PrefBlog

Commerce Split Corp. has announced:

Commerce Split Corp. (“the Company”) was required to sell the majority of its holdings in CIBC. The proceeds of these sales have been used to purchase fixed income securities under the Priority Equity Protection Plan as per the prospectus.
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The Company, subject to all necessary Board and regulatory approvals, expects to send out the full details of this proposal to all shareholders through a Management Information Circular sometime in January, 2009 with a shareholder vote to follow in February, 2009. The key aspects of the proposal are discussed below.

The Plan will recommend the fixed income instruments purchased under the Priority Equity Protection Plan be liquidated and the proceeds be re-invested in common shares of CIBC.

The Plan will propose that each Priority Equity share be exchanged for the following three securities: i) one new $5 preferred share to yield 7.5% per annum; ii) one $5 par value equity share that will receive dividends of 7.5% per annum if and when the Company’s net asset value exceeds $12.50; and also iii) one half warrant to purchase a full unit (consisting of one new preferred share, one new equity share and a Class A share) of the Company at a price of $10 at specified times during the first two years subsequent to the approval date. The warrant will effectively provide upside potential on the performance of CIBC shares. The Company believes that the proposed package of securities will provide Priority Equity shareholders with substantial value added compared to their existing investment.

The Class A shares will remain the same except that the threshold for reinstatement of dividends on the Class A shares will only occur if the net asset value per unit reaches $15.00 per unit (current threshold is $12.50 net asset value per unit.) Increases in the net asset value per unit above $10 (current net asset value per unit was $9.15 as at November 28, 2008) will continue to accrue to the Class A shareholder. The value of this opportunity is that it is similar to an option on CIBC and the Company believes this provides substantial shareholder value relative to Class A shareholders’ existing investment.

At first blush, this sounds like a pretty lousy option for the preferred shareholders. Right now their dividends are impaired – or soon will be impaired – but they have full ownership of a portfolio of fixed income securities worth $9.15. If they proceed with this exchange, they will be getting 3.75% (approx) on their money as a dividend because the new class of shares will only pay dividends if there is significant price appreciation.

The new class of share will be fully exposed to declines in the value of the underlying CM shares, but will participate in future capital gains only to the extent of the $0.85 current price difference. The new class won’t even get dividends until there’s been a 25%+ increase in capital value.

I am open to arguments based on the value of the option they are being granted – feel free to write in and analyze! – but it looks to me like they should probably VOTE NO!

XCM.PR.A was last mentioned on PrefBlog when the company announced it was mulling over a reorganization plan. XCM.PR.A is not tracked by HIMIPref™.

Update: After further thought, I have decided that I am not open to arguments based on the value of the option. The preferred shareholders – currently holding a perfectly good fixed-income portfolio – are being asked to provide all the funding for the new company, taking all the downside risk of the portfolio holdings and giving away, free, gratis and for nothing an option on a big chunk of the upside. VOTE NO!

M-Split Corp. has announced:

due to the dramatic and volatile drop in the price of Manulife common shares, M Split Corp. (“the Company”) was required to sell the majority of its holdings in Manulife. The proceeds of these sales have been used to purchase fixed income securities under the Priority Equity Protection Plan as per the prospectus.
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the Company is recommending to shareholders that the Company be reorganized. The Company, subject to all necessary Board and regulatory approvals, expects to send out the full details of this proposal to all shareholders through a Management Information Circular sometime in January, 2009 with a shareholder vote to follow in February, 2009. The key aspects of the proposal are discussed below.

The Plan will recommend the fixed income instruments purchased under the Priority Equity Protection Plan be liquidated and the proceeds be re-invested in common shares of Manulife.

The Plan will propose that each Priority Equity share be exchanged for the following three securities: i) one new $5 preferred share to yield 7.5% per annum; ii) one $5 par value equity share that will receive dividends of 7.5% per annum if and when the Company’s net asset value exceeds $12.50; and also iii) one half warrant to purchase a full unit (consisting of one new preferred share, one new equity share and a Class A share) of the Company at a price of $10 at specified times during the first two years subsequent to the approval date. The warrant will effectively provide upside potential on the performance of Manulife shares. The Company believes that the proposed package of securities will provide Priority Equity shareholders with substantial value added compared to their existing investment.

The Class A shares will remain the same except that the threshold for reinstatement of dividends on the Class A shares will only occur if the net asset value per unit reaches $15.00 per unit (current threshold is $12.50 net asset value per unit.) Increases in the net asset value per unit above $10 (current net asset value per unit was $9.63 as at November 28, 2008) will continue to accrue to the Class A shareholder. The value of this opportunity is that it is similar to an option on Manulife and the Company believes this provides substantial shareholder value relative to Class A shareholders’ existing investment.

At first blush, this sounds like a pretty lousy option for the preferred shareholders. Right now their dividends are impaired – or soon will be impaired – but they have full ownership of a portfolio of fixed income securities worth $9.63. If they proceed with this exchange, they will be getting 3.75% (approx) on their money as a dividend because the new class of shares will only pay dividends if there is significant price appreciation.

The new class of share will be fully exposed to declines in the value of the underlying Manulife shares, but will participate in future capital gains only to the extent of the $0.37 current price difference. The new class won’t even get dividends until there’s been a 25%+ increase in capital value.

I am open to arguments based on the value of the option they are being granted – feel free to write in and analyze! – but it looks to me like they should probably VOTE NO!

XMF.PR.A was last mentioned on PrefBlog when the company announced it was mulling over plans to reorganize. XMF.PR.A is not tracked by HIMIPref™.

Update: After further thought, I have decided that I am not open to arguments based on the value of the option. The preferred shareholders – currently holding a perfectly good fixed-income portfolio – are being asked to provide all the funding for the new company, taking all the downside risk of the portfolio holdings and giving away, free, gratis and for nothing an option on a big chunk of the upside. VOTE NO!

