PrefBlog

CU Inc. has announced:

that it has notified the registered shareholder of its Cumulative Redeemable Preferred Shares Series 4 (“Series 4 Preferred Shares”) of a conversion privilege and applicable dividend rates. As a result, subject to certain conditions, the holders of Series 4 Preferred Shares will have the right to choose one of the following options with regard to their shares:
1. To retain any or all of their Series 4 Preferred Shares and continue to receive a fixed rate quarterly dividend; or
2. To convert, on a one-for-one basis, any or all of their Series 4 Preferred Shares into Cumulative Redeemable Preferred Shares Series 5 (“Series 5 Preferred Shares”) of CU Inc. and receive a floating rate quarterly dividend.

Effective June 1, 2016, the annual dividend rate for the Series 4 Preferred Shares is set at 2.24% for the next five-year period and the dividend rate for the Series 5 Preferred Shares is set at an annual rate of 1.90% for the three-month period commencing June 1, 2016 to but excluding September 1, 2016. The dividend rate for the Series 5 Preferred Shares will be reset each quarter. Both rates were calculated according to the terms described in the short form prospectus of CU Inc. dated November 24, 2010.

Beneficial owners of Series 4 Preferred Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 3 p.m. (Calgary time) / 5 p.m. (Toronto time) on May 17, 2016. Any notices received after this deadline will not be valid. As such, 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. The foregoing conversions are subject to the conditions that: (i) if CU Inc. determines that there would be less than 1,000,000 Series 4 Preferred Shares outstanding on June 1, 2016, then all remaining Series 4 Preferred Shares will automatically be converted into Series 5 Preferred Shares on June 1, 2016, and (ii) alternatively, if CU Inc. determines that there would be less than 1,000,000 Series 5 Preferred Shares outstanding on June 1, 2016 after giving effect to conversion notices received, no Series 4 Preferred Shares will be converted into Series 5 Preferred Shares. If either of these scenarios occurs, CU Inc. will issue a news release to that effect on or before May 24, 2016.

Holders of the Series 4 Preferred Shares and the Series 5 Preferred Shares will have the opportunity to convert their shares again on June 1, 2021, and every five years thereafter as long as the shares remain outstanding.

For more information on the terms of, and risks associated with an investment in, the Series 4 Preferred Shares and the Series 5 Preferred Shares, please see CU Inc.’s short form prospectus dated November 24, 2010, which can be found under CU Inc.’s profile on SEDAR at www.sedar.com.

CIU.PR.C is a FixedReset, 3.80%+136, that commenced trading 2010-12-2 after being announced 2010-11-16.

The new rate therefore represents a 41% cut in dividends. Ouch!

As noted, the deadline to notify the company is 5 p.m. (Toronto time) on May 17, 2016.; brokers will have internal deadlines a day or two in advance.

I will post a recommendation regarding whether or not to convert closer to the deadline.

BCE Inc. has announced:

that 5,884,470 of its 10,841,056 fixed-rate Cumulative Redeemable First Preferred Shares, Series AG (“Series AG Preferred Shares”) have been tendered for conversion on May 1, 2016, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AH (“Series AH Preferred Shares”). In addition, 28,765 of its 3,158,944 Series AH Preferred Shares have been tendered for conversion on May 1, 2016, on a one-for-one basis, into Series AG Preferred Shares. Consequently, on May 1, 2016, BCE will have 4,985,351 Series AG Preferred Shares and 9,014,649 Series AH Preferred Shares issued and outstanding. The Series AG Preferred Shares and the Series AH Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.G and BCE.PR.H, respectively.

The Series AG Preferred Shares will pay on a quarterly basis, for the five-year period beginning on May 1, 2016, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 2.80%.

The Series AH Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on May 1, 2016, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AH Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

Readers will remember that BCE.PR.G reset to 2.80%, a cut of about 38% in the dividend. BCE.PR.H, the RatchetRate preferred that currently pays 100% of Prime (which can be reduced as low as 50%, but this is dependent upon the issue trading above par for an extended period, which seems unlikely in the current environment), has suffered much less over the past five years, as Prime was 3.00% on May 1, 2011 and is now 2.70%.

As for the future:

Today’s bid prices of 13.52 for BCE.PR.G and 14.20 for BCE.PR.H imply that Prime must average 3.48% over the next five years for the two issues to realize equal total returns, which is not unreasonable and is in line with other pairs.

