PrefBlog

Well, I’ve been threatening to do it for a long, long time and now it’s finally happened: the DeemedMaturity date for insurance issues has been changed from 2025-1-31 to 2030-1-31.

For a review of why I believe that insurance issues will be redeemed at par on or prior to the DeemedMaturity date, please see the DeemedRetractible Review: September, 2016 and don’t forget to read the updates.

The new date has been chosen with the idea that a decision will be made by the IAIS (International Association of Insurance Supervisors) in 2019, and (if favourable) will be implemented with an 11-year grace period, similarly to the banks. We shall see just how accurate these suppositions might be!

This change has, of course, led to an increase in the calculated Modified Duration and a decrease in the calculated Yield-to-Worst for these issues. Old and new figures for these metrics may be found at:

Deemed Retractibles, 2018-12-24, maturity 2025

Deemed Retractibles, 2018-12-24, maturity 2030

FixedResets, 2018-12-24, maturity 2025

FixedResets, 2018-12-24, maturity 2030

Affected issues are:

FixedResets EML.PR.A, GWO.PR.N, IAG.PR.G, IAG.PR.I, IFC.PR.A, IFC.PR.C, IFC.PR.G, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M, MFC.PR.N, MFC.PR.O, MFC.PR.Q, MFC.PR.R, SLF.PR.G, SLF.PR.H, SLF.PR.I

FloatingReset GWO.PR.O, IFC.PR.D, MFC.PR.P, SLF.PR.J and SLF.PR.K

DeemedRetractibles CCS.PR.C, GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I, GWO.PR.L, GWO.PR.M, GWO.PR.P, GWO.PR.Q, GWO.PR.R, GWO.PR.S, GWO.PR.T, IAG.PR.A, IFC.PR.E, IFC.PR.F, MFC.PR.B, MFC.PR.C, SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D, SLF.PR.E

As announced in the post EFN Receives Pfd-3 Rating From DBRS; Issues Will Be Added To HIMIPref™, the captioned issues have been added to HIMIPref™

Element Financial Corporation has announced:

that it has received an initial issuer rating of BBB from DBRS Limited (DBRS). The Company also was awarded a rating of R-2 (middle) on its short-term instruments and a rating of Pfd-3 on its perpetual preferred shares. All three ratings were issued with a stable outlook. Notwithstanding the R-2 rating, granted by DBRS, Element does not plan to access the short-term debt market for its funding requirements.
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On August 24, 2015, Element entered into a Credit Agreement (the “Facility”) with a syndicate of 24 lenders that provides the Company with an expanded US$8.5 billion senior secured three-year credit facility. Concurrent with the receipt of this initial issuer rating from DBRS, the interest rate applicable to the Facility will be reduced by 35 basis points on top of the 20 basis point reduction that came into effect when the Company closed the US portion of the acquisition of GE Capital’s fleet management business on August 31, 2015
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Following the August 31, 2015 closing of the Company’s acquisition of the US operations of GE Capital’s fleet management business, Element’s committed funding facilities amounted to C$21.9 billion inclusive of the above referenced US$8.5 billion senior secured three-year credit facility. These facilities are supplemented with funding from the asset-backed securitization market which the Company has accessed to fund earning assets and revenue activities in its various business activities together with funding from its various private securitization conduits.

The DBRS Press Release states:

DBRS, Inc. (DBRS) has today assigned an Issuer Rating of BBB to Element Financial Corporation (Element or the Company). Concurrently, DBRS has assigned a Short-Term Instruments rating of R-2 (middle) and a rating of Pfd-3 to the Company’s Perpetual Preferred Shares. The trend on all ratings is Stable.

The ratings reflect the Company’s strengthening franchise, which is anchored by Element’s leading position in North American fleet management and a growing presence in railcar leasing. The Company’s better than average credit risk profile, and developing and strengthening earnings profile are also considered in the ratings. These factors are offset by the Company’s reliance on secured funding sources, its appetite for growth through acquisitions, and the integration and execution risks present in the recent acquisition of GE Capital’s fleet management business (GE Fleet).

