Category: Issue Comments

It will be recalled that NPI.PR.C will reset to 5.08% (paid on par) effective December 31.

Holders of NPI.PR.C have the option to convert to FloatingResets, which will pay 3-month bills plus 346bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 pm (Toronto time) on December 18, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, will be NPI.PR.D.

NPI.PR.C is a FixedReset, 5.00%+346, that commenced trading 2012-5-24 after being announced 2012-5-14. It is tracked by HIMIPref™ but relegated to the Scraps index 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., NPI.PR.C and the FloatingReset, NPI.PR.D, 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 have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.47% and +0.51%, 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 NPI.PR.C FixedReset, we may construct the following table showing consistent prices for its maybe-soon-to-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 NPI.PR.C continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, 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 new pair will reflect these conditions.

It will be recalled that IFC.PR.A will reset to 3.396% (paid on par) effective December 31.

Holders of IFC.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 172bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Toronto time) on Friday, December 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not yet been disclosed.

IFC.PR.A is a FixedReset, 4.20%+172, that commenced trading 2011-7-12 after being announced 2011-6-22. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

As this issue is not NVCC compliant and it is an insurance issue, it is analyzed as having a Deemed Retraction. Note that I am less certain with respect to this decision than I am with life insurers – it is by no means assured that property and casualty insurers will be treated the same as life insurers once all the regulatory dust settles.

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., IFC.PR.A 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 have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.47% and +0.51%, 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 IFC.PR.A FixedReset, we may construct the following table showing consistent prices for its maybe-soon-to-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 IFC.PR.A continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, 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 new pair will reflect these conditions.

Brookfield Office Properties Inc. has announced:

the completion of its previously announced Preferred Shares, Series II issue. The offering was underwritten by a syndicate of underwriters led by Scotiabank, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc. On November 29, 2017, the syndicate agreed to purchase 10,000,000 Preferred Shares, Series II at C$25.00 per share.

The Preferred Shares, Series II will yield 4.85% annually for the initial period ending December 31, 2022. The net proceeds of the issue will be used by Brookfield Office Properties for general corporate purposes.

The Preferred Shares, Series II will commence trading today on the Toronto Stock Exchange under the ticker symbol BPO.PR.I.

BPO.PR.I is a FixedReset, 4.85%+323M485, announced 2017-11-29. The issue will be tracked by HIMIPref™ but has been relegated to the Scraps subindex on credit concerns.

The issue traded 398,681 shares today in a range of 24.40-70 before closing at 24.55-65. Vital statistics are:

This issue looks extraordinarily expensive to me! According to Implied Volatility analysis:

Click for Big

With the parameters shown, the theoretical value of the new issue is a mere 22.56, down over fifty cents from announcement day. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

However, when the graph is examined more closely, it does look as if the Floor issues are on a different line with a steeper slope than the non-Floor issues. So let’s try disaggregating the data again:

Click for Big

Click for Big

It’s an interesting idea that bears watching in the future. The Implied Volatility of the “Floor” series is extremely high, indicating that the Black-Scholes assumptions do not hold, which I usually take to mean implies a strong belief in the directionality of future prices, e.g., that all issues will be called and hence are all expected to gravitate towards par. Regretably, all extant ‘floor’ issues (BPO.PR.C, BPO.PR.E, BPO.PR.G) have relatively high spreads (518, 396 and 374bp, respectively) and are trading above or only slightly below par, which may be contaminating the data.

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of cumulative redeemable minimum rate reset class A preferred shares, Series 21 (the “Series 21 Preferred Shares”) for aggregate gross proceeds of $400 million (the “Offering”).

The Offering was announced on November 28, 2017 when Pembina entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets, CIBC World Markets and Scotiabank. A total of 16,000,000 Series 21 Preferred Shares, which includes 4,000,000 Series 21 Preferred Shares issued pursuant to the exercise of the underwriters’ option, were sold under the Offering.