BCE Inc. has announced:

• Transaction enterprise value of approximately $3.9 billion: BCE to acquire all issued and outstanding common shares of MTS for approximately $3.1 billion and assume outstanding net debt of approximately $0.8 billion
• $40 per common share value represents a significant premium for MTS shareholders; transaction unanimously recommended by the MTS Board of Directors
• Bell MTS team will serve customers across Manitoba, Winnipeg head office will become Bell’s Western Canada headquarters
• $1-billion, 5-year capital investment commitment to expand broadband wireless and wireline networks in urban and rural locations throughout Manitoba
• Free cash flow accretion supports Bell’s broadband leadership strategy, dividend growth objective

MONTRÉAL and WINNIPEG, May 2, 2016 /CNW Telbec/ – BCE Inc. (Bell) (TSX: BCE) (NYSE: BCE) today announced that it will acquire all of the issued and outstanding common shares of Manitoba Telecom Services Inc. (MTS) (TSX: MBT) in a transaction valued at approximately $3.9 billion.
…
Bell plans to invest $1 billion in capital over 5 years after the transaction closes to expand its broadband networks and services throughout Manitoba, including:

• Gigabit Fibe Internet availability, delivering Internet speeds on average up to 20 times faster than those currently offered to MTS customers, within 12 months after the transaction closes.
• the rollout of Fibe TV, Bell’s innovative broadband television service.
• accelerated expansion of the company’s award-winning LTE wireless network throughout the province, with average data speeds twice as fast as those now available to MTS customers.
• integration of MTS’s Winnipeg data centre with Bell’s existing national network of 27 data and cloud computing centres, Canada’s largest, and the country’s most extensive broadband fibre network footprint.

…
BCE will fund the cash component of the transaction from available sources of liquidity and will issue approximately 28 million common shares for the equity portion of the transaction, which offers MTS shareholders access to BCE’s dividend growth potential. The BCE dividend has been increased 12 times, representing an aggregate increase of 87%, since Q4 2008 and currently delivers an attractive 4.6% yield. When the transaction is completed, MTS shareholders will own approximately 3% of pro forma BCE common equity.

They later announced:

that it will divest one-third of the postpaid wireless subscribers of Manitoba Telecom Services Inc. (MTS) (TSX: MBT) to TELUS Corp. (TSX: T, NYSE: TU) following the completion of Bell’s acquisition of MTS announced earlier today. As part of the transaction, Bell will also assign one-third of MTS dealer locations in Manitoba to TELUS.

“This transaction with TELUS enhances wireless competition to the benefit of Manitobans while reducing the cost of our acquisition of MTS,” said George Cope, President and CEO of BCE and Bell Canada.

The Bell-TELUS transaction is subject to regulatory approvals and customary closing conditions. The Bell-MTS transaction is not conditional on completion of the Bell-TELUS transaction.

DBRS currently has BCE’s preferred shares at Pfd-3(high) and says that it:

has today placed all ratings of Bell Canada (the Company) and its parent company BCE Inc. (BCE) Under Review with Negative Implications, following the Company’s announcement that it has entered into a definitive arrangement agreement to acquire all of the issued and outstanding shares of Manitoba Telecom Services Inc. (MTS; rated BBB with a Stable trend by DBRS).
…
DBRS forecasts that pro forma debt should peak at $22.3 billion upon closing of the Transaction, compared to $20.4 billion at the end of Q1 2016. As such, gross debt-to-EBITDA is expected to increase moderately to between 2.4x and 2.5x, from 2.36x in LTM Q1 2016. While this Transaction, in and of itself, is not viewed as materially negative to the Company’s financial risk profile, DBRS believes that the Company’s prolonged period of elevated financial leverage, coupled with continually mounting risks within the communications industry, has gradually eroded flexibility in the current rating levels. DBRS notes that the Company has completed several largely debt-financed acquisitions since in recent years, including: CTVglobemedia Inc. in 2011, Maple Leafs Sports and Entertainment Ltd. in 2012, Astral Media Inc. in 2013 and the minority interest in Bell Aliant in 2014, as well as over $1 billion in spectrum acquisitions in 2014 and 2015. This contributed to Bell Canada remaining above its internal financial leverage target (net debt-to-EBITDA of 1.75x to 2.25x) and a range suitable for the A (low) rating category.

DBRS had chosen to see through elevated leverage associated with previous acquisitions, based on the combination of benefits to the Company’s business profile and expectations of deleveraging to levels appropriate for an A (low) category within a reasonable time frame. In its most recent confirmation and following the Bell Aliant transaction, DBRS stated that it expected the Company to reduce gross debt-to-EBITDA toward 2.0x by mid-2017, and that failure to do so could result in a negative rating action. DBRS estimates that this previously understood schedule for deleveraging could be delayed by 12 to 18 months as a result of the MTS acquisition.

