Category: Return of Capital

Canoe EIT Income Fund has announced:

that it has filed and obtained a receipt for a preliminary short form prospectus in respect of a potential offering of Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”) at a price of $25.00 per Series 1 Preferred Unit (the “Offering”). The Series 1 Preferred Units will be offered to the public through a syndicate of underwriters led by Scotiabank and RBC Capital Markets which also includes BMO Capital Markets, CIBC Capital Markets, National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., Industrial Alliance Securities Inc. and Manulife Securities Incorporated. Canoe Financial LP, the manager of the Fund, believes that successful completion of the Offering will provide the Fund with longer-term fixed rate capital at an attractive all in cost of financing. The additional capital will be used to take advantage of attractive investment opportunities, and is also expected to ensure the sustainability of the Fund by increasing the earning capacity of the Units. The Series 1 Preferred Units are provisionally rated Pfd – 2 (high) by Dominion Bond Rating Service Limited.

The Fund’s regular monthly distribution of $0.10 per unit for unitholders of EIT.UN units remains unchanged. The Fund has maintained the $0.10 per unit monthly distribution since August 2009, through varying market conditions.

The Fund’s annual voluntary redemption feature for unitholders of EIT.UN units remains unchanged. Once a date has been set for the 2017 annual redemption, the Fund will issue a news release with the details.

A preliminary short form prospectus containing important information relating to the Series 1 Preferred Units has been filed with securities commissions or similar authorities in all provinces and territories of Canada. The preliminary short form prospectus is still subject to completion or amendment. Copies of the preliminary short form prospectus may be obtained from your registered financial advisor using the contact information for such advisor, or from representatives of the underwriters listed above. There will not be any sale or any acceptance of an offer to buy the Series 1 Preferred Units until a receipt for the final short form prospectus has been issued.

The preliminary prospectus is on SEDAR, but Canadian Regulatory Authorities have determined in their infinite wisdom that nasty investor scum may not link directly to it. Instead, one must search for “Canoe EIT Income Fund Feb 17 2017 16:18:30 ET Preliminary short form prospectus – English PDF 335 K”

The investment objectives of the Fund are to maximize monthly distributions relative to risk and maximize Net Asset Value, while maintaining and expanding a diversified investment portfolio, primarily through acquiring, investing, holding, transferring, disposing of or otherwise dealing with or in equity and debt securities of corporations, partnerships, or other issuers and such other investments as the Manager may determine in its sole discretion from time to time. The investment objectives set forth above may be achieved through direct acquisitions, investments or, at the election of the Manager, through “exchange offers” or rights offerings completed by the Fund from time to time.
…
Set out below are the tax classifications of the historical distributions of the Fund (which were $0.10 per Unit per month for the entire period presented) for the past five years and the Manager expects the Series 1 Preferred Units to have a similar distribution breakdown:

%	2015	2014	2013	2012	2011
Capital gain	60.92%	59.89%	32.73%	32.82%
Actual amount of eligible dividends	9.29%	5.33%	18.18%	32.25%	16.73%
Actual amount of ineligible dividends
Foreign income, net of tax					17.28%
Other income				1.49%
Return of Capital(1)	29.79%	34.78%	49.09%	66.26%	33.17%
Total	100.00%	100.00%	100.00%	100.00%	100.00%

(1) Includes warrants from 2012-2016

…
Certain Provisions of the Series 1 Preferred Units

Distributions

Series 1 Preferred Unitholders will be entitled to receive quarterly cumulative preferential cash distributions on the 15th day of March, June, September and December of each year at a rate of ●% per annum of the issue price of a Series 1 Preferred Unit ($● per Series 1 Preferred Unit per annum or $● per Series 1 Preferred Unit per quarter), less any tax required by law to be deducted therefrom. The initial distribution, if declared, will be payable on June 15, 2017 and will be $● per Series 1 Preferred Unit, assuming a closing date of ●, 2017. Distributions in any given period may consist of net income, net capital gains and/or returns of capital. The Fund’s income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Series 1 Preferred Units in the same proportion as the distributions received by such holders. See “Principal Canadian Federal Income Tax Considerations”.

