Category: Issue Comments

BCE Inc. has announced:

that 585,184 of its 1,227,532 fixed-rate Cumulative Redeemable First Preferred Shares, Series Z (“Series Z Preferred Shares”) have been tendered for conversion on December 1, 2017, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series Y (“Series Y Preferred Shares”). In addition, 1,276,161 of its 8,772,468 Series Y Preferred Shares have been tendered for conversion on December 1, 2017, on a one-for-one basis, into Series Z Preferred Shares. Consequently, on December 1, 2017, BCE will have 1,918,509 Series Z Preferred Shares and 8,081,491 Series Y Preferred Shares issued and outstanding. The Series Z Preferred Shares and the Series Y Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.Z and BCE.PR.Y, respectively.

The Series Z Preferred Shares will pay on a quarterly basis, for the five-year period beginning on December 1, 2017, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.904%.

The Series Y Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on December 1, 2017, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series Y Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

It will be recalled that after the conversion notice was sent, I recommended holding or converting to BCE.PR.Y; afterwards, it was announced that BCE.PR.Z will reset to 3.904% until the next interconversion date on 2022-12-1.

Brompton Group has announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce it is undertaking an overnight treasury offering of class A and preferred shares.

The sales period for this overnight offering will end at 9:00 a.m. (ET) tomorrow, November 17, 2017. The offering is expected to close on or about November 29, 2017 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 $8.00 for a distribution rate of 15% on the issue price, and the preferred shares will be offered at a price of $10.00 for a yield to maturity of 5.9%. The closing price on the TSX for each of the class A and preferred shares on November 15, 2017 was $8.16 and $10.15, 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 November 15, 2017), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

The Company invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Currently, the portfolio consists of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	CI Financial Corp.	Shaw Communications Inc.
Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce	IGM Financial Inc.	TELUS Corporation
Manulife Financial Corporation	National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	BCE Inc.	Enbridge Inc.
Bank of Montreal	The Toronto-Dominion Bank	Rogers Communications Inc.	TransCanada Corporation

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 $0.13125 per preferred share, and to return the original issue price to holders of preferred shares on the Company’s maturity date (November 28, 2019).

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

So the Whole Units are being offered at a price of $18.00, versus a NAVPU of 17.38 as of November 9. The premium of 3.6% isn’t the fattest we’ve seen recently, but it’s still a nice business to be in!

Update, 2017-11-17: The offering was successful:

Dividend Growth Split Corp. (the “Company”) is pleased to announce a successful overnight treasury offering of class A and preferred shares. Gross proceeds of the offering are expected to be approximately $76 million. The offering is expected to close on or about November 29, 2017 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 and preferred shares issued at the closing of the offering.

Laurentian Bank of Canada has announced:

that it will redeem, on December 15, 2017, all of its Non-Cumulative Class A Preferred Shares Series 11 then outstanding. Such preferred shares will be redeemed at a redemption price of $25.00 per share, together with any declared and unpaid dividends.

Beneficial holders who are not the registered holders of these shares should contact the financial institution, broker or other intermediary through which they hold such shares to confirm how they will receive the redemption proceeds. Formal notices and instructions for the redemption will be forwarded to all registered shareholders.

I love that “all registered shareholders” crap. I don’t know, frankly, whether this is mumbo-jumbo forced on them by idiot regulators or whether they simply see no point in being straightforward with their investors, but as stated in the prospectus supplement for this issue (SEDAR, search for “LAURENTIAN BANK OF CANADA Oct 11 2012 19:47:26 ET Prospectus supplement – English PDF 227 K”, our beloved regulators will not permit me to link directly to this public document; probably because you’re all common investor scum and not important civil servants):

On the closing of this offering, which is expected to be on or about October 18, 2012, the aggregate number of Preferred Shares Series 11 distributed hereunder will be delivered to CDS Clearing and Depository Services Inc. (“CDS”) or its nominee in the form of an electronic deposit in accordance with the non-certificated inventory system maintained by CDS. A purchaser of Preferred Shares Series 11 will receive only a customer confirmation from the registered dealer who is a CDS participant and from or through whom the Preferred Shares Series 11 are purchased.

So there is only one registered shareholder.

LB.PR.F is a FixedReset, 4.00%+260, that commenced trading 2012-10-18 after being announced 2012-10-11. This was actually a somewhat interesting issue, because it was issued without an NVCC clause despite the fact that the NVCC rules had been announced; so it has had a “Deemed Retraction” entry in its call schedule since the first day of trading.

BCE Inc. has released the conversion notice for BCE.PR.Z (Fixed-Floater) and a matching notice for BCE.PR.Y (Ratchet Rate).

These issues constitute a Strong Pair.

The effective date of the interconversion is 2017-12-1. The deadline for instructing the company to convert shares is 5:00 p.m. (Eastern time) on November 17, 2017 – but note that brokers serving the public will probably have internal deadlines a day or two in advance of this. The new dividend rate on BCE.PR.Z will be published 2017-11-14.

