PrefBlog

Enbridge Inc. has announced:

that none of Enbridge’s outstanding Cumulative Redeemable Preference Shares, Series 5 (Series 5 Shares) will be converted into Cumulative Redeemable Preference Shares, Series 6 of Enbridge (Series 6 Shares) on March 1, 2019.

After taking into account all conversion notices received from holders of its outstanding Series 5 Shares by the February 14, 2019 deadline for the conversion of the Series 5 Shares into Series 6 Shares, less than the 1,000,000 Series 5 Shares required to give effect to conversions into Series 6 Shares were tendered for conversion.

ENB.PF.V is a US-Pay FixedReset, 4.40%+282, that commenced trading 2013-9-27 after being announced 2013-9-19. It will reset to 5.3753% effective 2019-3-1. The issue is not tracked by HIMIPref™.

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series 5 (Series 5 Shares) (TSX: ENB.PF.V) on March 1, 2019. As a result, subject to certain conditions, the holders of the Series 5 Shares have the right to convert all or part of their Series 5 Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series 6 of Enbridge (Series 6 Shares) on March 1, 2019. Holders who do not exercise their right to convert their Series 5 Shares into Series 6 Shares will retain their Series 5 Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series 5 Shares outstanding after March 1, 2019, then all remaining Series 5 Shares will automatically be converted into Series 6 Shares on a one-for-one basis on March 1, 2019; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series 6 Shares outstanding after March 1, 2019, no Series 5 Shares will be converted into Series 6 Shares. There are currently 8,000,000 Series 5 Shares outstanding.

With respect to any Series 5 Shares that remain outstanding after March 1, 2019, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series 5 Shares for the five-year period commencing on March 1, 2019 to, but excluding, March 1, 2024 will be 5.3753 percent, being equal to the five-year United States Treasury bond yield of 2.5553 percent determined as of today plus 2.82 percent in accordance with the terms of the Series 5 Shares.

With respect to any Series 6 Shares that may be issued on March 1, 2019, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series 6 Shares for the three-month floating rate period commencing on March 1, 2019 to, but excluding, June 1, 2019 will be 1.34597 percent, based on the annual rate on three month United States Government treasury bills for the most recent treasury bills auction of 2.52 percent plus 2.82 percent in accordance with the terms of the Series 6 Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series 5 Shares who wish to exercise their right of conversion during the conversion period, which runs from January 30, 2019 until 5:00 p.m. (EST) on February 14, 2019, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PF.V is a US-Pay FixedReset, 4.40%+282, that commenced trading 2013-9-27 after being announced 2013-9-19. It is not tracked by HIMIPref™.

DBRS has announced (on March 20) that it:

notes the impact of the announcement by the Federal Energy Regulatory Commission (FERC) that it will no longer allow master limited partnership (MLP) interstate natural gas and oil pipelines to recover an income tax allowance in cost of service (COS) rates on the following ratings of Enbridge Energy Partners, L.P. (EEP):

— Issuer Rating of BBB, Stable trend
— Senior Unsecured Notes rating of BBB, Stable trend
— Junior Subordinated Notes rating of BB (high), Stable trend
— Commercial Paper rating of R-2 (middle), Stable trend

DBRS estimates that the potential financial impact of the FERC decision and U.S. Tax Reform noted below would likely reduce EEP’s financial risk profile (on a DBRS modified-consolidated basis) to the low end of the BBB range in the absence of corrective measures. However, DBRS’s current business risk assessment of EEP as well as Enbridge Inc.’s (ENB; rated BBB (high) with a Stable trend by DBRS) history of supporting EEP through various measures are both supportive of the current ratings.

As an MLP, EEP’s credit metrics would be negatively affected by the implementation of the FERC decision, as some of the rates applicable to its expansion projects are tolled annually on a COS basis via the Lakehead Facility Surcharge Mechanism (FSM). EEP has indicated that, should FERC’s new policy be announced with an assumed implementation date of March 31, 2018, the 2018 financial impact to EEP is expected to be an approximate $100 million reduction in revenues and a $60 million reduction to distributable cash flow (DCF), net of non-controlling interests. Consequently, EEP has adjusted its 2018 DCF guidance range to $650 million — $700 million and 2018 total distribution coverage to approximately 1.0 times (x) from approximately 1.15x.

DBRS notes that the current 2018 Guidance adjustments follow previous 2018 Guidance adjustments announced on February 15, 2018 (concurrently with the Q4 2017 results announcement). In that case, as a result of U.S. Tax Reform, EEP adjusted its 2018 DCF guidance range to $720 million – $770 million from $775 million – $825 million and 2018 total distribution coverage to approximately 1.15x from approximately 1.2x.

