PrefBlog

Can’t tell your players without a programme! Royal is continuing the pattern of opportunistic issuance I predicted in early February.

They have now announced the following:

Issue: 4.50% Non-Cumulative First Preferred Shares, Series AG

Size: 10-million shares, = $250-million @ the 25.00 issue price.

Redemption: Redeemable at $26.00 commencing May 24, 2012, call price declines by $0.25 every May 24 thereafter until redeemable at $25.00 from May 24, 2016 on.

Provisional ratings: Pfd-1 by DBRS, P-1 (low) by S&P

Closing: The expected closing date is April 26.

More Later.

Later, not much more: You know what? I’m not going to bother reviewing this one much at all. The dividend rate is identical to RY.PR.D & RY.PR.E, while the redemption schedule differs only in that the new issue’s schedule starts three months later. The curve price of the two comparables is in the 25.40-50 range, but a large part of this is the dividend payable on these issues – they both go ex-Dividend on 2007-04-23.

The new issue is entirely reasonable and maybe just a little bit cheap according to its curve price.

Canadian Utilities has announced an issue of Cumulative (!) Redeemable Preferred Shares Series 1.

Issue size is 4.6-million shares priced at $25.00 for gross proceeds of $115-million.

Dividends are 4.60% per annum ($1.15), payable quarterly, cumulative (!), payable on the first day of March/June/September/December. The initial dividend of $0.13863 will be paid on June 1, based on the anticipated closing date of April 18, 2007.

The call schedule is:

These are rated at Pfd-2(high) by DBRS and P-2 (high) by S&P.

The material I have indicates that the proceeds will be used to finance capital expenditures and for other general corporate purposes … but I wonder! CU.PR.T is currently callable at $25.00 with a dividend rate of $1.475 p.a. (issue size 2,277,675 according to the TSX) and CU.PR.V is currently callable at $25.00 with a dividend rate of $1.325 p.a. (issue size 2,146,730 : ibid). I have previously complained that these issues appear to be surviving due solely to regulatory boneheadism … but perhaps a ray of sunlight has penetrated Canadian capital markets. However, there is more boneheadism in heaven and earth than is dreamt of in my philosophy. We shall see.

More later.

Update : DBRS has confirmed on their site that the new issue is rated Pfd-2(high).

Interestingly, they have a different understanding of the use of proceeds from the issue than the one I saw (my bolding):

The net proceeds of the Preferred Shares are expected to be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of CU Inc.’s subsidiaries, ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.

I don’t think CU.PR.T & CU.PR.V will last very much longer. And, if you look at the issue sizes and account for underwriting fees of about 3%, you might decide that “general corporate purposes” consist largely of buying a new pencil.

Scotiabank has announced (via CCN Matthews)

a domestic public offering of 12 million, 4.50% non-cumulative preferred shares Series 15 (the “Preferred Shares Series 15”) at a price of $25.00 per share, for an aggregate amount of $300 million.

The Bank has agreed to sell the Preferred Shares Series 15 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The Bank has granted to the underwriters an over-allotment option to purchase up to an additional $45 million of the Preferred Shares Series 15. This over-allotment option is exercisable at any time up to 30 days after closing.

Closing is expected to occur on or after April 5, 2007.

I have no details on the call schedule as yet, but will post more, later, when I do.

I’m pleased to see this! Scotiabank has lots of Tier 1 Capital room for new issuance!

Update & Bump 3/21 : The redemption schedule is

and some comparatives are:

From my Tier 1 Capital notes:

It is also interesting that Royal has used up about half its available room. Given that their Tier 1 Ratio at year-end significantly lagged the competition, I suspect that there will be more opportunistic issuances in addition to RY.PR.D and RY.PR.E.

It’s always gratifying to have one’s predictions justified!

RBC has announced:

Royal Bank of Canada (RY on TSX and NYSE) today announced a domestic public offering of $200 million of Non-Cumulative First Preferred Shares Series AF.

The bank will issue 8 million Preferred Shares priced at $25 per share and holders will be entitled to receive non-cumulative preferential quarterly dividends in the amount of $0.278125 per share, to yield 4.45 per cent annually. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares at the same offering price.

So … 8-million shares @$25.00, a $200-million issue and the potential for $50-million more if the underwriters exercise their options. Pays 4.45% = $1.1125 annually, first dividend August 24 of $0.496815 based on a March 14 closing.

The issue is provisionally rated Pfd-1 by DBRS and P-1(low) by S&P.

It’s a bought deal, expected to close 2007-3-14.

More later.

