PrefBlog

Fitch Ratings has announced:

Fitch Ratings has affirmed Manulife Financial Corporation (MFC) and its primary insurance related operating subsidiaries’ ratings, including The Manufacturer’s Life Insurance Company (MLI) and John Hancock Life Insurance Company (U.S.A.) (JHUSA). At the same time Fitch assigned a ‘A-‘ rating to MLI CAD550m 4.21% fixed/floating subordinated debentures due 2021 (Manulife Finance Corp. guarantor), and a ‘BBB’ rating to MFC’s CAD200m offering of Non-cumulative Rate Reset Class 1, Series 5 preferred shares, both completed in Q411. A complete list of ratings actions is at the end of this release. The Outlook has been revised to Negative for all ratings.
Fitch’s rationale for the ratings includes MFC’s strong capital position, below-average exposure to credit-related risk, good liquidity and strong business profile with significant geographic and product diversity. Additional positive considerations include MFC’s progress in the effective hedging of volatility of earnings and capital related to interest rate and equity market risks.

The Negative Outlook is driven by Fitch’s concerns about negative trends in adjusted earnings and the company’s financial leverage, which is at the high end of rating expectations. MFC’s run rate profitability has been negatively affected by the unfavourable reserve adjustments for product-related experience and policyholder behaviour. Over the near term, Fitch expects reported profitability to be negatively impacted by an extended period of lower interest rates.

Fitch estimates financial leverage increased to 25.8% at year-end 2011 versus 21.0% at 31 December 2010 due in part to a change in Fitch’s hybrid rating criteria in 2011.

Fitch considers MFC’s debt service capacity as below average for the rating and expects earnings based, fixed charge coverage to range between 5 times (x) and 7x in a generally flat equity market scenario in 2012.
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Key rating triggers for MFC that could lead to a downgrade include:
–Shortfall in adjusted earnings to below CAD2.5bn for 2012
–Fixed Charge coverage below 5.5x on a 12-month basis
–Financial leverage notably increases from current levels on Fitch’s equity-adjusted leverage basis
–Operating company MCCSR ratio below 190%

Key ratings triggers for MFC that could lead to a revision of the Outlook to Stable include:
–Improved profitability and related fixed charge coverage to 8X
–Significant reduction in earnings volatility on a sustained basis
–Significant reduction in capital and earnings sensitivity to equity markets on a sustained basis
–A decrease in financial leverage to 25%
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Manulife Financial Corporation
–CAD250m 4.40% non-cumulative rate reset, preferred class 1, series 5 stock – ‘BBB’

Meanwhile DBRS commented on MFC’s 11Q4:

DBRS has reviewed Manulife Financial Corporation’s (MFC or the Company) Q4 2011 results, released on February 8, 2012, and believes there were no surprises. There are therefore no rating implications at this time.
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For the year, the Company’s earnings before goodwill impairments yielded a return on equity (ROE) of 3.2% in 2011. This remains below the Company’s targeted 12% ROE but also includes a number of notable non-cash items related to market movements which, if excluded, would have produced an ROE of 11.5%.
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The Company’s weak reported earnings have prevented an accumulation of retained earnings in recent years as dividend payout ratios remain elevated. Correspondingly, even though the Company’s debt levels have remained flat, the erosion of shareholder equity from $27.5 billion at the end of 2009 to $22.6 billion at the end of 2011 has caused the Company’s total debt ratio to increase to 32.9% from 25.2%. Broader financial leverage, as measured by average assets to common equity, has increased to 10.0 times from below 7.5 times. Although reported earnings coverage is adequate to meet fixed-charge obligations, the earnings, excluding notable items coverage (largely non-cash adjustments), is in excess of 6.0 times.

MFC has many preferred share issues outstanding: MFC.PR.A (OperatingRetractible), MFC.PR.B & MFC.PR.C (DeemedRetractible), MFC.PR.D, MFC.PR.E, MFC.PR.F, MFC.PR.G and the new issue announced today, (FixedReset).

Veresen Inc. has announced:

it has closed its previously announced bought deal offering of 8,000,000 Cumulative Redeemable Preferred Shares, Series A (“Series A Preferred Shares”) at a price of $25.00 per share (the “Offering”) for aggregate gross proceeds of $200 million. The previously announced underwriters’ option was exercised in full. The Series A Preferred Shares were offered to the public through a syndicate of underwriters with Scotiabank and TD Securities Inc. having been appointed as the bookrunners and including CIBC, RBC Capital Markets, BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp. and HSBC Securities (Canada) Inc.

The holders of Series A Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 4.40%, payable quarterly for an initial period up to but excluding September 30, 2017, as and when declared by the Board of Directors of Veresen. The first quarterly dividend of $0.4117 is scheduled for June 30, 2012. The dividend rate will reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.92%. The Series A Preferred Shares are redeemable by Veresen, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.

Holders of Series A Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series B (“Series B Preferred Shares”), subject to certain conditions, on September 30, 2017, and on September 30 of every fifth year thereafter. The holders of Series B Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.92%.

The Series A Preferred Shares have been rated Pfd-3 (High) by DBRS Limited and P-3 (High) by Standard & Poor’s, a division of The McGraw Hill Companies, Inc. Net proceeds from the Offering will be used to reduce indebtedness, partially fund capital expenditures and for other general corporate purposes.