The Company intends to use the net proceeds from the Offering to reduce indebtedness of the Company under its credit facilities. The indebtedness of the Company under the credit facilities was incurred in the normal course of business to fund the Company’s capital program, and to fund a portion of the cash consideration payable to former common shareholders of Veresen Inc. (“Veresen”) pursuant to the plan of arrangement with Veresen which closed on October 2, 2017.

The Series 21 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol [redacted].

Dividends on the Series 21 Preferred Shares are expected to be $1.225 per share annually, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, for the initial fixed rate period to but excluding March 1, 2023. The first dividend, if declared, will be payable March 1, 2018, in the amount of $0.2819 per share.

I have redacted the ticker symbol indicated in the press release because it is inaccurate and would otherwise lead to alarms, confusion and mystifying search results for Assiduous Readers. I must admit, I haven’t seen that kind of error before!

PPL.PF.A is a FixedReset 4.90%+326M490 announced 2017-11-28. It will be tracked by HIMIPref™, but has been relegated to the Scraps subindex on credit concerns.

The issue traded 1,402,627 shares today in a range of 24.85-02 before closing at 24.99-00. Vital statistics are:

It looks expensive to me! According to Implied Volatility analysis:

Click for Big

With the parameters shown, the theoretical value of the new issue is 23.84 – the decline of the market since announcement date has really hurt the valuation of this issue; fair value is now more than fifty cents less than it was then. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

These straw-men critics I have created will also have to explain why the two other Floor-Rate FixedResets (PPL.PR.K and PPL.PR.M) are cheap according to this analysis. It can be done – just assume that spreads on those two issues are so large that the floor doesn’t matter any more – but one way or another, it’s another example of the asymmetry of returns on issues priced near par working against the investor.

Note also that the Implied Volatility on this series is extraordinarily high, which leads to an expectation that the curve will flatten in the future. As PPL.PF.A is nearer the ‘low spread’ end of the curve than it is to the ‘high spread’ end, such a flattening should lead to underperformance by the issue.

Brookfield Asset Management Inc. has announced:

that it has determined the fixed dividend rate on its Cumulative Class A Preference Shares, Series 30 (“Series 30 Shares”) (TSX:BAM.PR.Z) for the five years commencing January 1, 2018 and ending December 31, 2022, and also determined the quarterly dividend on its floating rate Cumulative Class A Preference Shares, Series 25 (“Series 25 Shares”) (TSX:BAM.PR.S).

Series 30 Shares and Series 31 Shares

If declared, the fixed quarterly dividends on the Series 30 Shares during the five years commencing January 1, 2018 will be $0.2928125 per share per quarter, which represents a yield of 4.781% on the most recent trading price, similar to the current yield. The new fixed dividend rate that will apply for the five years commencing January 1, 2018 represents a yield of 4.685% based on the redemption price of $25 per share.

Holders of Series 30 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on December 18, 2017, to convert all or part of their Series 30 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 31 (the “Series 31 Shares”), effective December 31, 2017.

The quarterly floating rate dividends on the Series 31 Shares will be paid at an annual rate, calculated for each quarter, of 2.96% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the January 1, 2018 to March 31, 2018 dividend period for the Series 31 Shares will be 0.94488% (3.832% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.23622 per share, payable on March 29, 2018.

Holders of Series 30 Shares are not required to elect to convert all or any part of their Series 31 Shares into Series 31 Shares.

As provided in the share conditions of the Series 30 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 30 Shares outstanding after December 31, 2017, all remaining Series 30 Shares will be automatically converted into Series 31 Shares on a one-for-one basis effective December 31, 2017; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 31 Shares outstanding after December 31, 2017, no Series 30 Shares will be permitted to be converted into Series 31 Shares. There are currently 9,934,050 Series 30 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 31 Shares effective upon conversion. Listing of the Series 31 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series 31 Shares will be listed on the TSX under the trading symbol “BAM.PF.K”.

BAM.PR.Z is a FixedReset, 4.80%+296, that commenced trading 2011-11-2 after being announced 2011-10-24. It is tracked by HIMIPref™ and assigned to the FixedReset subindex.