DBRS is reluctant to extend the deleveraging time frame once again due to the protracted period of elevated financial leverage, combined with intensifying competition in the wireless market, and increased risks in the media business, including structural (cord shaving/cord cutting and over-the-top video streaming) and regulatory changes (pick and pay) affecting television broadcasting, coupled with weakness in advertising. Furthermore, DBRS estimates that the Company’s pro forma free cash flow (after dividends) to total debt will remain below 5% over the near to medium term, which could limit management’s ability to deleverage by an adequate degree.

Meanwhile S&P states:

that BCE Inc.’s announcement that it would acquire Manitoba Telecom Services Inc. (MTS) does not affect its rating or outlook on BCE (BBB+/Stable/–). We expect that the C$3.9 billion acquisition, which is about 45% equity funded, would preserve BCE’s debt leverage below our key 3.0x adjusted debt to EBITDA threshold for rating pressure.
…
We estimate that the proposed transaction would be modestly leveraging under our base-case forecasts for BCE and MTS, holding BCE’s pro forma adjusted debt to EBITDA at about 2.8x in 2016 before improving slowly to about 2.7x in 2017. Moreover, we estimate that funds from operations to debt would remain below 30% until 2018, which is weak for the rating. That said, our adjusted leverage estimate is only 0.1x higher because of this transaction, which accounts for less than 5% of BCE’s enterprise value.

S&P Global Ratings believes that the acquisition has limited potential to improve BCE’s profitability and returns, despite MTS’ higher EBITDA margins, given the multiple paid, reflecting MTS’ unique wireline and wireless franchise in Manitoba, as well as the modest geographic or operational overlap with BCE’s assets.

S&P rates the BCE preferreds at P-2(low).

Affected issues are: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.J, BCE.PR.K, BCE.PR.M, BCE.PR.N, BCE.PR.O, BCE.PR.Q, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y and BCE.PR.Z.

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of 10,000,000 cumulative redeemable minimum rate reset class A preferred shares, Series 13 (the “Series 13 Preferred Shares”) for aggregate gross proceeds of $250 million (the “Offering”). The Offering was announced on April 18, 2016 when Pembina entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets and Scotiabank.

The Company intends to use the net proceeds from the Offering for capital expenditures and working capital requirements in connection with the Company’s 2016 capital program and to reduce indebtedness under the Company’s credit facilities.

The Series 13 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol PPL.PR.M.

Dividends on the Series 13 Preferred Shares are expected to be $1.4375 per share annually, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, for the initial fixed rate period to but excluding June 1, 2021. The first dividend, if declared, will be payable September 1, 2016, in the amount of $0.5002 per share.

All of Pembina’s dividends are designated “eligible dividends” for Canadian income tax purposes.

PPL.PR.M is a FixedReset, 5.75%+496M575, announced April 18. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 1,037,730 shares today (consolidated exchanges) in a range of 24.93-10 before closing at 24.99-04, 1×105. This should be considered “soft”, given that the TXPL total return index returned +1.45% from April 18 to April 27. Vital statistics are:

Implied Volatility analysis continues to show a high level of Implied Volatility, with the spread widening since announcement day:

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Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners, has announced:

the completion of its previously announced Preferred Shares, Series CC issue in the amount C$200 million. The offering was underwritten by a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank. On April 18, 2016, the syndicate agreed to purchase 6,000,000 Preferred Shares, Series CC at C$25.00 per share and has since exercised its option in full to purchase an additional 2,000,000 shares at the same offering price.

The Preferred Shares, Series CC will yield 6.00% annually for the initial period ending June 30, 2021. Net proceeds from the issue will be added to the general funds of Brookfield Office Properties and be used for general corporate purposes, including, but not limited to, redemption of existing preferred shares, repayment of revolving debt, acquisitions, capital expenditures and working capital needs.

The Preferred Shares, Series CC will commence trading on the Toronto Stock Exchange on April 27, 2016 under the ticker symbol BPO.PR.C.

BPO.PR.C is a FixedReset, 6.00%+518M600, announced April 18. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 898,337 shares today (consolidated exchanges) in a range of 25.10-25 before closing at 25.18-21, 26×25. This is reasonably close to the expected value, given that the TXPL total return index returned +1.45% from April 18 to April 27. Vital statistics are:

Implied Volatility analysis shows the same peculiar behaviour as was noted on the announcement date, with BPO.PR.N (resetting at +307 on 2016-6-30) and BPO.PR.R (+348 on 2016-9-30) both showing a far higher Expected Future Current Yield than the new issue, despite the new issue’s far higher Issue Reset Spread.

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