The Series A Preferred Shares are listed on the Toronto Stock Exchange under the symbol “VSN.PR.A”.

As noted, DBRS rates this Pfd-3(high).

VSN.PR.A is a FixedReset, 4.40%+292 announced February 3.

The issue traded 532,720 shares in a tight range of 25.05-14 today before closing at 25.05-07, 44×39. Vital statistics are:

VSN.PR.A will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

DBRS has announced that it:

has today downgraded Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating to B (high) from BB; its Medium-Term Notes to B (high) from BB, with an RR4 recovery rating; its Exchangeable Subordinated Debentures to B (low) from B (high), with an RR6 recovery rating; and its Cumulative Preferred Shares to Pfd-5 (low) from Pfd-4 (low). The trend on all ratings remains Negative.
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Today’s downgrade reflects recent actions taken by Yellow Media that may indicate that its business transformation may take longer than previously anticipated, while its debt maturities over the medium term remain significant. DBRS believes that this may greatly restrict the Company’s ability to handle its maturing debt by means of internally generated free cash flow and, potentially, by drawing on external sources.
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DBRS also notes that drawing on its revolving credit facility precludes Yellow Media from repurchasing up to $125 million of its 2013 debt maturities in the open market, as would have been allowable under its September 2011 amended credit agreement.

The Negative trend reflects the possibility that Yellow Media’s ratings could be further downgraded should the Company undertake refinancing actions that would entail some form of compromise for its existing creditors. Additionally, DBRS remains concerned that the digital transition may continue to take longer than currently anticipated and could include (1) accelerated pressure on Yellow Media’s traditional print business while digital revenue continues to grow but fails to compensate for print revenue pressure; and (2) further pressure on liquidity and free cash flow, rendering it insufficient to handle the Company’s sizable upcoming debt maturities.

YLO was last mentioned on PrefBlog in the post YLO Suspends Dividends. YLO has four issues of preferreds outstanding: YLO.PR.A and YLO.PR.B (OperatingRetractible) and YLO.PR.C and YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Canadian Banc Corp. released its Semi-Annual Report to May 31, 2011 some time ago when it was still named Canadian Banc Recovery Corp.

Figures of interest are:

MER: The MER per unit of the Fund, excluding the cost of leverage, was 1.39% as at May 31, 2011.

Average Net Assets: Net assets were 192.0-million on 2011-5-31 and 181.6-million on 2010-11-30; average is 186.8-million.

Underlying Portfolio Yield: Total income of 3,259,530, times two (semi-annual) divided by average net assets of 186.8-million is 3.49%

Income Coverage: Net Investment Income of 1,948,474 divided by Preferred Share Distributions of 2,042,484 is 95%.

On January 26, Moody’s announced:

Moody’s Investors Service has downgraded the insurance financial strength (IFS) rating of Sun life Assurance Company of Canada (U.S.) (Sun Life US) — a wholly owned subsidiary of Sun Life Financial, Inc. (SLF: TLS; SLF) – to A3 from Aa3. Other affiliated U.S. ratings were also downgraded (see complete ratings list, below). Moody’s also downgraded the preferred stock rating of SLF to Baa3 (hyb) from Baa2 (hyb), but affirmed the Aa3 IFS rating of SLF’s Canadian insurance subsidiary, Sun Life Assurance Company of Canada (SLA), as well as the ratings of other Canadian affiliates. The outlook on all ratings of SLF and its Canadian and U.S. affiliates is negative. The action concludes a review for possible downgrade of Sun Life US and its affiliates, initiated on October 18, 2011.
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Commenting on the downgrade of the SLF preferred rating to Baa3 (hyb) from Baa2 (hyb), Moody’s said that it reflects a widening of the typical 3-notch differential that previously existed between SLF’s implied senior debt rating and the Aa3 IFS rating of SLA, because of: 1) the weakening of the stand-alone credit profile of Sun Life US; and 2) the credit profiles of SLF’s other key operating subsidiaries (i.e., MFS; UK insurance, and Asia insurance — not rated by Moody’s), which are relatively weaker than the Aa3 IFS rating on SLA. In addition, SLF’s financial flexibility has diminished due to the significant accounting charges taken during 2011 — mostly associated with the problematic Sun Life US business — which have reduced SLF’s capital, increased its financial leverage, and decreased its debt service coverage ratios.
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Commenting on the negative outlook for the entire SLF group, the rating agency noted its concerns related to the execution risks of the runoff strategy for the U.S. businesses and that any further charges arising from Sun Life US’ and the U.S. branch’s closed blocks would remain a drag on SLF’s consolidated earnings, and possibly SLA’s earnings. The negative outlook on SLA also reflects the potential of additional capital support being needed at Sun Life US. Furthermore, there is uncertainty about the timing for SLF to lower its currently elevated financial leverage, as well as future capital releases from Sun Life US to SLF and the profitability of the remaining employee benefits and voluntary product businesses at the U.S. branch, now that its life insurance business and the U.S. subsidiary’s operations are in run-off.

Moody’s stated that SLF expects run rate expenses for the U.S. subsidiary to be reduced by $160 -$180 million annually, and capital to be released over time. “This strategy is not without execution risk, however, and waiting to see at least a few quarters of experience before addressing the outlook for the organization as a whole is appropriate at this time”, Beattie added.

SLF has a lot of preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) as well as SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indices noted.