The Stable trend reflects DBRS’s expectations that Element will successfully integrate the GE Fleet business, while strengthening its earnings profile as earnings assets grow and the Company improves its penetration rate within its fleet customers. While near-term upward ratings migration is unlikely, over the medium-term, ratings could be positively impacted by further earnings expansion while credit costs remain within historical levels and operating efficiency improves. A more balanced funding profile and leverage maintained at or below industry peers would be viewed favorably. Conversely, a noteworthy increase in leverage, sustained deterioration in operating performance, or indications of mis-steps in the GE Fleet integration evidenced by loss of key customers or operational-related charges could result in negative ratings pressure. Ratings could also be pressured by a material acquisition that DBRS views as outside of Element’s core verticals and capabilities.
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DBRS considers Element’s funding and liquidity profile as appropriately managed and aligned with the asset base. However, DBRS views the reliance on secured forms of wholesale funding as limiting financial flexibility and a constraint on the ratings. While Element has made some progress in diversifying funding by issuing convertible corporate debt and preferred shares, 91% of total funding is from secured forms funding. As a result, at June 30, 2015, 73% of Element’s adjusted assets (total assets excluding cash held in escrow for acquisition, investment funds, intangible assets and goodwill) were encumbered. Over the longer-term, DBRS expects that Element will look to improve its financial flexibility by introducing senior unsecured corporate debt into its funding mix. Liquidity is largely comprised of unrestricted cash and capacity under its bank facilities. At June 30, 2015, available liquidity totaled $3.2 billion, which DBRS believes is more than sufficient to fund expected originations over the next year.

From DBRS’s perspective, Element’s balance sheet management is acceptable given the risk profile inherent in the balance sheet. Tangible leverage is in line with industry peers at 5.3x, pro-forma to the GE Fleet acquisition, and within maximum covenant limits of 6.0x.

The company has four series of preferred shares outstanding:

• EFN.PR.A, FixedReset, 6.60%+471
• EFN.PR.C, FixedReset, 6.50%+481
• EFN.PR.E, FixedReset, 6.40%+472
• EFN.PR.G, FixedReset, 6.50%+534

These issues will be added to the HIMIPref™ database over the weekend.

As previously discussed, LCS.PR.A approved a term extension to April 29, 2019, last spring, together with a big fat dividend of 0.575 p.a., paid quarterly. At that time, Brompton also clearly signalled its intent to grow the fund by announcing a treasury offering.

On August 18, 2014, Brompton Funds announced:

it has filed a preliminary short form prospectus with respect to a treasury offering of class A shares and preferred shares.

The Company invests in a portfolio, on an approximately equal weight basis, of common shares of Canada’s four largest publicly-listed life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

The investment objectives of the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.075 per class A share and to provide the opportunity for growth in net asset value per class A share.

The investment objectives of the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.575 per annum and to return the original issue price ($10.00) to holders of preferred shares on the maturity date of the Company, April 29, 2019.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC, and Scotiabank, and includes BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Industrial Alliance Securities Inc., Mackie Research Capital Corporation, and Manulife Securities Incorporated.

On August 25, 2014, Brompton Funds announced:

that the Company’s treasury offering of class A and preferred shares has been priced at $7.55 per class A share and $10.05 per preferred share. The final class A share and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on August 22, 2014, the most recently calculated net asset value, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering.
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The Company intends to file a final prospectus in each of the provinces and territories of Canada in connection with the offering. The offering is expected to close on or about September 3, 2014 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the Toronto Stock Exchange.

On September 3, 2014, Bromption Funds announced:

that it has completed a treasury offering of 2,850,000 class A shares and 2,850,000 preferred shares for aggregate gross proceeds of approximately $50.2 million. The class A shares and preferred shares will continue to trade on the Toronto Stock Exchange under the existing symbols LCS and LCS.PR.A, respectively.

