Category: Market Action

PerpetualDiscounts now yield 5.09%, equivalent to 6.62% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.84%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 380bp from the 375bp reported November 18.

Brompton Group has announced:

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

The sales period for this overnight offering will end at 9:00 a.m. (ET) on Wednesday, November 25, 2020. The offering is expected to close on or about December 2, 2020 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 $10.75 per Class A Share for a distribution rate of 11.2% on the issue price, and the Preferred Shares will be offered at a price of $10.00 per Preferred Share for a yield to maturity of 6.6%.(1) The closing price on the TSX for each of the Class A Shares and Preferred Shares on November 23, 2020 was $10.86 and $10.25, respectively. The Class A Share 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 (“Unit”) (calculated as at November 23, 2020), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.

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

The Company is also pleased to announce that its board of directors has approved an extension of the maturity date of the Class A Shares and Preferred Shares of the Company for an additional 5-year term, to June 30, 2026. The Preferred Share dividend rate for the extended term will be announced at least 60 days prior to the original June 30, 2021 maturity date. The new dividend rate will be determined based on the market yields for Preferred Shares with similar terms.

The Company invests in a diversified portfolio (the “Portfolio”) of equity securities of large capitalization global dividend growth companies selected by the Brompton Funds Limited (the “Manager”). In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing of the Portfolio, each global dividend growth company included in the Portfolio must (i) have a market capitalization of at least $10 billion; and (ii) have a history of dividend growth or, in the Manager’s view, have high potential for future dividend growth.

The investment objectives for the Class A Shares are to provide holders with regular monthly cash distributions 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 $0.125 per Preferred Share, and to return the original issue price to holders of Preferred Shares on June 30, 2026.

So the new Units are being sold for 20.75, while the November 23 NAVPU is 19.92, for a premium of 4.2%. What a great business it is!

Update, 2020-11-26: The company has further announced:

a successful overnight treasury offering of class A shares and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively). Gross proceeds of the offering are expected to be approximately $13.1 million. The offering is expected to close on or about December 2, 2020 and is subject to certain closing conditions. The Company has granted the Agents (as defined below) an over-allotment option, exercisable for 30 days following the closing date of the offering, to purchase up to an additional 15% of the number of Class A Shares and Preferred Shares issued at the closing of the offering.

Pace Credit Union (last discussed June 22) is back in the news:

The Financial Services Regulators Authority of Ontario (FSRA) announced late Friday that is has taken over daily oversight of PACE for the second time in two years.

The directors who resigned over a three-day span include board chair George Cooke, a former insurance executive who was hand-picked by FSRA to help turn PACE around after two years of turmoil. Also stepping down are CEO Barbara Dirks and head of risk Terri O’Brien, both of whom joined PACE in April.
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More recently, however, regulators have been investigating whether a now-defunct investment dealer started by the previous executives, Pace Securities Corp., improperly sold $46-million in risky investment products to retail investors
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. Those investments plunged in value early this year, and another regulator, the Investment Industry Regulatory Organization of Canada (IIROC), is seeking to discipline the two former executives who led Pace Securities, Joseph Thomson and Gerald McRae.

In August, law firm Paliare Roland Rosenberg Rothstein LLP was appointed to represent investors in negotiating a settlement who say they were misled. Yet even after the deadline for talks was extended, no deal has been announced.

A FSRA investigation recently concluded that the sales of the investment products had breached the act that governs credit unions, and PACE’s management agreed. But “there was not consensus on how best to address those breaches,” said Mark White, FSRA’s CEO, in a statement.

PerpetualDiscounts now yield 5.14%, equivalent to 6.68% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at the 375bp reported November 11.

An article in the Globe about drone deliveries led to two source papers. The first, The sky may not be the limit – A case study in Berlin, attempts to estimate the volume of deliveries attainable:

Using the city of Berlin as an example, we consider practical questions such as how will drones be controlled, how many parcels could be delivered and, critically, what are the challenges to implementation. For example, we calculate that the usable air space above Berlin could accommodate 1,200 cargo drones at any one time, enabling the possible delivery of up to four million parcels every year.
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Regarding minimum safety distances, we assume a scale factor of 10% compared to commercial air traffic rules. This means minimum horizontal distances for cargo drones would be 550 m and minimum vertical distances 30 m.
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So, if drone operations are allowed on 280 days a year (excludes Sundays and 30 other non-operating days due to adverse weather conditions and public holidays), up to 4 million parcels can possibly be delivered by cargo drones in Berlin every year.

And what percentage of a Berlin’s parcel delivery needs will drones be able to cover? Around 135 million parcels were delivered in Berlin in 2018, with about 80% (110 million) weighing less than 2 kg (the assumed maximum load of a parcel drone). Thus, at maximum capacity and based on 2019 figures, drones could handle 3.6% of parcel deliveries under 2 kg.

Over half a click of horizontal safety space? I will readily admit to not being an expert on Drone Air Traffic Control, but that seems excessive. The figure is not justified in the paper, beyond the seemingly arbitrary scaling to 10% of commercial air traffic rules.

The other paper is titled Estimation of traffic density from drone-based delivery in very low level urban airspace:

When considering that the probability for traffic conflicts grows quadratically with traffic density (Hoekstra, 2001), managing airspace complexity will be one of the main challenges of unmanned traffic management concepts such as U-Space.
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Each of the U-Space level consists of a set services aimed at supporting and adopting the growth of drone operations for European Union (EU) member states. However, challenges associated with integrating high densities of drone traffic to the urban airspace in a safe and efficient manner, is yet to be tackled by the regulatory and technological apparatus of U-Space.

The question remains what would be the expected volume of drone traffic for a typical urban airspace such as Paris. The study conducted by (Airbus UTM, 2018) estimated an average of 16,667 delivery drones per hour, or a traffic density of 8333 delivery drones, for Paris by 2035. The latter figure is nearly eight-fold lower than the potential scenario of traffic density delivery drones of 63,596 estimated in this study for both express parcel and food deliveries.

I am sorely tempted to imagine a regulatory regime in which the bulk of a drone’s flight is restricted to arterial roads; this will reduce noise complaints from old ladies. When the drone gets sufficiently close to its destination, then it can veer off – still using existing streets – and make its deliveries. Surely such a regime would enable the required horizontal clearance to be reduced to a mere fraction of 550m.

Everybody’s got an idea for a new tax:

As brightening vaccine prospects tease a return to pre-pandemic normalcy and employers map out when and how remote workers return to the office, analysts at Deutsche Bank are proposing a “privilege tax” on post-pandemic work from home to subsidize lost wages for low-income workers.

• Deutsche argues that remote workers contribute less to the economy’s infrastructure while still receiving its benefits, and says that a 5% tax on individuals levied against their wages on days they decide to work remotely would “leave them no worse off than if they had chosen to go into the office.”
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• Similarly, the bank proposes levying the 5% tax on employers for each employee who decides to work from home permanently, saying that companies could even be better off despite the tax given potential savings on office downsizing and general maintenance.
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