 million in 4Q17, down from net income of $67.2 million in the prior quarter. While DBRS sees no impact to the current ratings from the quarter’s results, DBRS would view unfavorably additional material losses at 19th Capital. Also, DBRS would view negatively a sustained deterioration in origination volume growth or should customer retention rates not return to their historically strong levels, indicating that management efforts to address customer related issues from the integration have not been successful.

Results were impacted by charges related to ongoing challenges at the Company’s 19th Capital Group LLC joint venture (19th Capital or the JV), as well as an elevated level of operating expenses. Also, the Company’s results were impacted by $11.9 million of strategic review related costs that are not expected to reoccur.

For the quarter, Element’s results were impacted by a $60.8 million share of loss and equity charge related to its 19th Capital JV. Within the share of loss charge is operational losses of $14.1 million, as well as a $17.8 million loss on the disposition of certain assets in the JV. These losses were primarily driven by the JV’s ongoing execution of its strategic plan to improve operating performance. The strategic plan includes the shifting of the customer base to smaller corporate fleets from riskier owner-operators, optimizing the fleet mix, and accelerating the trade-in or sale of certain out of favor older truck models.

Also, included in the overall loss and charges related to 19th Capital was a $29.0 million provision for impairment by Element against its investment in the JV. While the overall U.S. trucking industry has begun to recover from the down cycle that began in 2015, Element considered it prudent to take a charge against the value of the investment given the expectations that an improvement in the JV’s operating performance may not be visible until late 2018 and with execution risks in the strategic plan still present. DBRS views the impairment provision as a conservative action by management, but is concerned about the ongoing losses at the JV, as well as the potential for the investment to be a distraction to Element’s management at a time when operational issues at the core fleet management business need to be addressed.

During 4Q17, Element experienced a higher than normal degree of customer attrition that included three large customers. The attrition was attributable to IT integration issues experienced during 1H17. The Company expects actions taken to address these customer concerns to return the retention rate to the historical level of approximately 97% in 2018. DBRS notes that volumes in the quarter were up slightly on a sequential basis and that management noted a good pipeline of new customers for 2018, suggesting that the issues from 1H17 are being addressed. DBRS will closely monitor volumes and customer retention in 2018.

Adjusted operating expenses were 6.1% higher sequentially in the quarter to $127.1 million. This resulted in the Company’s net efficiency ratio to weaken to 55.3% from 50.7% in the prior quarter and 48.6% in the comparable period a year ago. Element announced that it has initiated cost reduction actions during the current quarter, including headcount reduction, office space optimization, and the limiting of discretionary expenses. Thus, the Company expects to incur a charge of approximately $40 million in 1Q18 related to these actions. The actions are anticipated to produce an annual run rate savings of approximately $20 million. DBRS views the actions favorably should the savings be fully realized and result in an improved operating efficiency.

While total net revenues were 2.7% lower quarter-on-quarter in 4Q17 at $229.8 million, DBRS sees positives in the continuing strengthening of service and other related revenue. On a sequential basis, core fleet service and other revenue improved 4.5% to $141.0 million, and comprises 64% of total net revenue.

Element’s balance sheet fundamentals remain acceptable. The asset quality of the core fleet business remains sound and supportive of the ratings. Impaired finance receivables at December 31, 2017, were stable at a very low 0.04%. Tangible leverage was higher at 7.7x at quarter-end, which is slightly above management’s target range of 7.0x to 7.5x. Importantly, tangible leverage remains inside the bank facility covenant. Meanwhile, Element continues to maintain sufficient available liquidity. At December 31, 2017, the Company had total available liquidity of $4.7 billion, which is more than sufficient to meet debt maturities and expected new originations over the next 12 months.

