PrefBlog

TransCanada Corporation has announced:

that it will issue 10 million cumulative redeemable first preferred shares, series 9 (the “Series 9 Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds of $250 million on a bought deal basis to a syndicate of underwriters in Canada co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The holders of Series 9 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.0625 per share, payable quarterly on the 30th day of January, April, July and October, as and when declared by the board of directors of TransCanada. The Series 9 Preferred Shares will yield 4.25 per cent per annum for the initial fixed rate period ending October 30, 2019 with the first dividend payment date scheduled for April 30, 2014. The dividend rate will reset on October 30, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.35 per cent. The Series 9 Preferred Shares are redeemable by TransCanada, at its option, on October 30, 2019 and on October 30 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 9 Preferred Shares will have the right to convert their shares into cumulative redeemable first preferred shares, series 10 (the “Series 10 Preferred Shares”), subject to certain conditions, on October 30, 2019 and on October 30 of every fifth year thereafter. The holders of Series 10 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the board of directors of TransCanada, at an annualized rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.35 per cent.

TransCanada has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional two million Series 9 Preferred Shares at a price of $25.00 per share.

The anticipated closing date is January 20, 2014. The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

The Series 9 Preferred Shares will be offered to the public in Canada pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under TransCanada’s short form base shelf prospectus dated December 2, 2013. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Sales must have gone well! They later announced:

that as a result of strong investor demand for its previously announced offering of cumulative redeemable first preferred shares, series 9 (the “Series 9 Preferred Shares”), the size of the offering has been increased to 18 million shares. The offering no longer includes the previously granted underwriters’ option. The aggregate gross proceeds of the offering will now be $450 million. The syndicate of underwriters is co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The anticipated closing date is January 20, 2014. The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

Update, 2014-1-14: Rated Pfd-2(low) by DBRS

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters, led by Scotiabank and RBC Capital Markets, pursuant to which the underwriters have agreed to purchase from Pembina 6,000,000 cumulative redeemable rate reset class A preferred shares, Series 5 (the “Series 5 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 5 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.25 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, yielding 5.00 per cent per annum, for the initial fixed rate period to but excluding June 1, 2019. The first quarterly dividend payment date is scheduled for March 1, 2014. The dividend rate will reset on June 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.00 per cent. The Series 5 Preferred Shares are redeemable by Pembina, at its option, on June 1, 2019 and on June 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 5 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, Series 6 (the “Series 6 Preferred Shares”), subject to certain conditions, on June 1, 2019 and on June 1 of every fifth year thereafter. The holders of Series 6 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Pembina, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.00 per cent.

Pembina has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series 5 Preferred Shares at a price of $25.00 per share.

Proceeds from the offering will be used to partially fund Pembina’s 2014 capital expenditure program, including capital expenditures relating to Pembina’s current expansion and growth projects, to reduce indebtedness under the Corporation’s credit facilities and for general corporate purposes of the Corporation and its affiliates.

Closing of the offering is expected on January 16, 2014, subject to customary closing conditions.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Corporation on February 22, 2013 in each of the provinces of Canada.

The offering must have gone well – they later announced:

that as a result of strong investor demand for its previously announced offering of cumulative redeemable rate reset class A preferred shares, Series 5 (the “Series 5 Preferred Shares”), the size of the offering has been increased to 10 million shares. The offering no longer includes the previously granted underwriters’ option. The aggregate gross proceeds will be $250 million.

Understandable … there was a pretty good new issue concession on this offering compared to the extant issues:

The extant issues got whacked today, down 40-50 cents each.

Update: Pfd-3 from DBRS.

Aimia Inc. has announced:

that it has agreed to issue to a syndicate of underwriters led by CIBC, TD Securities Inc., RBC Capital Markets and BMO Capital Markets for distribution to the public, 5,000,000 Cumulative Rate Reset Preferred Shares, Series 3 (the “Series 3 Preferred Shares”). The Series 3 Preferred Shares will be issued at a price of C$25.00 per share, for aggregate gross proceeds of C$125 million.

Holders of the Series 3 Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 6.25% annually for the initial five-year period ending March 31, 2019. The dividend rate will be reset on March 31, 2019 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 4.20%. The Series 3 Preferred Shares will be redeemable by Aimia on March 31, 2019, and every five years thereafter in accordance with their terms. Holders of Series 3 Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series 4 (the “Series 4 Preferred Shares”), subject to certain conditions, on March 31, 2019 and on March 31 every five years thereafter. Holders of the Series 4 Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 4.20%.