The outstanding shares of BCE.PR.Z have paid 3.152% since the last conversion in 2012. Prime was at 3.00% when the last conversion was effective … just 20bp lower than the current rate!

These shares are trading at very nearly the same price … alas, there isn’t much of an arbitrage possibility here!

I will post more when the fixed rate (for the next five years) is known.

DBRS has announced that it has:

upgraded the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) to Pfd-3 (low) from Pfd-4 (high).
…
Based on the dividend yields of the underlying companies in the Portfolio and after management fees and other expenses have been paid, the dividend coverage ratio stands at 0.6x.

The main form of credit enhancement available to the Preferred Shares is a buffer of downside protection. Downside protection corresponds to the percentage decline in market value of the Portfolio that must be experienced before the Preferred Shares would be in a loss position. Since the last review, the amount of downside protection available to the Preferred Shares has increased to 39.8% posting a 5.4% gain as of October 12, 2017. The growth in downside protection was a combination of a price appreciation and a dividend payout increase of the underlying shares of the Portfolio as well as additional income generated from option writing.

Brompton Group was quick to highlight the upgrade:

As a result of improving portfolio performance, DBRS Limited (“DBRS”) issued a press release on Thursday, October 19, 2017 announcing that the preferred share rating for Brompton Lifeco Split Corp. has been upgraded from Pfd-4(high) to Pfd-3(low). For a full copy of the DBRS press release please visit their website at www.dbrs.com.

This is quite the turnaround from the dark days of 2012 when the issue was downgraded to Pfd-5(high) and a notch better than its December 2013 upgrade to Pfd-4(high).

The Whole Unit NAVPU as of 2017-10-12 was 16.71. Income coverage in 2016 was, by my calculation, 65%. The total assets of the fund, including Capital Units, were $86-million as of 2017-9-30.

LCS.PR.A is tracked by HIMIPref™ but relegated to the Scraps index on both credit concerns and volume concerns.

p>Strathbridge Asset Management Inc. has announced (on September 1):

Premium Income Corporation (the “Fund”) is pleased to announce that the term of the Fund will be extended automatically for an additional seven year period beyond November 1, 2017 to November 1, 2024 as provided for in its articles of incorporation. In addition, in connection with the new term, holders of Class A shares will continue to receive ongoing leveraged exposure to a high-quality portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and The Toronto-Dominion Bank, as well as attractive quarterly distributions in the amount of $0.20319 ($0.81276 per annum) per class A share. Holders of the preferred shares are expected to continue to benefit from fixed cumulative preferential quarterly distributions in the amount of $0.215625 ($0.8625 per annum) per preferred share representing a yield of 5.75% on the original issue price of $15.00.

In connection with the extension of the term, holders of class A shares and preferred shares have a special retraction right (“Special Retraction Right”) to permit holders of such securities to retract such shares on November 1, 2017 on the terms on which such shares would have been redeemed had the term of the Fund not been extended. In order to exercise the Special Retraction Right, shares must be surrendered for retraction on or prior to 5:00 p.m. (Toronto time) on October 13, 2017. Depending on if more class A shares or preferred shares are retracted under the Special Retraction Right, the Fund will have to redeem preferred shares or consolidate the class A shares on a basis to ensure an equal number of class A shares and preferred shares remain outstanding. Notice of such redemption or consolidation, will be made via press release on or before October 23, 2017.

For further information, please contact Investor Relations at 416.681.3966, toll free at 1.800.725.7172 or visit www.strathbridge.com.

As previously discussed, ticker changes are required to reflect the assumption of Veresen’s preferreds by Pembina Pipeline. These changes came into effect today.

So the changes are:

Implied Volatility analysis of the PPL preferreds yields a very interesting result:

Click for Big

The curve is extraordinarily steep, giving rise to an Implied Volatility of 40%, which is a ludicrously high number beyond which I refuse even to calculate possible fitting errors. This can arise in two major situations:

• Market participants feel that all issues will be redeemed at par; this invalidates the Black-Scholes option theory used in the analysis as market prices will no longer be directionless over time, or
• Market participants feel that GOC-5 yields will increase dramatically and are willing to pay a premium for low-spread, low-cost issues, as these are more highly leveraged to the benchmark yield

With respect to the first possibility, I can think of no reason to believe that PPL will redeem its preferreds except in reaction to the normal ebb and flow of credit spreads. With respect to the second, this is not what we observe in two major investment-grade series:

Click for Big

The BAM series has a very reasonable Implied Volatility of 9%; note that the pattern of variance is quite odd, with the slope appearing to be negative for the lower-spread, non-floor issues.

Click for Big

The MFC series has an Implied Volatility of 17%, which is too high (although most of these series have Implied Volatilities that I consider unreasonably high) if the future is supposed to be directionless, but far too low if you believe, as I do, that Deemed Retractions for insurers will be seen in the future.