Affected issues are EFN.PR.A, EFN.PR.C, EFN.PR.E, EFN.PR.G and EFN.PR.I, which haven’t been doing too well lately:

The fun began on February 6:

As global markets gyrate, shares of Element Fleet Management Corp., the brainchild of company founder and Bay Street financier Steve Hudson, plummeted 29 per cent in a single day after it announced the departure of its chief executive officer and the loss of a crucial customer.

It is a stunning fall for what was, until recently, a high-flying company. The newly revealed woes have also changed the narrative around Mr. Hudson’s comeback, a long march to regain investors’ trust after the downfall of his previous venture.

Element has not named a new chief to replace outgoing CEO Brad Nullmeyer, who is one of Mr. Hudson’s closest associates, and the company is now conducting an external search. But the board did reveal that it expects earnings from its core fleet business to fall by three to five per cent in fiscal 2018 after losing the servicing business of a large client, which the company didn’t name, in recent months.

… and the other shoe dropped March 15:

Shares of Element Fleet Management Corp. plummeted for the second time in five weeks as the struggling Bay Street finance company said it will take a restructuring charge, cut staff and close offices as part of a recovery plan that will take the rest of 2018 to implement.

The Toronto-based company, founded by financier Steve Hudson, who is one of its largest individual shareholders, warned that earnings will fall short of investor expectations. The stock dropped by as much as 36 per cent on Thursday morning before closing down 24 per cent. Element has lost more than $3.5-billion in stock market value in the past year.

And, for what it’s worth, here’s the Implied Volatility Analysis:

Click for Big

The Toronto-Dominion Bank’s new issue closed today without a formal announcement from the bank.

TD.PF.J is a FixedReset, 4.70%+270, announced 2018-3-5. It will be tracked by HIMIPref™ and has been assigned to the FixedReset sub-index.

The issue traded 605,636 shares today in a range of 24.94-00 before closing at 24.98-99. Vital statistics are:

This issue looks quite expensive to me, according to Implied Volatility Analysis:

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We see in this chart many of the same features we saw when reviewing the recent BIP.PR.E, BEP.PR.M, CM.PR.S, NA.PR.E and MFC.PR.Q: the curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure).

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.

I balk at ascribing a 100% probability to the ‘all issues will be called, or at least exhibit price stability’ hypothesis. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate. The extra cushion implied by an Issue Reset Spread that is well over the market spread is worth something, even if nothing gets called.

According to the analysis shown above, the fair value of this issue is 24.31 (compared to 24.17 on announcement day). Careful Assiduous Readers will note that TD.PF.I, a FixedReset 4.50%+301 that commenced trading 2017-7-14, closed today at 25.24-32 (compared to 25.04-20 on announcement day). The extra 20bp of initial dividend rate is worth $0.05 annually, or a total of a little over $0.20 extra for the new issue … but if they both reset then TD.PF.I will get – to the extent reset rates nine months apart are the same – $0.0775 p.a. more than the new issue. According to the Implied Volatility analysis above, the fair value of TD.PF.I is 25.02 (compared to 24.91 on announcement day).

Brompton Group has announced:

Brompton Lifeco Split Corp. (the “Company”) is pleased to announce that the board of directors has approved an extension of the maturity date of the Class A and Preferred shares of the Company for an additional 5 year term to April 29, 2024. The reset preferred share dividend rate for the extended term will be announced at least 60 days prior to the original April 29, 2019 maturity date and will be based on market yields for preferred shares with similar terms at that time.

The term extension allows Class A shareholders to continue their investment in Canadian life insurance companies while offering an attractive distribution rate of 13% (based on the February 28, 2018 closing price) and the opportunity for capital appreciation. Over the last 5 years to January 31, 2018, the Class A share has delivered a 29.1% per annum return, which outperformed the S&P/TSX Capped Financials Index by 15.5% per annum and outperformed the S&P/TSX Composite Index by 21.3% per annum.(1) Since inception to January 31, 2018, Class A shareholders have received cash distributions of $5.13. Class A shareholders have the option to reinvest their cash distributions in a dividend reinvestment plan which is commission free to participants.