Aimia has granted the underwriters an option, exercisable in whole or in part anytime up to 48 hours prior to the closing of the offering, to purchase an additional 1,000,000 Series 3 Preferred Shares at the same offering price. Should the option be fully exercised, the total gross proceeds of the financing will be C$150 million.

The Series 3 Preferred Shares will be offered by way of a prospectus supplement to the short form base shelf prospectus dated April 12, 2013 filed with the securities regulatory authorities in all provinces and territories of Canada.

The net proceeds of the issue will be used by Aimia to supplement its financial resources and for general corporate purposes.

The offering is expected to close on or about January 15, 2014, subject to certain conditions, including conditions set forth in the underwriting agreement.

This issue looks extraordinarily cheap compared to AIM.PR.A, which commenced trading after a ticker change from AER.PR.A, which commenced trading in January, 2010 after being announced earlier that month. It is a 6.50%+375 FixedReset.

AIM.PR.A closed at 25.73-85 on January 3 to yield 4.12% at the bid price to a call on its first Exchange Date, 2015-3-31. It got whacked today after the new issue announcement, closing at 25.41-50, but this is still very, very expensive to the new issue for as long as the new issue is available at par. The new issue has a reset 45bp higher! There’s still a lot of adjustment in store for these two issues.

Element Financial Corporation has announced (emphasis added):

Element also announced that it plans to sell, on a bought deal basis, pursuant to a supplement to the Base Shelf Prospectus, an aggregate of 3.0 million Cumulative 5-year Rate Reset Preferred Shares, Series A of Element (“Series A Preferred Shares”) at a price of $25.00 per Series A Preferred Share for gross proceeds of approximately $75 million (the “Preferred Share Offering”, and together with the Common Share Offering, the “Offerings”) to a syndicate of underwriters co-led by GMP Securities L.P, National Bank Financial Inc., CIBC World Markets, RBC Capital Markets, BMO Nesbitt Burns Inc. and TD Securities Inc. and including Manulife Securities Inc. and Hampton Securities Limited (collectively, the “Preferred Share Underwriters”, and together with the Common Share Underwriters, the “Underwriters”).

Holders of the Series A Preferred Shares will be entitled, as and when declared by the Board of Directors of the Company, to receive a cumulative quarterly fixed dividend for the initial five-year period ending December 31, 2018 of 6.60% per annum. Thereafter, the dividend rate will reset every five years to an annual dividend rate equal to the 5-Year Government of Canada Bond Yield as quoted on Bloomberg on the 30th day prior to the first day of the relevant subsequent five year fixed rate period plus 4.71%.

Holders of the Series A Preferred Shares will have the right to convert their shares into Cumulative Floating Rate Preferred Shares, Series B of the Company (the “Floating Rate Series B Preferred Shares”), subject to certain conditions and the Company’s right to redeem the Series A Preferred Shares, on December 31, 2018 and on December 31 every five years thereafter. Holders of the Floating Rate Series B Preferred Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of the Company, equal to the then current three-month Government of Canada Treasury Bill yield plus 4.71%. Holders of the Floating Rate Series B Preferred Shares may convert their Floating Rate Series B Preferred Shares into Series A Preferred Shares, subject to certain conditions and the Company’s right to redeem the Floating Rate Series B Preferred Shares, on December 31, 2023 and on December 31 every five years thereafter. The Series A Preferred Shares will not be rated.

The Company has granted to each of the Common Share Underwriters and the Preferred Share Underwriters an option (collectively, the “Over-Allotment Options”), which may be exercised at any time for a period of 30 days following the closing of the Offerings, to purchase at the issue price under the Offerings an additional 3,545,550 Common Shares for additional gross proceeds of up to approximately $48.8 million and an additional 450,000 Series A Preferred Shares for additional gross proceeds of up to $11.25 million. In the event that the Over-Allotment Options are exercised in their entirety, the aggregate gross proceeds of the Offerings will be approximately $460 million.

The proceeds of the Offerings, including any proceeds from the exercise of the Over-Allotment Options, will be used to originate and finance, directly or indirectly, finance assets as well as for general corporate purposes. The Offerings are expected to close on December 17, 2013 and are subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals including the approval of the Toronto Stock Exchange.

This issue will not be tracked by HIMIPref™ due to the lack of a credit rating. As I explain every time this comes up, this is not because I worship the Credit Rating Agencies, but because a downgrade (or simply a threat of one) from a major agency can help to focus the minds of management and directors.