So it’s all something of a mystery! I suggest, however, that the lower-spread PPL issues look vulnerable to underperformance relative to their higher-spread siblings in the absence of dramatic overall market move, as Implied Volatility moves to a more reasonable level.

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, Scotia Capital Inc., RBC Capital Markets and will also include BMO Capital Markets, Canaccord Genuity Corp., GMP Securities L.P., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Industrial Alliance Securities Inc, Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.30% and the Class A Shares will be offered at a price of $9.00 per Class A Share to yield 13.33%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on October 3, 2017 was $10.09 and $9.19, respectively.

Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $6.80 per share and the aggregate dividends declared on the Class A Shares have been $11.15 per share, for a combined total of $17.95. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

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

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

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2019 (set at 5.50% annually effective Dec. 1, 2017); and
ii. on or about the termination date, currently December 1, 2019 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on October 5, 2017. The offering is expected to close on or about October 19, 2017 and is subject to certain closing conditions including approval by the TSX.

So

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.30% and the Class A Shares will be offered at a price of $9.00 per Class A Share

… for a total of $18.90 per whole unit, compared to a NAV per whole unit of 17.23 as of 2017-09-29. It’s a great business when it works!

The dividend rate on FFN.PR.A was boosted by 25bp to 5.50% just last week … I suppose that, somehow, this will make the offering easier to sell.

Update, 2017-10-05: The offering was successful:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 3,664,000 Preferred Shares and up to 3,664,000 Class A Shares of the Company. The total proceeds of the offering are expected to be approximately $69.2 million.

Valener Inc. has announced:

that, after having taken into account all conversion notices received from holders of its outstanding Cumulative Rate Reset Preferred Shares, Series A (“Series A Shares”) by the September 29, 2017 deadline for the conversion of the Series A Shares into Cumulative Floating Rate Preferred Shares, Series B (“Series B Shares”), less than the 1,000,000 Series A Shares required to give effect to conversions into Series B Shares were tendered for conversion. As a result, none of Valener’s Series A Shares will be converted into Series B Shares on October 15, 2017.

It will be recalled that VNR.PR.A will reset to 4.62% effective 2017-10-15 and will henceforth be referred to as a FixedReset, 4.62%+281. It commenced trading 2012-6-6 as a FixedReset, 4.35%+281, after being announced 2012-5-15. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

I recommended against conversion.

Pembina Pipeline Corporation has announced:

that it has completed its previously announced business combination (the “Transaction”) with Veresen Inc. (TSX: VSN) (“Veresen”) pursuant to a plan of arrangement (the “Arrangement”) under Section 193 of the Business Corporations Act (Alberta) to create one of the largest energy infrastructure companies in Canada.
…
Pursuant to the Arrangement, Pembina acquired all of the issued and outstanding common shares of Veresen in a transaction valued at approximately $9.4 billion, including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares.

In accordance with the Arrangement, Veresen has been amalgamated with Pembina and the outstanding Veresen preferred shares have been exchanged for Pembina preferred shares with the same terms and conditions, and will be listed on the Toronto Stock Exchange (“TSX”) under the symbols PPL.PR.O (series 15, previously Series A preferred shares of Veresen), PPL.PR.Q (series 17, previously Series C preferred shares of Veresen) and PPL.PR.S (series 19, previously Series E preferred shares of Veresen) within a few days following closing. Dividends on the series 15, 17 and 19 preferred shares will continue to be paid on the last business day of March, June, September and December in each year if, as and when declared by the Board of Directors.

So the changes will be (once the principals get around to it):

I will provide further details as they are slowly and painstakingly unveiled by the company and the Toronto exchange, to whom this entire affair comes as a complete surprise.

DBRS has discontinued Veresen ratings:

DBRS Limited (DBRS) discontinued the Issuer Rating, Senior Unsecured Notes Rating and Preferred Shares Rating of Veresen Inc. (Veresen or the Company). The rating is being discontinued at the request of the Company following today’s announcement that the previously announced business combination between Veresen and Pembina Pipeline Corporation (Pembina; rated BBB, Stable trend) has been closed pursuant to a plan of arrangement (the Arrangement). Pursuant to the Arrangement, Pembina has acquired all of the issued and outstanding common shares of Veresen in a transaction valued at approximately $9.4 billion, including the assumption of Veresen’s debt (including subsidiary debt) and preferred shares.

They further commented:

In terms of Pembina’s financing of the Acquisition, DBRS notes that the financing is consistent with Pembina’s financing plan at the time of the announcement of the Acquisition in May 2017. The cash portion of the Acquisition is estimated to be approximately $1.5 billion. This will temporarily be financed with Pembina’s credit facilities and then refinanced with a mix of long-term debt, common equity and preferred shares. DBRS continues to hold the view that the Acquisition will modestly weaken Pembina’s financial metrics in the near term. Please see DBRS’s above-referenced press release dated May 1, 2017, for more details.