On a combined basis, the impact of these 2018 Guidance adjustments would be to reduce mid-point 2018 DCF guidance by approximately 15.6%, eliminate the approximate 20% cushion on 2018 total distribution coverage (or, stated differently, to increase EEP’s payout ratio to 100% from 80%) and, in the absence of corrective measures, significantly weaken EEP’s key credit metrics. This would eliminate a significant portion of the remaining cushion currently embedded in EEP’s ratings. Please see DBRS’s rating report on EEP dated September 29, 2017, for further information.

This commentary has been picked up by the Financial Post:

Credit ratings agency DBRS Ltd. is warning that one of Enbridge Inc. subsidiary’s revenues could tumble by $100 million this year and its credit ratings hurt by new policies in the U.S., which have led to a sector-wide stock selloff.

DBRS said in a note Tuesday that said a recent decision by the U.S. Federal Regulatory Commission could “significantly weaken” the key credit metrics of Enbridge Energy Partners L.P. (EEP), a subsidiary of Calgary-based Enbridge.

Last week, the FERC announced that master limited partnerships (MLPs) — a tax-friendly corporate structure popular with pipeline firms — would no longer be able to recover an income tax allowance in certain pipeline service contracts.

… which printed a Canadian Press story on last week’s damage to the common after the ruling was announced:

Shares in Canadian pipeline companies Enbridge Inc. and TransCanada Corp. failed to recover fully Friday [March 16] from a steep sell-off on Thursday [March 15] after the U.S. said it would eliminate a tax break for owners of certain interstate pipelines.

Both Calgary-based companies hold such pipelines in the United States through master limited partnerships or MLPs.

The decision by the U.S. Federal Energy Regulatory Commission to no longer allow MLPs to recover an income tax allowance from cost of service tariffs came in response to a 2016 court ruling that found its long-standing tax policy could result in double recovery of costs.

Enbridge shares fell by 4.2 per cent to $41.06 on Thursday but recovered to close at $41.28 on Friday, up 22 cents, after it issued a statement that says it is not expecting a “material change” to its financial guidance over the next three years because of the FERC ruling.

The Globe also printed the CP story, and published three different perspectives on ENB common following the drop:

Enbridge Inc. shares skidded 4.2 per cent Thursday, adding to the frustration of shareholders who have seen more than a quarter of the company’s market capitalization wiped out in just the past year.

Investors have been worried about Enbridge’s high debt load – which sits at around $60-billion after the $37-billion acquisition of Spectra Energy Corp. that closed last year. The stock has also been pressured by a move out of dividend-paying stocks in a rising interest rate environment.
…
The Globe and Mail earlier this month talked to three portfolio managers with different views of Enbridge, as well as with the company about investors’ concerns.

ENB.PR.H (to pick one of their issues at random) has significantly underperformed the TXPR index in the past while:

Click for Big

The fall in ENB preferreds generally has attracted comment on PrefBlog.

This is significant, because Enbridge’s issuance frenzy of about five years ago made them a very significant part of the market … they have about $7.25-billion (face value) of preferreds outstanding (including USD issues), call it about $5.8-billion market value, compared to a total estimated market capitalization of $76.1-billion. Their issues have a weight of just under 10% of the BMO-CM “50” Preferred Share Index (as of February, 2018) and just under 9% of TXPR (as of 2017-7-31).

Affected issues are (deep breath): ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PF.I, ENB.PF.K, ENB.PR.A, ENB.PR.B, ENB.PR.C, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y and the USD-denominated issues, ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V.

AltaGas Ltd. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series C (the “Series C Shares”) (TSX:ALA.PR.U) on September 30, 2017. As a result, subject to certain conditions, the holders of the Series C Shares have the right to convert all or part of their Series C Shares on a one-for-one basis into Cumulative Redeemable Floating Rate Preferred Shares, Series D of AltaGas (the “Series D Shares”) on September 30, 2017. Holders who do not exercise their right to convert their Series C Shares into Series D Shares will retain their Series C Shares.

The foregoing conversion right is subject to the conditions that: (i) if AltaGas determines that there would be less than 1,000,000 Series C Shares outstanding after September 30, 2017, then all remaining Series C Shares will automatically be converted into Series D Shares on a one-for-one basis on September 30, 2017; and (ii) alternatively, if AltaGas determines that there would be less than 1,000,000 Series D Shares outstanding after September 30, 2017, no Series C Shares will be converted into Series D Shares. There are currently 8,000,000 Series C Shares outstanding.