Later, more

Dundee Wealth Management has announced (via CCN Matthews) that:

it has entered into a “bought deal” agreement to sell to a syndicate of underwriters led by Scotia Capital Inc. and Dundee Securities Corporation, 6,000,000 4.75% Cumulative Redeemable First Preference Shares, Series 1 (the “Series 1 Shares”) at a price of $25.00 per Series 1 Share for gross proceeds to Dundee Wealth of $150 million. The underwriters also have an over-allotment option, exercisable at any time prior to 30 days after the closing date, to acquire an additional 900,000 Series 1 Shares at the issue price of $25.00 per Series 1 Share. The offering is expected to close on or about March 13, 2007.

DBRS has rated this issue Pfd-3.

I am advised that this issue is a 10-year retractible – but I have not yet been advised in writing! This issue is of sufficient size to be added to the HIMIPref™ database. I will provide more details and analysis when it becomes available.

Update & Bump : I have received a term sheet.

Annual dividends are $1.1875 per share per annum. The first dividend is intended to be payable June 30, 2007 and be $0.35625, based on the anticipated closing date of March 13, 2007.

The redemption schedule is:

Any redemption before March 13, 2012 is limited to circumstances where the Series 1 Shares are entitled to vote separately as a class or series by law.

The shares are retractible for cash at the option of the holder on and after March 13, 2017 at $25.00.

Another Update & Bump!

I have prepared the following table with some comparatives:

Note that the BAM.PR.J has a soft-maturity 2018-3-30 at $25.00 to yield 3.35% – it’s right on the bubble, which is why the pseudoConvexityWorst is both large and negative.

This new issue looks attractive when valued in strict accordance to the yield curve. But as I warned in my post about the YPG New Issue:

As credit quality decreases, so does the quality of HIMIPref™’s yield curve analysis. I do not recommend that these prefs be considered for more than 5% of a diversified preferred share portfolio.

Yellow Pages Income Fund (the “Fund”) (TSX:YLO.UN) announced today that its subsidiary, YPG Holdings Inc. (the “Issuer”), will be issuing 12,000,000 cumulative redeemable preferred shares, series 1 (the “Series 1 Shares”) for aggregate gross proceeds of $300 million on a bought deal basis to a syndicate of underwriters led by Scotia Capital Inc., CIBC World Markets Inc., RBC Capital Markets and BMO Capital Markets, acting as joint book-runners.

The issue price is $25.00 and the dividend is 4.25% p.a., payable quarterly. Issue size is 12-million shares ($300-million) and the underwriters have the option until March 31 to purchase an additionaly 1.8-million shares ($45-million).

The initial dividend will be $0.32894, payable June 27 based on a closing date of March 6, 2007.

There are call privileges on the issue, which are exercisable only in circumstances in which the Series 1 shares are entitled to vote separately as a class or series by law. This “special call privilege” has the following schedule:

There is a normal call, exercisable on and after March 31, 2012 at the corporation’s whim, to call at $25.00 cash.

The corporation can force conversion in to Trust Units of Yellow Pages Income Fund at the greater of (i) $2, or (ii) 95% of the Trust Units’ trading price at any time at which it could redeem the shares (including the special call).

The shares are retractible to cash on and after Dec 31, 2012 at $25.00.

This issue has ratings (provisional, presumably) of :

More later.

Update & Bump: The issue has been entered into the HIMIPref™ database on a preIssue basis, with the securityCode P50011.

There aren’t too many comparables for this issue, but I’ll do what I can!

Update 2007-02-20 : I note that the YPG bonds, 5.25% of Feb. 2016 are indicated at Canada 4.5/15 + 143bp, call it 5.51% at last night’s close. So, at a pre-tax YTW of 4.24%, interest equivalent (for rich Ontario residents)  to 5.94%, the new prefs are trading at a reasonable spread to bonds.

Mind you, these are only Pfd-3(high). As credit quality decreases, so does the quality of HIMIPref™’s yield curve analysis. I do not recommend that these prefs be considered for more than 5% of a diversified preferred share portfolio.

SEDAR has a copy of this – there has been no news release. I have an interest in this vehicle having written about it, so thought I’d point out the prospectus.

It contains the paragraph:

In addition, if the call or redemption price of a Notional Security is less than the Traded Price upon its inclusion in the Notional Preferred Portfolio, and that Notional Security is redeemed, NAV will be negatively impacted. 20% of the Notional Securities are callable at par prior to the Termination Date, and the weighted average Trading Price premium above par for these securities (as of , 2007) is approximately %. As a result, if all such Notional Securities are called prior to the Termination Date, all else being held constant, the NAV would decrease by approximately 

Why shouldn’t they issue more units? The Globe and Mail reports that the NAV is $24.00 compared to a market price of $25.50.

Well, yet another bank leaps into action with a new 4.5% perpetual!

This is actually rather nice, having so many issues that are so similar (SunLife, Scotia, Royal and BMO) … I forsee many happy hours in the years ahead, swapping between them in a low-risk dividend-capture strategy.