MFC, after getting into trouble with imprudent stock speculation – and partially bailed out by OSFI – is issuing common stock:

Manulife Financial Corporation (MFC) will further strengthen its financial and capital position by issuing $2.125 billion in common equity which would raise its regulatory capital ratio to one of the highest levels in the Company’s history.
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On a pro forma basis, after giving effect to the $2.125 billion of common equity and the remaining $2 billion credit facility, and reflecting global equity market levels as of the end of November 2008, the consolidated capital ratio or MCCSR is estimated to be approximately 235%, one of the highest in the company’s history.
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MFC also provided an update on its expected earnings for 2008. Assuming global equity markets closed at the end of November 2008 levels, net income for the year is estimated to be approximately $900 million.

2008 earnings to the end of the third quarter had been reported as $2,485-million. Perhaps Manulife should have taken lessons from Portus Group, whose principal protection seems to have held up pretty well!

S&P announced:

it revised its outlook on Manulife Financial Corp. and all of its rated operating companies to negative from stable. In addition, Standard & Poor’s affirmed its ratings on Manulife Financial, including its ‘AA’ long-term counterparty credit rating and the ‘AAA’ financial strength ratings on its rated operating subsidiaries. Its key operating subsidiaries include: The Manufacturers Life Insurance Co., John Hancock Life Insurance Co., John Hancock Life Insurance Co. (U.S.A.), Manulife (International) Ltd., and Manulife Life Insurance Co. Ltd.

The outlook revision reflects our opinion of the reduced level of financial flexibility that the group has with its ‘AAA’ financial strength ratings given the decline and volatility of the global equity markets and the resultant impact on earnings and capital, utilization of its bank term facility, and plans to complete a C$2.125 billion common equity issue.
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While the negative outlook on Manulife Financial and its rated subsidiaries reflects our view of the group’s reduced level of financial flexibility, we believe that Manulife is likely to continue to maintain its solid operating performance, business franchise, and capital adequacy position. From our analysis, it has a higher risk business profile compared with other ‘AAA’ rated insurers. Standard & Poor’s ratings anticipate that the firm will maintain its current enterprise risk management practices, although we will continue to monitor how the company assesses its appetite for equity risk retention. Our ratings also reflect our expectations that the investment portfolio likely will remain well diversified with minimal asset quality issues, and revenue growth and financial leverage are expected to remain at levels that are in line with the current ratings. We could revise the outlook to stable if management actions remain responsive, the business franchise continues to show resilience through these challenging times by displaying very strong core operating performance, and the equity markets begin to show signs of recovery and the pressure on VA reserve and capital requirements diminish. We expect that the ratings could be lowered by one notch if there is any evidence of deterioration in one or more of the above metrics, or if the global equity markets remain in a deep and permanent decline.

These issues were last highlighted on PrefBlog when DBRS changed the trend from positive to stable.

Energy Split Corp. II has announced:

it has called 26,750 ROC Preferred Shares for cash redemption on December 16, 2008 (in accordance with the Company’s Articles) representing approximately 2.655% of the outstanding ROC Preferred Shares as a result of the special annual retraction of 403,700 Capital Yield Shares by the holders thereof. The ROC Preferred Shares shall be redeemed on a pro rata basis, so that each holder of ROC Preferred Shares of record on December 15, 2008 will have approximately 2.655% of their ROC Preferred Shares redeemed. The redemption price for the ROC Preferred Shares will be $13.74 per share.

Holders of ROC Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including December 16, 2008.

Payment of the amount due to holders of ROC Preferred Shares will be made by the Company on December 16, 2008. From and after December 16, 2008 the holders of ROC Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

EN.PR.A was last mentioned on HIMIPref™ when they were subdivided to reflect differing rates of retraction when the term was extended last year.

EN.PR.A is tracked by HIMIPref™. It is incorporated in the “Scraps” sub-index rather than “SplitShare” due to volume concerns.

Union Gas has announced:

that it will not proceed with a proposed preference share redemption, planned for January 1, 2009. The share redemption, which received Board of Directors approval last September, was under consideration as part of a potential conversion of Union Gas into an unlimited liability company which will not proceed.

It’s rather odd. A “Material Change Report” filed on SEDAR states:

On September 11, 2008, the Corporation issued a news release through the facilities of Marketwire.

… and appends the press release in question …

Union Gas Limited announced today that it has received Board of Directors approval to initiate the redemption of all preference shares Union Gas has issued and outstanding. This share redemption would be effective January 1, 2009. The redemption would be undertaken in order to implement a new corporate legal structure that achieves financial benefits which far exceed share redemption expenses.

Union Gas will require approval from the Ontario Energy Board in connection with an internal share transfer that, together with the share redemption, would ultimately lead to the conversion of Union Gas into an unlimited liability company.

Union Gas reserves the right to not proceed with the redemption of the preference shares or the other reorganization actions. Should Union Gas determine to proceed with the redemption, it will issue a formal notice of redemption to the holders of preference shares in accordance with the preference share rights and restrictions.

Union Gas currently has the following classes of preference shares issued and outstanding:
1. 47,672 5.5% Cumulative Redeemable Class A Preference Shares, Series A;
2. 90,000 6% Cumulative Redeemable Class A Preference Shares, Series B;
3. 49,500 5% Cumulative Redeemable Class A Preference Shares, Series C; and
4. 4,000,000 4.79% Cumulative Redeemable Convertible Class B Preference Shares, Series 11.

… but there are no press releases data Sept. 11 for Union Gas on Marketwire. It’s on CNW … and somehow I missed it at the time.

UNG.PR.C & UNG.PR.D are not tracked by HIMIPref™.