Update, 2013-12-10: Globe & Mail story titled Investors like Element Financial’s ‘boring’ business.

Update, 2014-2-26: Trades as EFN.PR.A

AltaGas Ltd. has announced:

that it will issue 6,000,000 Cumulative Redeemable Rate Reset Preferred Shares, Series E (the “Series E Preferred Shares”), at a price of $25.00 per Series E Preferred Share (“the Offering”) for aggregate gross proceeds of $150 million on a bought deal basis. The Series E Preferred Shares will be offered to the public through a syndicate of underwriters co-led by TD Securities Inc., RBC Capital Markets and Scotiabank.

Holders of the Series E Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend for the initial period ending on but excluding December 31, 2018 (the “Initial Period”) at an annual rate of 5.0%, payable on the last day of March, June, September and December, as and when declared by the Board of Directors of AltaGas. The first quarterly dividend payment is payable on March 31, 2014 and shall be $0.3699 per Series E Preferred Share. The dividend rate will reset on December 31, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.17%. The Series E Preferred Shares are redeemable by AltaGas, at its option, on December 31, 2018 and on December 31 of every fifth year thereafter.

Holders of Series E Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series F (the “Series F Preferred Shares”), subject to certain conditions, on December 31, 2018 and on December 31 every fifth year thereafter. Holders of Series F Preferred Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 3.17%, as and when declared by the Board of Directors of AltaGas.

The Offering is expected to close on or about December 13, 2013. Net proceeds will be used to reduce outstanding indebtedness and for general corporate purposes. AltaGas has granted to the underwriters an option, exercisable in whole or in part at any time up to 48 hours prior to closing of the Offering, to purchase up to an additional 2,000,000 Series E Preferred Shares at a price of $25.00 per share.

The Series E Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under AltaGas’ short form base shelf prospectus dated August 23, 2013. The Offering is only made by way of a prospectus. The prospectus contains important detailed information about the securities being offered. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

This issue will join ALA.PR.A, a FixedReset, 5.00%+266, which was quoted yesterday at 25.41-48 to yield (a pretty skinny, according to me!) 4.37-36% to perpetuity … one of those instances in which the Issue Reset Spread overwhelms the price as a determinant of call probability.

Update: Rated Pfd-3 by DBRS.

Enbridge Inc. has announced:

that it has entered into an agreement with a group of underwriters to sell eight million Cumulative Redeemable Preference Shares, Series 7 (the “Series 7 Preferred Shares”) at a price of $25.00 per share for distribution to the public. Closing of the offering is expected on December 12, 2013.

The holders of Series 7 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.10 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Enbridge, yielding 4.40 per cent per annum, for the initial fixed rate period to but excluding March 1, 2019. The first quarterly dividend payment date is scheduled for March 1, 2014. The dividend rate will reset on March 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Canadian Government bond yield plus 2.57 per cent. The Series 7 Preferred Shares are redeemable by Enbridge, at its option, on March 1, 2019 and on March 1 of every fifth year thereafter.

The holders of Series 7 Preferred Shares will have the right to convert their shares into Cumulative Redeemable Preference Shares, Series 8 (the “Series 8 Preferred Shares”), subject to certain conditions, on March 1, 2019 and on March 1 of every fifth year thereafter. The holders of Series 8 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Enbridge, at a rate equal to the sum of the 90-day Government of Canada treasury bill rate plus 2.57 per cent.

Enbridge has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2 million Series 7 Preferred Shares at a price of $25.00 per share.

The offering is being made only in Canada by means of a prospectus supplement to the base shelf prospectus of the Corporation dated June 6, 2013. Proceeds will be used to partially fund capital projects, to reduce existing indebtedness and for other general corporate purposes of the Corporation and its affiliates.

The syndicate of underwriters is led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc.

This will join an extensive selection of ENB FixedResets that have Issue Reset Spreads within a very tight range:

Update, 2013-12-12: The issue trades as ENB.PR.J

Power Financial Corporation has announced:

that it has agreed to issue 7,000,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series T (the “Series T Shares”) on a bought deal basis, for gross proceeds of $175 million. The Series T Shares will be priced at $25.00 per share. Closing is expected to occur on or about December 11, 2013. The issue will be underwritten by a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

Power Financial has also granted the underwriters an option to purchase an additional 1,000,000 Series T Shares at the same offering price. Should the underwriters’ option be exercised fully, the total gross proceeds of the Series T Share offering will be $200 million.