With respect to any Series C Shares that remain outstanding after September 30, 2017, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, fixed cumulative preferential cash dividends, payable quarterly. The new annual dividend rate applicable to the Series C Shares for the five-year period commencing on September 30, 2017 to, but excluding, September 30, 2022 will be 5.29 percent, being equal to the five-year United States Government bond yield of 1.71 percent determined as of today plus 3.58 percent.

With respect to any Series D Shares that may be issued on September 30, 2017, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, quarterly floating rate cumulative preferential cash dividends. The dividend rate applicable to the Series D Shares for the three-month floating rate period commencing on September 30, 2017 to, but excluding, December 31, 2017 will be 4.62 percent, based on the annual rate on three-month United States Government treasury bills for the most recent treasury bills auction of 1.04 percent plus 3.58 percent (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series C Shares who wish to exercise their right of conversion during the conversion period, which runs from August 31, 2017 until 5:00 p.m. (Toronto time) on September 15, 2017, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after this deadline will not be valid.

Subject to the terms and conditions of the Series C Shares and Series D Shares and AltaGas’ right to redeem such shares, holders of the Series C Shares and the Series D Shares will have the opportunity to convert their shares again on September 30, 2022, and every five years thereafter as long as the Series C and Series D Shares remain outstanding.

ALA.PR.U was issued FixedReset, US-Pay, 4.40%+358, that commenced trading 2012-6-6 after being announced 2012-5-29.

As this is a USD-denominated issue it is not tracked by HIMIPref™ and there will be no recommendation regarding converting or holding.

Royal Bank of Canada has announced:

its intention, subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI), to redeem all of its issued and outstanding Non-Cumulative First Preferred Shares Series AB (the “Series AB shares”) on September 27, 2017, for cash at a redemption price of CDN $25.00 per share, together with all declared and unpaid dividends. Royal Bank of Canada also announced its intention, subject to the approval of OSFI, to redeem all of its issued and outstanding Non-Cumulative Perpetual First Preferred Shares Series C-1 (the “Series C-1 shares”) on November 13, 2017, for cash at a redemption price of U.S. $1,000 per share (equivalent to U.S. $25.00 per related depositary share), together with all declared and unpaid dividends. The NYSE-listed Series C-1 depositary shares, each of which represents a 1/40th interest in a Series C-1 share will be redeemed concurrently with the redemption of the Series C-1 shares.

In addition, the Bank has also declared a 34-day dividend of CDN $0.109452 per Series AB share covering the period from August 24, 2017 (the date of the last dividend payment), up to but excluding the redemption date of September 27, 2017. This results in a total amount of CDN $25.109452 per Series AB share to be paid upon surrender of the Series AB shares.

The final quarterly dividend of U.S. $13.75 per share for the Series C-1 shares (equivalent to U.S. $0.34375 per related depositary share) will be paid in the usual manner on November 13, 2017 to shareholders of record on November 3, 2017.

There are 12,000,000 Series AB shares and 82,050 Series C-1 shares outstanding. The redemption of the Series AB and C-1 shares will be financed out of the general corporate funds of Royal Bank of Canada.

Please visit http://www.rbc.com/investorrelations/share-information.html to view tax Questions & Answers relating to the redemption of the Series C-1 shares.

RY.PR.B is a 4.7% Straight Perpetual that was issued shortly after I started this blog; it commenced trading 2006-7-20.

The Series C-1 shares were issued in exchange for City National Corporation’s preferred shares as part of the takeover consideration in November 2015.

The decision to redeem RY.PR.B has attracted some comment on PrefBlog with respect to the timing. Assiduous Reader Brian noted:

In the past, when a bank had several prefs in this group, they always seemed to redeem the issue with the lowest dividend first (eg. Bank of Nova Scotia redeemed BNS.pr.M [4.5%] and BNS.pr.N [5.25%] before finally redeeming BNS.pr.O [5.6%]). That made no sense and I’m hoping that someone can explain this backward thinking to me!

We can resolve this with a little help from PrefInfo. BNS.PR.O was redeemed 2017-4-26, which was the first day of its par call. BNS.PR.N was redeemed 2017-1-27, the first day of its par call. And BNS.PR.M was redeemed 2016-7-27, the first day of its par call.