The term extension offers Preferred shareholders the opportunity to enjoy preferential cash dividends until April 29, 2024. Over the last 5 years to January 31, 2018, the Preferred share has delivered a 5.8% per annum return, outperforming the S&P/TSX Preferred Share Index by 4.2% per annum with less volatility.(1)
Brompton Lifeco Split Corp. invests in a portfolio of common shares of Canada’s four largest publicly-listed life insurance companies, on an approximately equal weight basis: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.
…

Brompton Lifeco Split Corp. Performance to January 31, 2018
	1 Yr	3 Yr	5 Yr	10 Yr	Incep. (04/18/07)
Class A Shares (TSX:LCS)	5.9%	21.5%	29.1%	1.1%	0.3%
S&P TSX Capped Financials Index	11.6%	14.2%	13.6%	8.8%	7.3%
S&P/TSX Composite Index	6.7%	5.9%	7.8%	5.0%	4.5%
Preferred Shares (TSX:LCS.PR.A)	5.9%	5.9%	5.8%	5.6%	5.5%
S&P/TSX Preferred Share Index	10.9%	3.2%	1.6%	3.3%	2.4%

LCS.PR.A had a treasury offering in January and was upgraded to Pfd-3(low) by DBRS last October. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It will be recalled that MFC.PR.J will reset at 4.731% effective March 20.

MFC.PR.J is currently a FixedReset, 4.00%+261, that commenced trading 2012-12-4 after being announced 2012-11-27. It is tracked by HIMIPref™ and is assigned to the FixedReset sub-index.

As this issue is not NVCC compliant and it is an insurance issue, it is analyzed as having a Deemed Retraction, effective 2025-1-31 (this date may change in the future).

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., MFC.PR.J and the FloatingReset MFC.PR.S that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

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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 +1.27% and +1.86%, respectively – although these break-even rates are much closer to the market rate than has been case for recent resets! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

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

If we plug in the current bid price of the MFC.PR.J FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart, MFC.PR.S, given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of MFC.PR.J continue to hold the issue and not to convert.

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.

p>Industrial Alliance Insurance and Financial Services Inc. has announced (emphasis added):

that, following its February 5, 2018 announcement of its intention to create a holding company, it has entered into an arrangement agreement (the “Arrangement Agreement”) with a newly created entity, iA Financial Corporation Inc. (“iAFC”), and that its Board of Directors is unanimously recommending that common shareholders vote in favour of a plan of arrangement (the “Plan of Arrangement”) that, upon completion, would result in iAFC becoming a holding company as well as the parent corporation of the Company.

The purpose of the arrangement transaction (the “Arrangement”) is to adapt the Company’s legal and corporate structure to the group’s current size, allow greater financial and, commercial flexibility in pursuing its growth strategy and better reflect the diversification of its business. It will also provide the Company with a corporate structure that is as flexible as and substantially similar to that of its principal competitors.

In recommending that common shareholders vote in favour of the Plan of Arrangement, the Board of Directors considered and relied on, among other factors, an opinion received from National Bank Financial Inc. to the effect that, subject to the assumptions, limitations and qualifications set out in such opinion, the proposed Arrangement is fair, from a financial point of view, to the Company’s common shareholders.

Under the Plan of Arrangement, the existing assets and liabilities of the Company would, immediately following the Arrangement, remain with the Company, and iAFC would own all of the outstanding common shares of the Company. Common shareholders of the Company would become common shareholders of the new publicly-traded iAFC. Upon shareholder, Court and all statutory and regulatory approvals having been obtained and the subsequent effectiveness of the Plan of Arrangement, the Company’s common shares would be exchanged for common shares of iAFC, on a one-to-one basis, and shareholders would not be required to take any action for the exchange of shares.