Dividends on the Series T Shares, if, as and when declared by the Board of Directors of the Corporation, will yield 4.20% per annum, payable quarterly for an initial period ending January 31, 2019. On January 31, 2019 and on January 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.37%. Holders of the Series T Shares will have the right to convert their shares into Non-Cumulative Floating Rate First Preferred Shares, Series U of the Corporation (the “Series U Shares”), subject to certain conditions and the Corporation’s right to redeem the Series T Shares on January 31, 2019 and on January 31 every five years thereafter. Holders of the Series U Shares will be entitled to receive a quarterly floating rate dividend, if, as and when declared by the Board of Directors of the Corporation, equal to the three-month Government of Canada Treasury Bill yield plus 2.37%.

The net proceeds from the issue will be used to supplement the Corporation’s financial resources and for general corporate purposes. The Corporation intends to redeem all of its $175 million First Preferred Shares, Series M on January 31, 2014 upon completion of the Series T offering.

Update, 2013-12-11: Trades as PWF.PR.T

Veresen Inc. has announced:

it has agreed to issue 6,000,000 Cumulative Redeemable Preferred Shares, Series C (“Series C Preferred Shares”) at a price of $25.00 per share (the “Offering”) for aggregate gross proceeds of $150 million on a bought deal basis. The Series C Preferred Shares will be offered to the public through a syndicate of underwriters co-led by Scotiabank,TD Securities Inc. and CIBC.

The holders of Series C Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 5.00%, representing $1.25 per share, payable quarterly for an initial period up to but excluding March 31, 2019, as and when declared by the Board of Directors of Veresen. The first quarterly dividend payment date is scheduled for December 31, 2013. The dividend rate will reset on March 31, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.01%. The Series C Preferred Shares are redeemable by Veresen, at its option, on March 31, 2019 and on March 31 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

Holders of Series C Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series D (“Series D Preferred Shares”), subject to certain conditions, on March 31, 2019, and on March 31 of every fifth year thereafter. The holders of Series D Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.01%.

Veresen has granted the underwriters an option to purchase at the offering price an additional 2,000,000 Series C Preferred Shares at a price of $25.00 per share exercisable in whole or in part at any time up to 6:30 AM (Calgary time) on the date that is two business days prior to closing. Should the option be fully exercised, the total gross proceeds of the Offering will be $200 million.

The Offering is expected to close on or about October 21, 2013, subject to customary closing conditions. Net proceeds from the Offering will be used to reduce indebtedness, partially fund capital expenditures and for other general corporate purposes.

The Series C Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with the securities regulatory authority in each of the provinces of Canada under Veresen’s short form base shelf prospectus dated September 20, 2013. An application has been made to list the Series C Preferred Shares and the Series D Preferred Shares on the Toronto Stock Exchange. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Update: This issue is somewhat overpriced. I calculate the Yield-to-Worst on the new issue as 4.81% to perpetuity at issue price, while VSN.PR.A (FixedReset, 4.40%+292) which commenced trading in February, 2012, is bid at 23.75 to yield 4.92% to perpetuity. The new issue should yield more to account for negative convexity (see the comments), but doesn’t … the issuer and underwriters are hoping everybody looks at the Initial Rate rather than the very similar Issue Reset Spreads.

Quadravest has announced:

Prime U.S. Banking Sector Split Corp. (“The Company”) is pleased to announce the filing of a preliminary prospectus dated September 30, 2013 for a proposed new offering. The offering is an investment in common shares of a portfolio consisting primarily of 15 U.S. financial services companies selected from a portfolio universe consisting of 20 companies. The Company will offer two investment choices: Priority Equity Shares at $10 per share and Class A shares at $10 per share.

The Company’s Priority Equity Shares will provide holders with monthly cumulative preferential floating rate cash dividends at an annual rate of U.S. prime plus 1.75% (Min: 5.0% / Max: 7.0%) based on the original issue price.

The Company’s Class A Shares offer regular monthly cash dividends initially targeted to be 6.5% per annum based on the original issue price. The Class A shares will be entitled on redemption to the benefit of any capital appreciation in the market price of the shares in the portfolio.

The Company has been created to provide investors with an opportunity to invest in a portfolio of 15 U.S. financial services companies whose shares will likely continue to benefit from an improving economy. The Company will employ a covered call writing strategy to generate additional income to the portfolio.

