PrefBlog

BCE Acquisition has announced:

that the agreement to acquire BCE Inc. (TSX, NYSE: BCE) has been terminated in accordance with its terms.

Receipt of a solvency opinion from a nationally recognized valuation firm was included in the June 30, 2007 definitive agreement between the Purchaser and BCE as a mutual closing condition. The agreement of the Purchaser and BCE to both the selection of KPMG to serve as the valuation firm and the form of the solvency opinion was reflected in the July 4, 2008 amendment to the definitive agreement. Because KPMG has concluded that a required test for the solvency opinion was not met, this mutual condition to completion of the acquisition could not be, and was not, satisfied. Accordingly, the Purchaser terminated the agreement in accordance with its terms. Under these circumstances neither party owes a termination fee to the other.

There is no telling what will happen now. In an ideal world, we return to the status quo ante and the BCE Prefs retain their Pfd-2(low) / P-2(low) credit rating. But Bloomberg reports other ideas:

BCE Inc., the Canadian phone company that had been planning to go private for the past 18 months, may have to buy back shares or restore its dividend to placate investors now that its leveraged buyout has fallen apart.

But I’m afraid that in the absence of strong, credible statements from BCE regarding their capital structure going forward, BCE prefs remain rather more speculative than I like.

The last post in this saga was BCE Buyout in Trouble; Prefs Plunge.

BCE has the following preferred shares outstanding: 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.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

Update, 2008-12-11: BCE is desperately grandstanding:

BCE Inc. (TSX, NYSE: BCE) today announced that it received last evening from the Purchaser, a company formed by an investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, and affiliates of Providence Equity Partners Inc., Madison Dearborn Partners, LLC, and Merrill Lynch Global Private Equity, a notice purporting to terminate the Definitive Agreement dated June 29, 2007, as amended. BCE disputes that the Purchaser was entitled to terminate the Definitive Agreement, as such notice was delivered prematurely, prior to the outside date for closing of the transaction, and therefore invalid. Given the Purchaser’s position, the BCE privatization
transaction will not proceed.

As previously announced, the closing of the privatization transaction is contingent upon the fulfillment of several closing conditions, including, pursuant to Section 8.1(f) of the Definitive Agreement, the receipt at the effective time of a positive solvency opinion from KPMG. Earlier this morning, KPMG confirmed that it would not be able to deliver an opinion that BCE would
meet, post transaction, the solvency tests set out in the Definitive Agreement.

In light of these developments, BCE will be terminating the Definitive Agreement in accordance with its terms, and will be demanding payment of the $1.2-billion break-up fee from the Purchaser. All closing conditions have been satisfied by BCE, other than the solvency opinion, a condition to closing that was to be satisfied by its nature at the effective time. Under such circumstances, the agreement provides that the break up fee will be owed to BCE by the Purchaser. The Purchaser has taken the position that it is not obligated to pay the break-up fee.

In addition, the BCE Board intends that immediately following termination of the Definitive Agreement in accordance with its terms, it will address a reinstatement of its common share dividend beginning with its fourth quarter common share dividend payable on January 15, 2009, and that it will return capital to its shareholders through a Normal Course Issuer Bid.

I would have a lot more confidence in the credit quality of the BCE Prefs if they indicated the size of the Normal Course Issuer Bid.

DBRS has announced that it:

has today placed the long-term and short-term ratings of George Weston Limited (Weston or the Company) – the Notes & Debentures at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high) – Under Review with Developing Implications.

The action follows Weston’s announcement today that its subsidiary, Dunedin Holdings S.a.r.l. (Dunedin), has entered into an agreement to sell its U.S. fresh bread and baked goods business to Grupo Bimbo for net proceeds of approximately US$2.5 billion. The completion of the transaction is subject to normal closing conditions, including regulatory approval; if the closing conditions are met, the parties expect the transaction to close in the first quarter of 2009.

Although the transaction represents an opportunity for Weston to realize a significant gain on the sale of this business, which it acquired in 2001, it will fundamentally alter the Company’s profile as the business to be sold represents more than half of Weston’s (ex-Loblaw Companies Limited (Loblaw)) operating income.

Dunedin contributed US$255 million of EBITDA to Weston’s consolidated results for the 52-weeks ended October 4, 2008. On this basis, DBRS estimates Weston’s pro forma (from continuing businesses) EBITDA for the same period to be approximately $175 million – this estimate also adjusts for the December 1, 2008 sale of Neilson Dairy (approximately $50 million of annual EBITDA) to Saputo Inc. for net proceeds of approximately $400 million.