The Company’s treasury offering was priced at $7.55 per class A share and $10.05 per preferred share. The final class A share and preferred share offering prices were determined so as to be non-dilutive to the most recent calculated net asset value per unit of the Company on the date of pricing of the offering, August 22, 2014, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering.

and finally, on September 16, 2014, Brompton Funds announced:

that it has completed the issuance of 84,000 class A shares and 84,000 preferred shares for gross proceeds of approximately $1.5 million. This issuance was pursuant to the exercise of the over-allotment option granted to the agents in connection with the Company’s recently completed treasury offering. Following the exercise of the over-allotment option, total gross proceeds raised pursuant to this offering are approximately $51.6 million.

So that was a very nice offering and brought the fund up to a total size of over $90-million, with over 5.6-million units outstanding; so the fund is now of sufficient size that adding it to the investable universe is not guaranteed to be a complete waste of time.

As previously discussed, DBRS upgraded the preferreds to Pfd-4(high) in December 2013, and this rating has just been confirmed, although the ‘Positive Trend’ has been dropped:

As part of the term extension, the fixed cumulative quarterly distributions to the Preferred Shares will be increased to $0.14375 per preferred share starting May 1, 2014, yielding 5.75% annually on their issue price of $10.00 per share (up from 5.25% previously). Holders of the Class A Shares are expected to continue receiving regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011 because the Company’s net asset value fell below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013. On April 21, 2014, DBRS placed the ratings of the Preferred Shares Under Review with Positive Implications. Since then, the performance of the Company has been volatile, with downside protection dropping to 34.8% as of October 17, 2014, from 37.2% as of April 10, 2014. Because of the volatility and recent negative trend, the rating of the Preferred Shares has been confirmed and removed from Under Review with Positive Implications.

A nice feature of the preferreds is that they have a decent monthly retraction feature, as explained in the prospectus:

Except as noted below, holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share. If the NAV per Unit is less than $10.00, plus any accrued and unpaid distributions on the Preferred Shares, the retraction price of a Class A Share will be nil. Any declared and unpaid distributions payable on or before a Retraction Date in respect of Preferred Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date.

This feature was found to be supportive of market prices during the worst depths of the Credit Crunch.

The inclusion of this issue into the database has been backdated to May 1, 2014; this is the first date following the exercise of the Special Retraction Right offered to shareholders after the term extension. The issue with the prior terms has not been incorporated into the database since it was too small; but by adding as of May 1 I can get at least some relevant history.

Quadravest has announced:

Financial 15 Split Corp. II (the “Company”) is pleased to announce that shareholders have voted over 95% in favor of all management’s proposals at a shareholder meeting held earlier today. Management would like to sincerely thank shareholders and their advisors for this overwhelming level of support.

As a result, the termination date of the Company will be extended to December 1, 2019 and all other matters included with the resolutions approved at the meeting will be implemented.

Full details of the resolutions are contained in the Management Information Circular available on Sedar and the Company’s website.

The proposal, and my positive recommendation, was reported on PrefBlog. In case anybody’s wondering why they thanked their advisors:

The Company will also pay a dealer whose clients hold Shares of the Company a fee of $0.05 in respect of each Preferred Share and $0.10 in respect of each Class A Share voted by the client of such dealer in favour of the special resolutions, to a maximum payment of $1,000 per beneficial holder, and provided that such client does not retract the Shares so voted pursuant to the 2014 Special Retraction Right.

FFN.PR.A is tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

I have processed the change of terms in the HIMIPref™ database, changing the security code from A45261 to A45262. I have assigned a rate of 5.25% for the extended term since:

authorizing the Board of Directors to amend the Articles to permit the Company to provide for a prescribed minimum annual rate of cumulative preferential monthly dividends to be payable on the Preferred Shares for the five year period commencing December 1, 2014 and for each five year extension of the term of the Company thereafter, and to establish a prescribed minimum rate of 5.25% of the Preferred Share Repayment Amount (as defined in the Circular) for the period from December 1, 2014 to November 30, 2019;

It seems unlikely, given current market conditions, that the dividend rate declared for the initial five year extension term will be in excess of the 5.25% minimum, but that will be decided prior to the end of September, 2014. So if it’s more, I’ll just have to change the HIMIPref™ database terms again.

