PrefBlog

DBRS has announced that it:

has today changed the trend on the ratings of Manulife Financial Corporation (Manulife or the Company) and its affiliates to Stable from Positive, including the Company’s AA Issuer Rating and R-1 (middle) Commercial Paper rating.

In light of the equity market deterioration through the third quarter of 2008 and into October and November, Manulife has become increasingly exposed under its variable annuity and segregated fund guarantees, requiring both additional actuarial reserve development and regulatory capital for its major operating subsidiary, The Manufacturers Life Insurance Company (MLI). Even though Manulife managed to increase MLI’s available regulatory capital in the third quarter, the increased capital requirement for the market-related guarantees increased at a faster pace, reducing the minimum continuing capital and surplus requirement (MCCSR) ratio to 193% from 200% at the end of the second quarter. Since that time, the Office of the Superintendent of Financial Institutions (OSFI) has revised the required capital to be held against such guarantees to the Company’s advantage and Manulife has arranged a $3 billion credit facility with the six major Canadian banks, $2 billion of which is expected to be injected into MLI as Tier 1 capital. Following the 20% decline in North American equity markets in the month of October, the MCCSR ratio would now be 225% on a pro forma basis. A further 10% decline in equity markets would reduce the MCCSR ratio by an estimated 20 percentage points.

Even though DBRS remains confident that Manulife is well positioned to be one of the strongest credits in the financial services sector, the Company’s overexposure to the current softness in global equity markets by virtue of these product guarantees and the associated economic uncertainty suggests that a Positive trend is, for the time being, no longer appropriate.

The rating trend was changed from Stable to Positive on July 8, 2008, reflecting the Company’s strong earnings performance since the acquisition of John Hancock Financial Services, Inc. in 2004, its advantageous strategic positions in selected diverse products and geographic market segments and its consistency in being among the first to introduce new and innovative products, tempered by effective risk and expense management controls and the most conservative capitalization of its peer group. With the recent increase in financial leverage, taking the total debt ratio to just below 25%, Manulife’s capitalization is no longer more conservative than others in the industry, but it is still within the accepted DBRS level for the current ratings.

The prior trend change to positive was reported by PrefBlog in July.

It is most interesting to speculate as to whether we will see Fixed-Reset issuance from MFC in the near future. The press release announcing the $3-billion term loan stated:

MFC today also announced that it has executed a binding credit agreement with the six largest Canadian banks to provide a 5-year term loan of $3 billion. The loan will be fully drawn down by November 20, 2008, and will be deployed, as necessary, to provide additional regulatory capital for its operating subsidiaries.

So … how will they pay off the loan? I see from the 3Q08 Slides that the loan is at a rate of BAs+380bp and is fully prepayable.

All three issues are tracked by HIMIPref™. MFC.PR.A is included in the OperatingRetractible index; MFC.PR.B and MFC.PR.C are members of the PerpetualDiscount index.

Connor Clark & Lunn has announced:

ROC Pref Corp. (the “Company”) announced today the implementation of restructuring initiatives by Connor, Clark & Lunn Capital Markets Inc. (the “Manager”) and Connor, Clark & Lunn Investment Management Ltd. (the “Investment Manager”) which acts as investment manager to Credit Trust IV. Credit Trust IV owns the credit linked note issued by Scotiabank to which the Company has exposure. The initiatives have been undertaken in order to increase the likelihood that the Company will be able to repay the $25.00 preferred share issue price at maturity.

In this regard:

1. For the next three quarters the underlying coupons payable under the credit linked note have been sold to The Bank of Nova Scotia to buy additional subordination (additional subordination increases the “safety cushion” by increasing the number of defaults the reference portfolio can withstand before principal and interest payments on the credit linked note are adversely affected). As a result of these changes, the dividends on the preferred shares of the Company have been suspended commencing with the December 31, 2008 dividend.

Regular quarterly dividends are expected to be reinstituted in respect of the quarter ending September 30, 2009. As a result of these actions, the Manager will ask Standard & Poors to withdraw its rating on the preferred shares as the rating applies to the payment of all dividends.

2. The deferred management fee has been made available for the benefit of the preferred shareholders.

As a result of the purchase of additional subordination approximately 0.5 additional defaults have been added to the number of defaults the note can sustain before payments of coupon and principal are affected. As a result, a total of 5.4 defaults among the companies in the credit linked note’s reference portfolio can be sustained before payments under the credit linked
note are impacted.