Holders of the Company’s then publicly issued and outstanding preferred shares (collectively, the “Preferred Shares”) will remain holders of the Company’s Preferred Shares, and holders of the Company’s then publicly issued and outstanding debentures (collectively, the “Debentures”) will remain holders of Debentures of the Company. The Arrangement Agreement provides as a condition, among others, that iAFC must sign and deliver unconditional and irrevocable guarantees with respect to the Company’s payment obligations on the outstanding Preferred Shares and Debentures.

Further details of the Arrangement will be included in the Company’s Management Proxy Circular (the “Circular”) for the 2018 Annual Meeting of Shareholders and Participating Policyholders to be combined with a Special Meeting of Shareholders to consider the Arrangement that will be held on May 10, 2018 (the “Meeting”), which Circular is expected to be mailed to shareholders in early April. Assuming shareholder approval, the Arrangement would become effective following the Meeting, pending the approval and sanction of the Arrangement by the Superior Court of Quebec (the “Court”) and the authorization of the minister of Finance (Québec) following a report in respect thereof by the Autorité des marchés financiers (Québec) under the applicable provisions of the Act respecting insurance (Québec). It is currently anticipated that the Company will be filing the relevant materials with a view to obtaining an Interim Order from the Court for the Arrangement and the Meeting in the coming weeks.

In addition, the Company notes that it has tabled a private bill with the National Assembly of Quebec, the purpose of which is to specifically permit the Company to proceed with the Arrangement notwithstanding the existing provision in the special statute governing it that prohibits any person (together with its associates) from acquiring, directly or indirectly, voting shares representing 10% or more of the voting rights attached to such shares (the “10% Voting and Ownership Limitation”) and, following which the 10% Voting and Ownership Limitation would apply at the level of iAFC as the new parent and publicly traded holding company. As tabled, the private bill also contemplates that it shall be prohibited for any person to proceed with a transaction as a result of which, following the Arrangement, iAFC would cease to hold, directly or indirectly, 100% of the voting rights attached to the Company’s voting shares.

Norton Rose Fulbright is acting as external legal advisors to the Company with respect to the Arrangement.

I’m very pleased to see that the preferred shares will remain at the operating level – it’s always better to be closer to the money! Structural subordination can, on occasion, be deemed by the Credit Rating Agencies to be worth a notch of credit.

Affected issues are IAG.PR.A and IAG.PR.G, as well as the new issue announced today.

AllBanc Split Corp. has announced:

The Board of Directors of AllBanc Split Corp. (the “Company”) has today declared dividends of $0.3164 per Preferred Share and $0.5600 per Capital Share, payable on March 9, 2018 to holders of record at the close of business on March 7, 2018.

The Class A Capital Shares (“Capital Shares”) and Class C Preferred Shares, Series 1 (“Preferred Shares”) will be redeemed by the Company in accordance with their terms on March 9, 2018 and the Company will wind up and terminate as soon as practicable after such date. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $31.64 and the net asset value per unit. The Capital Shares will be redeemed at a price per share equal to the amount by which the net asset value per unit exceeds $31.64.

Holders of Capital Shares who requested to receive their redemption payment in portfolio shares and gave notice to this effect and tendered $31.64 for each Capital Share by February 9, 2018 will receive their pro rata share of the portfolio shares. The redemption of Capital Shares and Preferred Shares will constitute a taxable disposition of the Company’s shares at the time of the redemption whether the payment is received in the form of cash or portfolio shares.

A further press release will be issued by the Company in connection with the redemption prices on March 8, 2018. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on March 9, 2018.

AllBanc Split Corp. is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Class A Capital Shares, and Class C Preferred Shares of AllBanc Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols ABK.A and ABK.PR.C respectively.

ABK.PR.C is a SplitShare paying 4.00% that commenced trading 2013-3-8 after being announced 2013-1-29. It has been tracked by HIMIPref™ but relegated to the Scraps index on volume concerns.

Despite the company’s caution regarding the expected redemption price of the issue, full payment seems assured given the NAVPU of 106.78 on 2018-2-15.