Quadravest has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce that shareholders have voted over 95% in favor of all management’s proposals at a shareholder meeting held earlier today. Management would like to sincerely thank shareholders and their advisors for this overwhelming level of support.

As a result, the termination date of the Company will be extended to December 1, 2020 and all other matters included with the resolutions approved at the meeting will be implemented.

Full details of the resolutions are contained in the Management Information Circular available on Sedar and the Company’s website.

The proposal, and my positive recommendation, was reported on PrefBlog. In case anybody’s wondering why they thanked their advisors:

The Company will also pay a dealer whose clients hold Shares of the Company a fee of $0.05 in respect of each Preferred Share and $0.10 in respect of each Class A Share voted by the client of such dealer in favour of the special resolutions, to a maximum payment of $1,000 per beneficial holder, and provided that such client does not retract the Shares so voted pursuant to the 2014 Special Retraction Right.

FTN.PR.A is tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

I have processed the change of terms in the HIMIPref™ database, changing the security code from A45251 to A45252. I have assigned a rate of 5.25% for the extended term since:

The prescribed minimum dividend amount for the Preferred Shares would be set at 5.25% of the Preferred Share Repayment Amount for the initial five year extension term beginning on December 1, 2015 and ending on November 30, 2020

It seems unlikely, given current market conditions, that the dividend rate declared for the initial five year extension term will be in excess of the 5.25% minimum, but that will be decided prior to the end of September, 2015, in advance of the ‘Special 2015 Retraction’. So if it’s more, I’ll just have to change the HIMIPref™ database terms again.

Quadravest has announced:

that shareholders have voted over 99% in favor of management’s proposal at a shareholder meeting held earlier today. Management would like to sincerely thank shareholders and their advisors for this overwhelming level of support.

As more fully described in the Company’s May 13, 2013 press release and the Management Information Circular dated May 3, 2013, shareholders were asked to approve the extension of the termination date to December 1, 2019. This proposal was approved by 99.68% of the Class A Shareholders and 99.87% of the Preferred Shareholders.

The reorganization has been discussed on PrefBlog. Briefly:

• Term extended until December 1, 2019
• Special retraction available later this month (not critical, since shares trade above par)
• Dividend unchanged at 0.525 (until 2019)
• No special retraction or maturity in 2014

DF.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. The HIMIPref™ security code has changed from A44080 to A44081

Quadravest has announced:

that shareholders have voted over 99% in favor of management’s proposals at a shareholder meeting held earlier today. Management would like to sincerely thank shareholders and their advisors for this overwhelming level of support. Shareholders were asked to approve the extension of the termination date to December 1, 2019. This proposal was approved by 99.4% of the Class A Shareholders and 99.8% of the Preferred Shareholders.

Shareholders were also asked to consider a proposal that would allow the merger of the cash assets of two Funds (Capital Gains Income STREAMS Corporation and Income STREAMS Corporation) into the Company on December 1, 2013. This proposal was approved 99.2% by Class A Shareholders and 99.6% by Preferred Shareholders. This transaction is contingent upon further approvals from the shareholders of the other two terminating Funds and all other required regulatory approvals.

Dividend 15 has exceeded its distribution objectives since 2004 despite some periods of very challenging markets. Class A Shareholders and Preferred Shareholders have received 110 consecutive distributions totaling $14.50 and $4.83 respectively. The Class A shares trade on the TSX under the symbol DFN and recently closed at $11.24 with a current yield of 10.68%.

The Preferred shares trade under the symbol DFN.PR.A and recently closed at $10.39 with a current yield of 5.05%.

The terms of the reorganization have been reported on PrefBlog. Briefly:

• Term extended to December 1, 2019.
• Dividend unchanged (until 2019) at 0.525 p.a.
• Special retraction at end of June (not crucial because the shares currently trade above par)
• No special retraction or maturity on the scheduled date in 2014

DFN.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns. The HIMIPref™ security code has changed from A43061 to A43062

DBRS has announced that it:

has today assigned an Issuer Rating of BBB (low) and a Preferred Trust Units rating of Pfd-3 (low) to Artis Real Estate Investment Trust (Artis or the Trust), both with Stable trends. DBRS notes that the Issuer Rating ranks behind Artis’ property-specific secured debt (i.e., mortgages and revolving credit facilities) held at the Trust level. However, the Issuer Rating ranks ahead of the unsecured subordinated convertible debentures held at the Trust level.