The following payout table, which assumes a recovery rate on default of 40%, is provided:

According to Connor Clark, there were 138 names in the portfolio as of September 30, with the following (truncated) credit distribution:

According to the company the NAV was $5.93 as of October 31. The Prospectus has the following language:

Preferred Shares may be surrendered for retraction at any time but will be
retracted only on the last day of the month (a ‘‘Valuation Date’’) commencing August 31, 2004. Preferred Shares surrendered for retraction by a Holder at least five (5) Business Days prior to a Valuation Date will be retracted on such Valuation Date and such holder will receive payment on or before the tenth Business Day following such Valuation Date. On a retraction, Holders will be entitled to receive a retraction price per share (the ‘‘Preferred Share Retraction Price’’) equal to 95% of the net asset value per Preferred Share determined as of the relevant Valuation Date less $0.25. As this Preferred Share Retraction Price may be less than $25.00 and will vary
depending on the net asset value at the time of retraction, the S&P rating of the Preferred Shares does not extend to the amount payable on a retraction. See ‘‘Details of the Offering — Certain Provisions of the Preferred Shares — Retraction’’ and ‘‘Details of the Offering — Suspension of Redemption or Retractions of Preferred Shares’’.

According to the latest semi-annual report:

No Preferred Shares were retracted or redeemed during the period from June 2, 2004 (inception date) to March 31, 2008.

RPQ.PR.A closed today on the TSX at 3.31-4.35, 4×10. Drooling arbitrageurs should check for themselves whether retractions have been suspended, or under what conditions they might be!

RPQ.PR.A was last mentioned on PrefBlog with respect to S&P’s Credit-Watch-Negative. The issue is not tracked by HIMIPref™.

CC&L Group has announced:

the implementation of restructuring initiatives by Connor, Clark & Lunn Capital Markets Inc. (the “Manager”) and Connor, Clark & Lunn Investment Management Ltd. (the “Investment Manager”) which acts as investment manager to Credit Trust III. Credit Trust III owns the credit linked note issued by TD Bank to which the Company has exposure. The initiatives have been undertaken in order to increase the likelihood that the Company will be able to repay the $25.00 preferred share issue price at maturity.

In this regard:

1. The trading reserve account has been used to buy additional subordination in the credit linked note (additional subordination increases the “safety cushion” by increasing the number of defaults the reference portfolio can withstand before principal and interest payments on the note are adversely affected).

2. For the next three quarters the coupons on the credit linked note have been sold to TD Bank in exchange for additional subordination. As a result, dividends on the preferred shares of the Company have been suspended commencing with the December 31, 2008 dividend. Regular quarterly dividends are expected to be re-instated in respect of the quarter ending September 30, 2009. The manager will ask Standard & Poors to withdraw its rating on the preferred shares as the rating applies to the payment of all dividends.

3. The deferred management fee has been made available for the benefit of the preferred shareholders.

The following pay-off table is provided:

According to the company, there were 125 names in the portfolio as of September 30, of which 5 have defaulted. The non-defaulted issues have the credit distribution:

The NAV is $2.97 as of October 31. Interestingly, the prospectus includes the language:

Preferred Shares may be surrendered for retraction at any time but will be retracted only on the last day of the month (a ‘‘Valuation Date’’) commencing June 30, 2005. Preferred Shares surrendered for retraction by a Holder at least five (5) Business Days prior to a Valuation Date will be retracted on such Valuation Date and such holder will receive payment on or before the tenth Business Day following such Valuation Date. On a retraction, Holders will be entitled to receive a retraction price per share (the ‘‘Preferred Share Retraction Price’’) equal to 95% of the net asset value per Preferred Share determined as of the relevant Valuation Date less $0.25. As this Preferred Share Retraction Price may be less than $25.00 and will vary depending on the net asset value at the time of retraction, the S&P rating of the Preferred Shares does not extend to the amount payable on a retraction. See ‘‘Details of the Offering — Certain Provisions of the Preferred Shares — Retraction’’ and ‘‘Details of the Offering — Suspension of Redemption or Retractions of Preferred Shares’’.

The issue’s closing quote today was 1.70-75, 3×87. The TSX reports 10.248-million shares currently outstanding, a slight decline from the 10.342-million shares outstanding as of June 30. Shares redeemed in the twelve months to June 2008 were 18,900.

I’m not aware of redemptions having been suspended … but anyone drooling at the arbitrage had better check!

RPB.PR.A is not tracked by HIMIPref™. It was last mentioned on PrefBlog in connection with the Fannie/Freddie Credit Event.