Redemption at the Option of the Fund

Prior to March 15, 2022, the Fund may not redeem any Series 1 Preferred Units. On or after March 15, 2022, the Fund may give notice in writing not less than 30 days nor more than 60 days prior to the applicable redemption date of its intention to redeem for cash the Series 1 Preferred Units in whole or in part, at the Fund’s option, at a price per Series 1 Preferred Unit equal to $25.75 if redeemed on or after March 15, 2022, but before March 15, 2023; $25.50 if redeemed on or after March 15, 2023, but before March 15, 2024; and $25.00 thereafter, together, in each case, with all accrued and unpaid distributions up to but excluding the date fixed for redemption and less any tax required by law to be deducted therefrom.

If less than all outstanding Series 1 Preferred Units are at any time to be redeemed, the particular Series 1 Preferred Units to be redeemed will be selected on a pro rata basis (disregarding fractions) or in such other manner as the Trustee in its discretion may, by resolution, determine.

Retraction by Series 1 Preferred Unitholders

Prior to March 15, 2024, a Series 1 Preferred Unitholder may not require the Fund to retract any Series 1 Preferred Units. Subject to the provisions of any equity securities of the Fund ranking prior to or pari passu with the Series 1 Preferred Units, and to the provisions described under “− Restrictions on Distributions and Retirement and Issue of Series 1 Preferred Units”, a Series 1 Preferred Unitholder may require the Fund to retract such Series 1 Preferred Units (by delivering notice to the Manager of the intention to have Series 1 Preferred Units retracted not less than 30 days prior to the applicable retraction date) on or after March 15, 2024 for a cash price of $25.00, together with any accrued and unpaid distributions up to but excluding the date of retraction and less any tax required by law to be deducted therefrom.

Purchase for Cancellation

Subject to applicable law, including the requirements in NI 81-102, the provisions of any equity securities of the Fund ranking prior to or pari passu with the Series 1 Preferred Units, and to the provisions described under “− Restrictions on Distributions and Retirement and Issue of Series 1 Preferred Units”, the Fund may at any time purchase for cancellation the whole or any part of the Series 1 Preferred Units outstanding from time to time, in the open market through or from an investment dealer or any firm holding membership on a recognized stock exchange, or by private agreement or otherwise, at the lowest price or prices at which, in the opinion of the Manager of the Fund, such Series 1 Preferred Units are obtainable.
…
Rating

The Series 1 Preferred Units are provisionally rated Pfd-2(high) by Dominion Bond Rating Service Limited (“DBRS”).

Brookfield Infrastructure has announced:

that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 5 (“Series 5 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets, and Scotiabank. The Series 5 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 5 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.35% annually for the initial period ending September 30, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.64%, and (ii) 5.35%. The Series 5 Preferred Units are redeemable on or after September 30, 2021.

Holders of the Series 5 Preferred Units will have the right, at their option, to reclassify their Series 5 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 6 (“Series 6 Preferred Units”), subject to certain conditions, on September 30, 2021 and on September 30 every five years thereafter. Holders of Series 6 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.64%.

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 5 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

The Series 5 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 5 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 5 Preferred Units is expected to close on or about August 2, 2016.

Note that this issue has an unusual tax status on its distributions: like BIP.PR.A and BIP.PR.B, the distributions will be comprised of a mixture of ordinary income and return of capital, in what are expected to be approximately equal proportions, but with no guarantees on just what the proportions will be, either for any particular year or in total!

It will be interesting to see how this issue trades relative to BIP.PR.B, which is a FixedReset, 5.50%+453M550 (Interest + ROC). Readers will note that BIP.PR.B has a lower Issue Reset Spread (453bp vs 464bp) than the new issue, but a higher Minimum Reset Rate (5.50% vs. 5.35%). BIP.PR.B closed today at 25.85-96, 2×5.

Brookfield Renewable Partners L.P. has announced:

that it has agreed to issue 6,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 9 (the “Series 9 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc. for distribution to the public. The Series 9 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $150,000,000.

Holders of the Series 9 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.75% annually for the initial period ending July 31, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of (i) the 5-year Government of Canada bond yield plus 5.01%, and (ii) 5.75%. The Series 9 Preferred Units are redeemable on July 31, 2021 and on each Series 9 Reclassification Date (as defined below) thereafter.

Holders of the Series 9 Preferred Units will have the right, at their option, to reclassify their Series 9 Preferred Units into Cumulative Floating Rate Reset Class A Preferred Limited Partnership Units, Series 10 (the “Series 10 Preferred Units”), subject to certain conditions, on July 31, 2021 and on July 31 every 5 years thereafter (each a “Series 9 Reclassification Date”). Holders of Series 10 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 5.01%.