The proposed divestiture of these assets would also have a meaningful impact on Weston’s financial risk profile. DBRS estimates the Company would have total cash and cash equivalents of more than $3.5 billion, after repaying $250 million of notes that come due in February 2009 and satisfying it current intention to redeem approximately $265 million of preferred shares in 2009. This cash and equivalent balance would compare to an estimated gross debt balance of $775 million (after February 2009) and preferred share balance of $835 million.

In its review, DBRS will focus on Weston’s intention with regards to its large cash and cash equivalent balance, its remaining operating business and its investment in Loblaw. DBRS believes that with an appropriate financial profile, Weston has the ability to remain placed in the BBB rating category with its continuing businesses (i.e., gross debt-to-pro forma EBITDA a maximum of 2.5 times).

The ratings for Loblaw (rated BBB and R-2 (middle) with Negative trends) remain unaffected at this point as DBRS believes the proposed transaction, in and of itself, does not impact the credit risk profile of Loblaw.

We’ll see what happens! Presumably the credit would be adversely affected if they use the excess cash to privatize Loblaws:

Speculation has swirled over what the company could do with its bulked up bank account.

Galen Weston said the company could look towards opportunities in either the United States or Canada, and the possibility of expanding its frozen bakery business.

There have also been suggestions that Weston is planning to buy out minority shareholders of Loblaw Cos. (TSX: L.TO), Canada’s largest supermarket operator. That would cost Weston about $3.5 billion at current stock values.
…
Galen Weston briefly addressed the rumours after an analyst question.

“The way we look at our position in the baking and supermarket business is there’s a lot more opportunity to come,” he said, without mentioning specifics.

Outstanding Weston issues are WN.PR.A, WN.PR.B, WN.PR.C, WN.PR.D and WN.PR.E. They were last mentioned on PrefBlog en masse when Loblaws was downgraded. All issues are tracked by HIMIPref™, but are incorporated in the Scraps index due to credit concerns.

Update: S&P is much more emphatic:

Standard & Poor’s Ratings Services today said it placed its ratings, including its ‘BBB’ long-term corporate credit rating, on Toronto-based George Weston Ltd. on CreditWatch with negative implications. This means that we could either lower or affirm the ratings after completion of our review.

“The CreditWatch placement follows the company’s announcement that its subsidiary, Dunedin Holdings SARL, is in discussions with Mexico-based Grupo Bimbo S.A.B. de C.V. about the possible divestment of George Weston’s U.S. fresh bread and baked goods business,” said Standard & Poor’s credit analyst Lori Harris. Although total estimated sales proceeds and their redeployment are currently unknown, there is market speculation about whether the proceeds will be used for the possible privatization of George Weston’s 62%-owned subsidiary Loblaw Companies Ltd. (BBB/Negative/–) or of George Weston itself.

“In Standard & Poor’s opinion, the deployment of potential sales proceeds for privatization or acquisitions, combined with the absence of the EBITDA for the U.S. fresh baked goods business, could lead to higher debt levels and weaker credit protection measures,” Ms. Harris added. With adjusted debt to EBITDA of about 4.4x for the 12 months ended Oct. 4, 2008, George Weston’s credit measures are already weak for the ratings in our view.

While the ratings on George Weston and Loblaw are currently the same, the rating relationship between the two remains one of linkage, not equalization, with each rating jointly influenced by the respective credit profiles. In the event of the sale, Standard & Poor’s would reevaluate the key parent-subsidiary relationship, including the strategic importance and ownership structure, to determine the rating links between George Weston and Loblaw. The ratings could become equalized should the relationship become significantly closer.

Standard & Poor’s will monitor current developments and meet with management to discuss the proposed divestment and use of proceeds. The resolution of the CreditWatch placement depends on the transaction closing and subsequent redeployment of funds, the revised capital structure, and George Weston’s future business and financial strategies.

The Royal Bank Fixed-Reset 6.25%+350 announced November 24 settled today on good volume and little price movement – a departure from recent norms for which the underwriters will doubtless be grateful!

It traded 389,932 shares in a range of 24.85-05, closing at 25.00-03, 40×177. From the bid of 25.00, the YTW is 5.89% to the limitMaturity, while the yield to the five year call is 6.27%.