CIX Split Corp. has announced:

that it was precluded by the terms of the Class A Shares from declaring a dividend of $0.07 per Class A Share to holders of record as at November 15, 2008. According to the terms of the Class A Shares, a dividend cannot be paid thereon when the net asset value per unit (one Class A Share and one Priority Equity Share, together) is equal to or less than $15.00. As of the close of business on November 5, 2008, the net asset value per unit was $13.53. A distribution of $0.04167 per Priority Equity Share payable on November 30, 2008 to shareholders of record as at November 15, 2008 will still be paid.

The Corporation’s Priority Equity Shares and Class A Shares are listed on the Toronto Stock Exchange under the symbol CXC.PR.A and CXC respectively.

CXC.PR.A was last mentioned on PrefBlog amidst rumours of a takeover of CI Financial, shares of which are the split corporations only portfolio investment.

CXC.PR.A is not tracked by HIMIPref™.

DBRS has announced that it:

has today downgraded the Preferred Shares issued by AIC Global Financial Split Corp. (the Company) to Pfd-5, with a Negative trend, from Pfd-2 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In 2004, the Company issued 1.6 million Preferred Shares at $10 each and 1.6 million of Class A Shares at $15 each. The initial structure provided downside protection of approximately 58% (net of expenses).

The net proceeds from the offering were invested in a portfolio (the Portfolio) that included equity securities selected from leading bank-based, insurance-based and investment management based financial services companies with strong credit ratings. The Portfolio is actively managed by AIC Investment Services (the Manager) to invest in companies that have at least a US$1 billion market capitalization, and the weighted-average credit rating of the Portfolio will be at least equivalent to “A” at all times. To mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation, it is expected that a minimum of 90% of all foreign content will be hedged back to Canadian dollars for the life of the transaction. The Manager also employs an option-writing strategy (covered calls and cash-covered puts) to generate additional income.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.25% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum. There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the NAV of the Portfolio is less than $15 after giving effect to such distributions. Consequently, Class A distributions were suspended in September 2008.

The NAV of the Portfolio has declined significantly since inception. On April 17, 2008, DBRS downgraded the Preferred Shares to Pfd-2 (low), when the downside protection available to the Preferred Shares was 46%. Since then, the NAV has declined from $18.45 to $9.93 (a 46% decrease). The Preferred Shares have lost all of their downside protection and consequently have a significantly higher probability of experiencing first-dollar loss.

After taking into consideration the suspension of the Class A distributions, the Portfolio currently requires a total annualized return of more than 7% for the remaining term of the Company (about 2.5 years) in order to pay all cumulative dividends and full principal with respect to the Preferred Shares on the final maturity date. These returns will need to be generated from dividend income, option writing or capital appreciation in the Portfolio’s holdings.

Given the high hurdle rate and the grind to the portfolio, DBRS has assigned a Negative trend to the rating of the Preferred Shares.

The redemption date for both classes of shares issued is May 31, 2011.

ASC.PR.A was reviewed as part of the Mass DBRS Review of Splits

ASC.PR.A is tracked by HIMIPref™. It was moved from the SplitShare subindex to “Scraps” at the April 2007 Rebalancing on volume concerns.

DBRS has announced that it:

today downgraded the Preferred Shares issued by Copernican World Banks Split Corp. (the Company) to Pfd-5 (low), with a Negative trend, from Pfd-5. The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In November 2007, the Company raised gross proceeds of $96.1 million by issuing 4.805 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $10 each). The initial structure provided downside protection of 50% to the Preferred Shares as all issuance costs were paid by AIC Investment Services Inc. (the Manager).

The net proceeds from the offering were used to invest in a portfolio of common shares (the Portfolio) issued by bank-based financial institutions with strong credit quality (World Banks). The Portfolio is actively managed by the Manager to invest in World Banks that have at least a US$1 billion market capitalization and exhibit the potential for attractive dividend yields and strong earnings growth momentum. It is expected that a minimum of 80% of all foreign content will be hedged back to Canadian dollars at all times to mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation. The Manager also employs an option-writing strategy (covered calls and cash-covered puts) to generate additional income.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.25% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum. There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the NAV of the Portfolio is less than $15 after giving effect to such distributions. As a result, distributions to the Class A Shares have been suspended since December 2007.

The NAV of the Portfolio has declined significantly since inception. On July 2, 2008, DBRS downgraded the Preferred Shares to Pfd-5 when the downside protection available to the Preferred Shares was 4%. Since then, the NAV has declined from $10.39 to $7.79 (a 25% decrease). As of October 31, 2008, holders of the Preferred Shares would have experienced a loss of approximately 22% of their initial issuance price if the Portfolio holdings had been liquidated and proceeds distributed. The Portfolio requires an annualized return of more than 13% for the remaining term of the Company (about five years) in order to pay all cumulative dividends and full principal with respect to the Preferred Shares on the final maturity date. These returns will need to be generated from dividend income, option writing or capital appreciation in the Portfolio’s holdings.