Brookfield Renewable has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 9 Preferred Units which, if exercised, would increase the gross offering size to $200,000,000.

The Series 9 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Renewable’s existing Canadian short form base shelf prospectus. The Series 9 Preferred Units may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

Brookfield Renewable intends to use the net proceeds of the issue of Series 9 Preferred Units to repay indebtedness. The offering of Series 9 Preferred Units is expected to close on or about May 25, 2016.

It is my understanding that distributions on the units will be characterized in the same manner as, for instance, the related issue BEP.PR.G:

According to the prospectus:

Management anticipates the 5 year average per unit Canadian dividend, ordinary income and return of capital will be 50%, 25%, and 25%, respectively, for the period between 2015 and 2020; however, no assurance can be provided this will occur.

… but the prospectus supplement is not yet available for this particular new issue. It’s a pity they didn’t include this rather vital information in the press release.

Brookfield Infrastructure has announced:

that it has agreed to issue 5,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 3 (“Series 3 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc. The Series 3 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000. Holders of the Series 3 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.50% annually for the initial period ending December 31, 2020. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.53%, and (ii) 5.50%. The Series 3 Preferred Units are redeemable on or after December 31, 2020.

Holders of the Series 3 Preferred Units will have the right, at their option, to reclassify their Series 3 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 4 (“Series 4 Preferred Units”), subject to certain conditions, on December 31, 2020 and on December 31 every 5 years thereafter. Holders of Series 4 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.53%.

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 3 Preferred Units which, if exercised, would increase the gross offering size to $175,000,000. The Series 3 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 3 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 3 Preferred Units is expected to close on or about December 8, 2015.

The sentence “The Series 3 Preferred Units are redeemable on or after December 31, 2020.” is, from what I’ve seen, poorly phrased. My understanding is that it is redeemable at par on every Exchange Date, in line with the accepted structure.

Investors should be aware that the distributions are expected to be a mixture of ordinary income and return of capital for tax purposes; no Eligible Dividends are expected. The company expects a 50-50 split of the two types of income over the next five years, but of course there are no guarantees! I have been supplied with the following characterization of the past five years:

Sure bounces around a lot, doesn’t it?

BIP.PR.A was bid at 20.40 today to yield 5.50% to perpetuity … so call these issues more-or-less even yield. This suggests that the new issue is grossly expensive, unless you place a high value on the “dividend floor” feature, which I don’t.

Brookfield Renewable Energy Partners L.P. has announced:

that it has agreed to issue 5,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 7 (the “Series 7 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC, RBC Capital Markets and Scotiabank for distribution to the public. The Series 7 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000.

Holders of the Series 7 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.50% annually for the initial period ending January 31, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of (i) the 5-year Government of Canada bond yield plus 4.47%, and (ii) 5.50%. The Series 7 Preferred Units are redeemable on or after January 31, 2021.

Holders of the Series 7 Preferred Units will have the right, at their option, to reclassify their Series 7 Preferred Units into Cumulative Floating Rate Reset Class A Preferred Limited Partnership Units, Series 8 (“Series 8 Preferred Units”), subject to certain conditions, on January 31, 2021 and on January 31 every 5 years thereafter. Holders of Series 8 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.47%.

Brookfield Renewable has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 7 Preferred Units which, if exercised, would increase the gross offering size to $175,000,000.

The Series 7 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Renewable’s existing Canadian short form base shelf prospectus. The Series 7 Preferred Units may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

Brookfield Renewable intends to use the net proceeds of the issue of Series 7 Preferred Units to repay indebtedness and for general corporate purposes. The offering of Series 7 Preferred Units is expected to close on or about November 25, 2015.

I am assuming that since these are referred to as “Preferred Units” that the distributions will be characterized as a mixture of dividends, ordinary income and return of capital, but I have not yet been able to confirm this; but this would be consistent with the new security they are offering in exchange for BRF.PR.E.

Update, 2015-11-19: The company announced on November 18:

that as a result of strong investor demand for its previously announced offering, the underwriters have exercised their option to increase the size of the offering to 7,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 7 (the “Series 7 Preferred Units”). The Series 7 Preferred Units will be issued at a price of C$25.00 per share, for gross proceeds of C$175,000,000 pursuant to a prospectus supplement filed today. The Series 7 Preferred Units are being offered on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC, RBC Capital Markets and Scotiabank for distribution to the public.