PrefBlog

It will be recalled that LFE.PR.A is undergoing a reorganization; a very important part of this reorganization was:

Shareholders who do not wish to remain invested in the Company under its reorganized share structure will have until the close of business on May 17, 2012 to provide the Company with notice through their CDS participant that they wish to have their Preferred Shares or Class A Shares redeemed pursuant to the 2012 Special Retraction Right, and to surrender their Shares for retraction. On such a special retraction, each holder of a Preferred Share will receive the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on May 31, 2012; while holder of a Class A Share will receive the net asset value per Unit calculated on May 31, 2012, less $10.00. Shareholders interested in exercising such retraction right should contact the CDS Participant through which they hold the Shares for further information and instructions as to how to exercise this right. Shareholders should note that the requirements of any particular CDS Participant may vary, and that Shareholders may need to inform their CDS Participant of any intention to exercise this retraction right in advance of the May 17 deadline. Payment for the Class A Shares or Preferred Shares so tendered for retraction pursuant to the 2012 Special Retraction Right will be made no later than June 19, 2012.

So – the company has known what the consolidation ratio was going to be for which issue (either the capital units or the preferreds) since … oh, call it the morning of May 18. In my innocence, I had assumed that the details of the consolidation would be made available on the NAV date of May 31 (or June 1, anyway!):

If more Class A Shares are tendered for retraction under the 2012 Special Retraction Right than Preferred Shares, the outstanding Preferred Shares will be consolidated so that following the retraction pursuant to the 2012 Special Retraction Right there would be an equal number of Preferred Shares and Class A Shares outstanding. Similarly, if more Preferred Shares are tendered for retraction than Class A Shares, the outstanding Class A shares will be consolidated so that again there would be an equal number of Preferred Shares and Class A Shares outstanding following implementation of the 2012 Special Retraction Right. The Company may implement this consolidation by adjusting the number of 2012 Preferred Shares, 2013 Warrants and 2014 Warrants to be issued to holders of Preferred Shares, in the event a consolidation of Preferred Shares is required.

No announcement has yet been made, so I inquired; the answer received was:

A news release will likely be disseminated close to the June 19th Special Retraction payment date.

Knowing the consolidation ratio is critical when evaluating credit quality of LFE.PR.A; it is also critical when evaluating the option value of LFE. But good old Quadravest is going to keep us in the dark; and I cannot even begin to fathom the purpose behind the delay.

All I can suggest is that according to the 2011 Financials, there were 10,712,753 units outstanding on 2011-11-30 and this number is reflected for each part of the unit on the TMX Money Website. Another possibility is to check SEDAR for filings that are only semi-publicized.

What a total waste of time.

The essence of the redemption noted by Assiduous Reader erikd has been confirmed:

STW.PR.A has been called at $10.2 + accrued for total of $10.3173913 per share. 33.8575% of preferred shares have been called. This is a good premium to last friday’s trading price.
…
source is bloomberg, under news of the capital shares
I grabbed the screen at work. It will trade ex-redemption on Dec 9th, and supposed to get redeemed on Dec 12th.

I have confirmed with investor relations at Middlefield that the size is at least approximately correct; the redemption price per the prospectus is indeed 10.20.

The closing quote on Dec 8 – the last cum-redemption day, according to erikd, and the day he posted his note – was 9.11-18, on volume of 9227 shares. Yesterday was 8.64-87 on 5,294 shares. Today was 8.80-26, 13×2 on no volume.

I don’t know when the information was posted on Bloomberg, but if I had sold shares prior to the ex-redemption date and after the posting, I’d be pretty upset. According to me, a sizable redemption at a premium of more than 10% to market price counts as material information. Nothing was on their website, and investor relations could not confirm or deny immediately.

Their investor relations representative emphasized that they were not in breach of regulatory requirements. That may well be the case (it is not my place to judge) but I will suggest that:

• The redemption was material information.
• Bloomberg is a paid service; advising Bloomberge does not (or should not) constitute public disclosure
• Therefore – whatever the strict legalities might be – I consider this a case of selective disclosure
• If Middlefield did indeed follow minimum regulatory standards, that’s not good enough. They should have more consideration for their investors’ interests than that.
• Let’s see a press release next time!

I will also be most interested to learn whether Middlefield purchased preferred according to the issuer bid. I will suggest that, given that STW.PR.A has not closed above 9.60 in at least a month, it would have been in the best interests of the fund to have exercised this right to the maximum extent possible.

I have noted a previous STW.PR.A stealth redemption.

STW.PR.A is tracked by HIMIPref™ and is part of the InterestBearing subindex. Given the low asset coverage ratio, it will probably be downgraded at some point in the near future at which point it will be relegated to “Scraps”. It is also possible that reduced liquidity due to the reduced float will be a prior cause for relegation.

I wouldn’t normally post on such a routine matter as dividend declarations, but having made an issue of the matter I will note that dividends for these issues have been declared.

ex-Date: 5/20
record-Date: 5/22
pay-Date: 6/7

An Assiduous Reader has sent me the following question:

I noticed that this preferred has dropped in price relative to its peers. Would you know whether there is any material change that has happened with it (has it stopped paying its dividend)?

The question was presumably prompted by the 5%+ decline in W.PR.J yesterday.

Information on these issues is harder to come by than it really needs to be, something I have complained about in the past.

DBRS rates the issues as Pfd-2(low). Both issues are cumulative.

As non-financial perpetuals without a particularly large float, these issues can be somewhat volatile – they both made the January 08 Best Performers’ List, while W.PR.H made December 07’s Worst. W.PR.H was transfered to the PerpetualDiscount index in the October 07 Rebalancing.

There’s something odd about the notes for these issues in Duke Energy’s 10-K:

In connection with the Westcoast acquisition in 2002, Spectra Energy assumed preferred and preference shares at Westcoast and Union Gas. These preferred and preference shares at Westcoast and Union Gas totaled $225 million at both December 31, 2007 and 2006. Since these preferred and preference shares are redeemable at the option of holder, as well as Westcoast and Union Gas, these preferred and preference shares do not meet the definition of a mandatorily redeemable instrument under SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. As such, these preferred and preference shares are considered contingently redeemable shares and are included in Minority Interests on the Consolidated Balance Sheets.

According to me, W.PR.H and W.PR.J are issues of 6-million shares each, total $300-million, and are perpetual – this is confirmed by the Westcoast Energy Annual Report available on SEDAR. I have sent the following message to Spectra’s Investor Relations Department:

I write regarding the preferred shares trading as W.PR.H and W.PR.J on the Toronto Stock Exchange. It is my understanding that Spectra pays the dividends on these shares via Westcoast.

(i) You do not appear to be publishing dividend information for these shares on your website – publication of record and payment dates would be very useful. Do you intend to publish this information in the future?

(ii) In your financials, I can find reference only to some preferred shares held to be “redeemable at the option of holder” to the amount of $225-million, whereas these two issues are perpetual and have a total book value of CAD 300-million. How are these obligations reported in your financials?

I have uploaded a couple of charts:

• YTW
• YTW Differences

Yesterday’s price action appears to be within normal bounds. I had considered W.PR.J to be quite expensive … I now consider it to be a little bit cheap.