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., BAM.PR.Z and the FloatingReset BAM.PF.K 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 have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.42% and +0.53%, 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 BAM.PR.Z FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset BAM.PF.K 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 BAM.PR.Z continue to hold the issue and not to convert, but I will wait until it’s closer to the December 18 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, 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.

Northland Power Inc. has announced:

the fixed dividend rate on its Cumulative Rate Reset Preferred Shares, Series 3 (“Series 3 Shares”) for the five years commencing December 31, 2017 and ending December 30, 2022. The fixed quarterly dividends on the Series 3 Shares during that period will be paid at an annual rate of 5.08% (Cdn. $0.3132 per share per quarter).

Holders of Series 3 Shares have the right, at their option, exercisable not later than 5:00 pm (Toronto time) on December 18, 2017, to elect to convert all or part of their Series 3 Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series 4 (the “Series 4 Shares”), effective December 31, 2017. Holders of Series 3 Shares are not required to elect to convert all or any part of their Series 3 Shares into Series 4 Shares.

The quarterly floating rate dividends on the Series 4 Shares will be paid at an annual rate, calculated for each quarter, of 3.46% over the annual yield on 90-day Government of Canada treasury bills. The actual quarterly dividend rate in respect of the December 31, 2017 to March 30, 2018 dividend period for the Series 4 Shares will be 1.07% (4.33% on an annualized basis) and the dividend, if and when declared, for such dividend period will be Cdn. $0.2669 per share, payable on March 31, 2018.

As provided in the share conditions of the Series 3 Shares, if Northland determines that, after giving effect to the election notices received to convert Series 3 Shares, there would be fewer than 1,000,000 (i) Series 3 Shares outstanding after December 31, 2017, all remaining Series 3 Shares will be automatically converted into Series 4 Shares on a one-for-one basis effective December 31, 2017; and (ii) Series 4 Shares outstanding after December 31, 2017, no Series 3 Shares will be permitted to be converted into Series 4 Shares. There are currently 4,800,000 Series 3 Shares outstanding.

Northland intends to apply to the Toronto Stock Exchange (“TSX”) to list the Series 4 Shares effective upon conversion. Listing of the Series 4 Shares will be subject to Northland fulfilling all the listing requirements of the TSX and, upon approval, the Series 4 Shares will be listed on the TSX under the trading symbol “NPI.PR.D.”

NPI.PR.C is a FixedReset, 5.00%+346, that commenced trading 2012-5-24 after being announced 2012-5-14. It is tracked by HIMIPref™ but relegated to the Scraps index 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., IFC.PR.A 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 have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.38% and +0.49%, 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 NPI.PR.C FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset NPI.PR.D 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 NPI.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the December 18 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, 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.

Intact Financial Corporation has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-cumulative Rate Reset Class A Shares Series 1 of IFC (the “Series 1 Preferred Shares”) (TSX: IFC.PR.A) on December 31, 2017. As a result, subject to certain conditions set out in the prospectus dated July 5, 2011 relating to the issuance of the Series 1 Preferred Shares (the “Prospectus”), the holders thereof will have the right, at their option, to elect to convert all or any of their Series 1 Preferred Shares into Non-cumulative Floating Rate Class A Shares Series 2 of IFC (the “Series 2 Preferred Shares”) on a one-for-one basis on December 31, 2017. Holders who do not exercise their right to convert their Series 1 Preferred Shares into Series 2 Preferred Shares on such date will retain their Series 1 Preferred Shares, unless automatically converted in accordance with the conditions below.

With respect to any Series 1 Preferred Shares that remain outstanding after December 31, 2017, commencing as of such date, holders thereof will be entitled to receive fixed non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The annual dividend rate for the Series 1 Preferred Shares for the five-year period from and including December 31, 2017 to but excluding December 31, 2022 will be 3.396%, as determined in accordance with the terms of the Series 1 Preferred Shares.