The explanation is rather neat and not immediately obvious. In fact, long ago I had a contest about this explanation which was won by Assiduous Reader adrian2. Straight Preferreds will, as a rule, have a redemption price which declines from $26 during the sixth year after issue to $25 (the par value) after it has been in existence for nine years. The decline is at a rate of $0.25 p.a. Therefore, if you are an issuer deciding which of several issues to redeem, you should account for the fact that waiting a while will reduce the price – and $0.25 p.a. is fairly substantial compared with the differences in dividend between two issues!

So if we consider BNS’ position in mid-2016, it had a choice of three issues to call:

• BNS.PR.M, paying $1.125 p.a.
• BNS.PR.N, paying 1.3125, or
• BNS.PR.O, paying 1.40

So, as Brian comments, one would normally expect that BNS.PR.O would be redeemed first. However, by waiting until 2017-4-26, they saved $0.25 on the redemption price, so the net cost to them of waiting was only three dividends (October, January, April) totalling $1.05, less the $0.25 reduction in premium, net $0.80. The reduction in premium was not applicable to BNS.PR.M, so it would have cost them the full amount of three dividends, or $0.84375, to have left it outstanding until April. I’m sure that as well there are operational considerations, like making people all confused about their taxes and angry at the redemption as well, but doing the redemptions in reverse order was cheaper, albeit not by much.

So full marks to Assiduous Reader LD for his explanation.

However, what makes this very interesting is the fact that RY.PR.W has not been redeemed, although it is currently callable at par (and has been since 2014-2-24) and pays more ($1.225 p.a.) than RY.PR.B ($1.175). As was noted a long time ago RY.PR.W is convertible into common at the option of the issuer, a feature which has been used to give NVCC status to preferred shares without the necessity of holding a shareholder vote on a change of terms. All that is necessary is an assignment of the conversion trigger right to OSFI. So, the redemption of RY.PR.B instead of the higher-paying RY.PR.W can be taken as an indication – not a guarantee, but an indication – that Royal Bank will be seeking NVCC status for RY.PR.W in the future … or at least wants to keep its options open for a little longer!

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series L (Series L Shares) (TSX: ENB.PF.U) on September 1, 2017. As a result, subject to certain conditions, the holders of the Series L Shares have the right to convert all or part of their Series L Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series M of Enbridge (Series M Shares) on September 1, 2017. Holders who do not to exercise their right to convert their Series L Shares into Series M Shares will retain their Series L Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series L Shares outstanding after September 1, 2017, then all remaining Series L Shares will automatically be converted into Series M Shares on a one-for-one basis on September 1, 2017; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series M Shares outstanding after September 1, 2017, no Series L Shares will be converted into Series M Shares. There are currently 16,000,000 Series L Shares outstanding.

With respect to any Series L Shares that remain outstanding after September 1, 2017, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series L Shares for the five-year period commencing on September 1, 2017 to, but excluding, September 1, 2022 will be 4.959 percent, being equal to the five-year United States Government treasury bond yield of 1.809 percent determined as of today plus 3.15 percent in accordance with the terms of the Series L Shares.

With respect to any Series M Shares that may be issued on September 1, 2017, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series M Shares for the three-month floating rate period commencing on September 1, 2017 to, but excluding, December 1, 2017 will be 1.055 percent, based on the annual rate on three-month United States Government treasury bills for the most recent treasury bills auction of 1.08 percent plus 3.15 percent in accordance with the terms of the Series M Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series L Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2017 until 5:00 p.m. (EST) on August 17, 2017, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after this deadline will not be valid.

The four ENB USD-denominated issues have a very narrow range of spreads, limiting the utility of Implied Volatility Analysis for FixedResets, but for what it’s worth:

Click for Big

As I do not track USD issues, there will be no recommendation regarding whether holders should convert or hold their ENB.PR.U shares.

Brookfield Office Properties Inc. has announced:

that it intends to:

• •Redeem all 4,123,863 of its outstanding Class AAA Preference Shares, Series G (TSX: BPO.PR.U) (the “Series G Shares”), all of which are beneficially held by CDS & Co., as nominee of CDS Clearing and Depositary Services Inc., for cash on June 5, 2017. The redemption price for each such share will be US$25.00 plus accrued and unpaid dividends thereon (which as of June 5, 2017 will be US$0.2337), representing a total redemption price of US$25.2337.
• …

Notices of Redemption for both series have been sent to CDS & Co. Payment of the redemption price will be made on or after June 5, 2017 through the facilities of CDS & Co. to all beneficial holders of the Series G Shares and Series J Shares.

BPO.PR.U was partially exchanged for BPS.PR.U following a reorganization in 2014.

BPO.PR.U has not been tracked by HIMIPref™ since it is a US-pay issue.