The 15 portfolio companies will be selected from a portfolio universe consisting of the following 20 companies:

American Express Company	City National Corporation	Northern Trust Corporation
Bank of America Corporation	Fifth Third Bancorp	The PNC Financial Services Group Inc.
The Bank of New York Mellon Corporation	The Goldman Sachs Group, Inc.	Regions Financial Corporation
BB&T Corporation	JPMorgan Chase & Co.	State Street Corporation
Capital One Financial Corp.	KeyCorp.	SunTrust Banks Inc.
Citigroup Inc.	M&T Bank Corporation	U.S. Bancorp
Morgan Stanley	Wells Fargo & Company

The proposed offering is co-lead by RBC Capital Markets and CIBC World Markets Inc. The other members of the syndicate are BMO Capital Markets, National Bank Financial Inc., Scotiabank, TD Securities Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc. and Mackie Research Capital Corporation.

Please visit our website at: www.primeusbanking.com

According to the preliminary prospectus:

The Shares will be redeemed by the Company in connection with its termination, scheduled to be on or about December 1, 2020, subject to the right of the Board of Directors of the Company, on the advice of Quadravest, to extend the termination date for further terms of five years each (the day the Company terminates being the “Termination Date”). The Company may also be terminated and the Shares redeemed prior to the Termination Date in certain circumstances. See “Termination of the Company”.

There is a NAV Test:

No regular monthly dividends will be paid on the Class A Shares in any month as long as any dividends on the Priority Equity Shares are then in arrears or so long as the net asset value per Unit is equal to or less than $15.00. Additionally, it is currently intended that no special year-end dividends will be paid if after payment of such a dividend the net asset value per Unit would be less than $20.00.

There is annual and monthly retractibility:

Shareholders retracting Shares on an Annual Retraction Date will be entitled to receive a retraction price per Share equal to the net asset value per Unit on the Annual Retraction Date, less any costs associated with the retraction including commissions and other such costs, if any, related to the liquidation of any portion of the Portfolio required to fund such retraction.
…
Except as noted below, holders of Priority Equity Shares whose shares are surrendered for [monthly] retraction will be entitled to receive a price per share (the “Priority Equity Share Retraction Price”) equal to the lesser of (i) $10.00 and (ii) 96% of the net asset value per Unit determined as of the Retraction Date, less in either case the cost to the Company of the purchase of a Class A Share in the market for cancellation and less any other applicable costs.

The Management Expense Ratio looks like it will be somewhere around 1.50%:

Quadravest is entitled to a management fee at an annual rate equal to 0.75% of the Company’s net asset value calculated as at the last Valuation Date in each month, plus an amount equal to the service fee (the “Service Fee”) payable to dealers, together with applicable taxes. Quadravest will pay the Service Fee to each registered dealer whose clients hold Shares. The Service Fee will be calculated and paid at the end of each calendar quarter and will be equal to 0.50% annually of the value of the Class A Shares held by clients of the dealer, plus applicable taxes. For these purposes, the value of a Class A Share at any time is the net asset value per Unit at such time less $10.00. No Service Fee will be paid in any calendar quarter if regular dividends are not paid to holders of Class A Shares in respect of each month of such calendar quarter.
…
The Company will pay for all other expenses incurred in connection with the operation and administration of the Company, estimated to be approximately $300,000 per annum.

Income coverage will be a major problem:

Based on the current dividends paid by the companies in the Portfolio Universe, the Company is initially expected to generate dividend income, net of withholding tax, of approximately 1.53% per annum. The Company would be required to generate an additional return, net of withholding tax, of approximately 6.0% per annum, including from dividend growth, capital appreciation and option premiums from the Portfolio, in order for the Company to pay these initial targeted distributions and maintain a stable net asset value.

Those who have read some of my writings about Split Share Credit Quality will understand the combined effects of cash shortfalls and portfolio volatility. It’s not pretty!

As usual, a lot of space is used up blathering about the ever so wonderful covered call writing strategy. I have never seen any Split Share Corporation publish any evidence that such a strategy has amounted to a row of beans. I find it rather amusing that they present earnest calculations of “Required Call Writing at Various Volatility Levels to Achieve Target Distribution”, without taking into account the idea that Black-Scholes specifies the fair price; i.e., any option premium earned may be assumed to be offset by capital gains foregone. But there’s one born every minute ….

This issue will not be tracked by HIMIPref™; the dependence upon the US Prime Rate means there are insufficient comparables.

Update, 2013-10-28: I understand that the new issue has been withdrawn. However, there is no confirmation of this as yet on the Quadravest website, the fund’s website or SEDAR.