With respect to any Series 2 Preferred Shares that may be issued on December 31, 2017, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The dividend rate for the Series 2 Preferred Shares for the 3-month floating rate period from and including December 31, 2017 to but excluding March 31, 2018 will be 0.63912% (2.592% on an annualized basis), as determined in accordance with the terms of the Series 2 Preferred Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

The foregoing conversion right is subject to the conditions that: (i) if IFC determines that there would be less than 1,000,000 Series 1 Preferred Shares outstanding on December 31, 2017, then all remaining Series 1 Preferred Shares will automatically be converted into an equal number of Series 2 Preferred Shares on December 31, 2017, and (ii) alternatively, if IFC determines that there would be less than 1,000,000 Series 2 Preferred Shares outstanding on December 31, 2017, then no Series 1 Preferred Shares will be converted into Series 2 Preferred Shares. In either case, IFC will give written notice to that effect to any registered holders of Series 1 Preferred Shares on or before December 24, 2017.

The Series 1 Preferred Shares are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (“CDS Participant”). All rights of holders of Series 1 Preferred Shares must be exercised through CDS or the CDS Participant through which the Series 1 Preferred Shares are held. As such, beneficial holders of Series 1 Preferred Shares who wish to exercise their right to convert their shares during the conversion period, which will run from Friday, December 1, 2017 until 5:00 p.m. (Toronto time) on Friday, December 15, 2017, should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after the deadline will not be valid.

Holders of the Series 1 Preferred Shares and the Series 2 Preferred Shares will have the opportunity to convert their shares again on December 31, 2022, and every five years thereafter as long as the shares remain outstanding. Subject to certain conditions described in the Prospectus, IFC may redeem the Series 1 Preferred Shares, in whole or in part, on December 31, 2022 and on December 31 every five years thereafter and may redeem the Series 2 Preferred Shares, in whole or in part, after December 31, 2017.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 2 Preferred Shares effective on conversion. Listing of the Series 2 Preferred Shares is subject to IFC fulfilling all of the listing requirements of the TSX.

For more information on the terms of, and risks associated with an investment in, the Series 1 Preferred Shares and the Series 2 Preferred Shares, please see IFC’s prospectus dated July 5, 2011 which is available on www.sedar.com.

IFC.PR.A is a FixedReset, 4.20%+172, that commenced trading 2011-7-12 after being announced 2011-6-22. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

As this issue is not NVCC compliant and it is an insurance issue, it is analyzed as having a Deemed Retraction. Note that I am less certain with respect to this decision than I am with life insurers – it is by no means assured that property and casualty insurers will be treated the same as life insurers once all the regulatory dust settles.

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., IFC.PR.A 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 have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.38% and +0.49%, 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 IFC.PR.A 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 IFC.PR.A continue to hold the issue and not to convert, but I will wait until it’s closer to the December 15 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, 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.

Partners Value Split Corp. has announced (on 2017-11-28):

its intention to redeem all 4,999,000 of its Class AA Senior Preferred Shares, Series 5 (“Preferred Shares, Series 5”) for cash on December 10, 2017 (the “Redemption Date”) in accordance with the terms of the Preferred Shares, Series 5.

The redemption price per Preferred Shares, Series 5 will be equal to C$25.00 plus accrued and unpaid dividends of C$0.030653 per share to December 9, 2017, representing a total redemption price of C$25.030653 per share (the “Redemption Price”).

Notice will be delivered to holders of the Preferred Shares, Series 5 in accordance with the terms of the Preferred Shares, Series 5.

From and after the Redemption Date, the Preferred Shares, Series 5 will cease to be entitled to dividends or any other participation in any distribution of the assets of the Company and the holders thereof shall not be entitled to exercise any of their other rights as shareholders in respect thereof except to receive the Redemption Price (less any tax required to be deducted and withheld by the Company). After the redemption of the Preferred Shares, Series 5, the Company will consolidate the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

PVS.PR.C came into existence by a ticker change from BNA.PR.E on 2014-7-19. BNA.PR.E commenced trading 2010-12-10 after being announced 2010-11-22. It is tracked by HIMIPref™ and is a member of the SplitShare sub-index.