The investment-grade rating reflects the following key strengths: (1) reasonable scale with a mid-sized portfolio that continues to improve in quality with new property additions; (2) a well-diversified portfolio by asset type and geography; (3) a diverse tenant roster including a number of government and other investment-grade tenants; and (4) improving financial profile and credit metrics. Artis’ rating is balanced by the following key challenges: (1) concentration of properties in suburban office and smaller retail formats; (2) exposure to small or secondary markets; (3) limited scale within each asset type segment; and (4) risks associated with growth through acquisition.
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In terms of financial profile, Artis has decreased overall leverage to 52.4% (on a DBRS-adjusted debt-to-capital basis) as at December 31, 2012, from 60.7% at the end of 2010 by funding its recent growth with a higher proportion of equity than debt. The Trust has also shown improvement in coverage ratios primarily as a result of earnings growth and lower financing costs. DBRS estimates that Artis’ EBITDA (pro forma recent acquisitions) will increase to above $250 million, which should result in pro forma interest coverage of 2.53 times (x) (versus 2.39x in 2012 and 2.08x in 2011). DBRS believes Artis’ key credit metrics have effectively reached levels that are now consistent with the BBB (low) rating category.

AX.PR.A is a FixedReset, 5.25%+406, listed in August 2012, but has not been tracked by HIMIPref™ as there was no credit rating. Readers are reminded that I want to see a credit rating not because I worship the agencies and not because I can’t do it myself, but because a credit rating is an important public flashpoint (and is also often referenced in bank loans) that serves to help the Board of Directors concentrate when the company starts to experience difficulty.

The issue will now be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

An interesting point of speculation is the question of why Artis has decided to get a credit rating at this time. We may well see a new issue in the near future.

DBRS has announced that it:

has today assigned two new ratings to Canadian Western Bank (CWB): a Short-Term Instruments rating of R-1 (low) and a Non-Cumulative Preferred Shares rating of Pfd-3 (high) for CWB’s Non-Cumulative Five-Year Rate Reset Preferred Shares, Series 3, issued in March 2009. These new ratings supplement CWB’s existing A (low) Issuer Rating, Deposits & Senior Debt rating of A (low) and Subordinated Debt rating of BBB (high), all of which were last confirmed on October 9, 2012. The trend on all ratings is Stable.

The Short-Term Instruments rating has been assigned based primarily on CWB’s existing ratings and DBRS’s Rating Policy “Short-Term and Long-Term Rating Relationships,” available at www.dbrs.com.

The Non-Cumulative Preferred Shares rating was also assessed based on CWB’s existing ratings, including an intrinsic rating of A (low), using DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 29, 2009) (the Criteria). While the Criteria would normally imply a four-notch differential between the intrinsic assessment and the preferred share rating, CWB’s Pfd-3 (high) rating is the equivalent of a three-notch differential. DBRS notes that the better-than-base notching is warranted, given CWB’s long demonstrated ability and willingness to pay all dividends and the lack of any history of reducing common dividends.

CWB.PR.A is a FixedReset, 7.25%+500 that commenced trading 2009-3-2.

The issue has not been tracked by HIMIPref™ due to the lack of a rating; but now that it has one I have added it to the database on a backdated basis.

Assiduous Readers will remember that I do not track unrated issues, not because I worship the Credit Rating Agencies, but because it is very useful to have a third-party, public and influential company tell the Board of Directors that they’re doing it wrong during times of trouble.

The issue has been assigned to the Scraps index due to credit concerns.

It is quite interesting that CWB has now paid for a rating on their public preferred share issue. I’ll bet a nickel that there will be a new issue coming out from them next week – but, sadly, probably not at 7.25%+500!