Anyway … CIBC is issuing 10-million of these shares (up to another 2-million may be issued) for an issue size of $250-million (up to $300-million). The provisional rating from DBRS is Pfd-1(low); the S&P provisional is P-1(Low).

The anticipated closing date is February 14, 2007

Update & Bump : Let’s look at a few comparables …

NB Split Corp. announced today (via CCN Matthews) that “it has filed and received a receipt dated January 30, 2007, from the securities regulators of all the Canadian provinces, for the final prospectus for the initial public offering of Capital Shares and Preferred Shares of the Company”.

This is not an issue that I intend to add to the HIMIPref™ database as I do not think the preferred shares will be tradeable for long. This is irritation, because NB Split has a spiffy website, but the terms of the prefs are not quite so spiffy.

They carry a 4.75% annual dividend and have been provisionally rated Pfd-2(low) by DBRS. Closing of the offering should be on or about February 22, 2007, and the company intends to wind up Feb 15, 2012. So far so good.

BUT there is an annual redemption at par in order to match the number of Capital Units retracted as a “Special Annual Retraction”. And there are no provisions to halt (admittedly skimpy) distributions to the Capital Unitholder Scum if asset coverage declines below a threshold.

Given the high coupon attached to these things, I suggest that immediately upon issue they will rise in price to a premium above par that will leave the currentYield at an attractive level while leaving the yieldToWorst at an unattractive level. They will, at such levels, contain a huge amount of call risk – great to hold, as long as they don’t get called!

Mind you, anybody able to sweet-talk their broker into giving them an allocation of the prefs at par without having to buy Capital Units should make some good money from the flip. Send me the name of your broker!

So, unless captured by a band of marauding clients and tortured, I do not intend to add these shares to the HIMIPref™ database.

This is a new split share sponsored by Connor, Clark & Lunn Capital Markets that invests mainly in … Financials & Utilities! Mind you, about one-quarter of the indicative portfolio is REITs, but the sponsor considers them to be financial issuers and notes that they are part of the S&P/TSX Financial Sub-Index.

This split has an innovative Leveraging/De-Leveraging mechanism. If they make all kinds of money in the investment portfolio, leverage will necessarily decline. To counteract this they will, “subject to confirmation at the time from DBRS that the Pfd-1 rating of the Preferred Shares will not be impacted”, go out and borrow money to restore their leveraging factor. Conversely, if they don’t do so well, they will sell off securities so that the portfolio has cash & equivalents equal to the redemption value of the Preferred Shares.

For example, if the value of the Portfolio were to fall to approximately $15.50 per Unit … the Leverage Agent would proceed to sell Portfolio Securities having a value of $10 (for each Unit) and would invest the proceeds in cash and cash equivalents. At such time, the aggregate NAV of the Class A Shares (approximately $5.50 per Class A Share) would continue to be fully invested in the Portfolio. If the NAV per Class A Share thereafter grew to approximately $7.37, the Leverage Agent would, upon instructions from the Manager, sell the cash equivalents and the Manager would re-invest the cash and proceeds from the sale of cash equivalents in securities of the Portfolio.

A de-leveraging event will also occur in the event that the Interest Coverage Ratio is less than 1.5 for any calendar quarter. The estimated Interest Coverage Ratio at inception is approximately 1.64

As noted above, the Preferred Shares have been provisionally rated Pfd-1 by DBRS. 

There are the usual provisions for Monthly Retraction (very expensive, for idiots only) and Annual Concurrent Retraction (get the NAV for each unit [Capital Unit & Preferred] submitted, less costs). The preferreds are not callable – Capital Unit Holders wishing to redeem must either buy one themselves or get the company to do it in the marketplace for them. This is a very good feature – even better than declining call premia – and I like it!

The Preferred Shares will be redeemed by the Company on January 31, 2012. 

Anticipated closing is February 6, or a later date to be agreed by the Company and Agents that is on or before February 28.

I have not yet subjected this issue to a thorough analysis, but will post such analysis when I have done so. However, the preferred shares look very attractive at the offer price of $10.00 … 4.25% is hard to come by for any retractible, and these are Pfd-1. At the Ontario Equivalency Factor (Fat Cat Version) of 1.4, this is equivalent to a five year bond paying 5.95%.

The only downside is liquidity: A maximum of 5-million shares at $10 is being issued, so it’s not the biggest gorilla in the zoo. Still, given the redemption provisions, there should be sufficient liquidity for reasonable and patient investors for the term of the shares.

A hat-tip to the reader who brought this to my attention!

Update, 2007-02-05 According to the TSX, this will commence trading 2007-02-06 with the symbol CFS.PR.A