Timbercreek Asset Management Inc. has announced:

Big 8 Split Inc. (the “Company”) (TSX: BIG.D) (TSX: BIG.PR.D) announced today, a total of 153,961 Class D Preferred Shares and 153,961 Class D Capital Shares, or approximately 14.90% of both classes of shares currently outstanding, will be redeemed as a result of holders of 153,961 Units exercising their special annual concurrent retraction privilege. The holders will only be entitled to receive dividends on those which have been declared but remain unpaid up to and including December 15, 2017.

Payments and delivery of cash and common shares owing as a result of shareholders having exercised their retraction privilege, will be made by the Company on December 15, 2017.

The Company was established to generate dividend income for the Class D Preferred Shares while providing holders of the Class D Capital Shares with a leveraged opportunity to participate in capital appreciation from a portfolio of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation, and Sun Life Financial Inc. Information concerning Big 8 Split Inc. is available on our website at www.timbercreek.com/investments/managed-companies/big8-split-inc/overview.

The Class D Capital Shares and Class D Preferred Shares of Big 8 Split are listed on the Toronto Stock Exchange under the symbols BIG.D and BIG.pr.D respectively.

BIG.PR.D is not tracked by HIMIPref™, as it is too small to allow reasonable expectations of efficient trading.

DBRS has announced (on 2017-11-27) that it:

confirmed the Issuer Rating of Bombardier Inc. (Bombardier or the Company) at B and has changed the trend to Stable from Negative. This action reflects some evidence of stabilization in the Company’s financial profile, albeit at a very weak level; the expectation that further modest improvement should be achievable over the next 12 months; material progress achieved after two years of the Company’s margin-improving five-year transformation initiative, especially in the rail division; greater visibility regarding the viability of the C Series program as a result of the partnership announced with Airbus SE; and liquidity that remains sufficient for near-term requirements. Bombardier’s rating continues to be supported by its 70% stake in Bombardier Transportation (BT), a global leader in rail manufacturing and solutions; the significant capital and technological barriers to entry into its various business lines; and the Company’s broad portfolio of business aircraft offerings, to be complemented by the ultra-long-distance Global 7000, which is currently undergoing flight testing and may enter into service in H2 2018. Significant execution risks associated with new aircraft development, volatile end markets and modest margins are structural challenges.
…
DBRS anticipates that the Company’s business risk profile is likely to remain largely unchanged over the next 12 months, although further improvements from the transformation program should be supportive. The financial risk profile should achieve modest improvement, although DBRS views the Company’s target of achieving a free cash flow break-even position in 2018 as aggressive. Key metrics are projected to improve to within at least the B rating category in F2018.

Overall, DBRS views Bombardier’s strategic actions, such as the Airbus partnership, operating performance within the context of the transformation plan and important milestones achieved such as the successful flight testing hours of the Global 7000 as illustrative of a more stable footing. Liquidity remains adequate for near-term requirements and there are no significant long-term debt maturities until 2020. (DBRS expects the new issuance of 7.50% Senior Notes due in 2024 that is currently underway, and the associated tender offer for the 4.75% Senior Notes due 2019, to be successful.) Bombardier would need to demonstrate material improvement in key financial metrics and prove that free cash flow surpluses have been achieved or are imminent before DBRS would consider an upgrade. Significant cost overruns or Entry-Into-Service (EIS) delays of the Global 7000, evidence that the margin gains under the transformation plan are not sustainable, concerns regarding liquidity, or substantial downturns in key destination markets may lead to DBRS considering a downgrade.
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This is an unsolicited credit rating.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

BBD was downgraded to Pfd-4(low) by DBRS in November 2013, and the preferred share coverage was immediately discontinued. Affected issues (since the issuer rating will affect everything) are BBD.PR.B, BBD.PR.C and BBD.PR.D.

S&P downgraded the issues to P-5(low) in September 2016, where they remain.