There is now a significant chance that holders of the Preferred Shares will experience losses. DBRS will not lower its rating to D until it becomes clear that losses are unavoidable. Since there are still five years remaining until final maturity, the Manager has sufficient time to generate the returns necessary for holders of the Preferred Shares to avoid experiencing first-dollar loss.

The redemption date for both classes of shares issued is December 2, 2013.

CBW.PR.A was reviewed as part of the DBRS Mass Review of Splits.

CBW.PR.A is not tracked by HIMIPref™.

DBRS has announced that it:

has today downgraded the Preferred Shares issued by Copernican International Financial Split Corp. (the Company) to Pfd-5 (low), with a Negative trend, from Pfd-4 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In March and April of 2007, the Company raised gross proceeds of $158.4 million by issuing 7.92 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $10 each). The initial split share structure provided downside protection of 50% to the Preferred Shares as all issuance costs were paid by AIC Investment Services Inc. (the Manager).

The net proceeds from the offering were used to invest in a portfolio of common shares (the Portfolio) issued by international financial institutions (IFS) with strong credit quality. The Portfolio is actively managed by the Manager to invest in IFS that have at least a US$1 billion market capitalization and exhibit the potential for attractive dividend yields and strong earnings growth momentum. It is expected that a minimum of 80% of all foreign content will be hedged back to Canadian dollars at all times to mitigate net asset value (NAV) volatility relating to foreign currency exchange fluctuation. The Manager also employs an option-writing strategy (covered calls and cash-covered puts) to generate additional income.

Holders of the Preferred Shares receive fixed cumulative quarterly dividends yielding 5.0% per annum. The Company aims to provide holders of the Class A Shares with monthly distributions targeted at 8.0% per annum. There is an asset coverage test in place that does not permit the Company to make monthly distributions to the Class A Shares if the dividends on the Preferred Shares are in arrears or if the NAV of the Portfolio is less than $16.50 after giving effect to such distributions. As a result, distributions to the Class A Shares have been suspended since January 2008.

The NAV of the Portfolio has declined significantly since inception. On July 2, 2008, DBRS downgraded the Preferred Shares to Pfd-4 (low) when the downside protection available to the Preferred Shares was 11%. Since then, the NAV has declined from $11.20 to $7.24 (a 35% decrease). As of October 31, 2008, holders of the Preferred Shares would have experienced a loss of approximately 28% of their initial issuance price if the Portfolio holdings had been liquidated and proceeds distributed. The Portfolio requires an annualized return of more than 15% for the remaining term of the Company (about five years) in order to pay all cumulative dividends and full principal with respect to the Preferred Shares on the final maturity date. These returns will need to be generated from dividend income, option writing or capital appreciation in the Portfolio’s holdings.

There is now a significant chance that holders of the Preferred Shares will experience losses. DBRS will not lower its rating to D until it becomes clear that losses are unavoidable. Since there are still five years remaining until final maturity, the Manager has sufficient time to generate the returns necessary for holders of the Preferred Shares to avoid experiencing first-dollar loss.

The redemption date for both classes of shares issued is December 2, 2013.

CIR.PR.A was reviewed as part of the DBRS Mass Review of Splits.

CIR.PR.A is not tracked by HIMIPref™.

DBRS has announced:

has today downgraded the Preferred Shares issued by GlobalBanc Advantaged 8 Split Corp. (the Company) to Pfd-5 (low), with a Negative trend, from Pfd-5. The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In June 2007, the Company raised gross proceeds of $54 million by issuing 2.7 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $10 each) to provide downside protection of approximately 47% to the Preferred Shares (after issuance costs).

The net proceeds from the initial offering were used to purchase a portfolio of Canadian securities that were pledged to the National Bank of Canada (the Counterparty) to enter a forward agreement (the Forward Agreement) in order to gain exposure to a portfolio of common shares (the Bank Portfolio) issued by eight of the world’s largest banks, Citigroup Inc., Bank of America Corp. (DE), Royal Bank of Scotland Group plc, UBS AG, Banco Santander Central Hispano S.A., BNP Paribas, Société Générale Group and Deutsche Bank AG.

Holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.5% per annum. The Company provides Class A Shareholders with distributions of capital gains when declared by the board of directors. Since inception, the Class A Shareholders have received a total of $0.0485 per share, a return of less than 0.5% of the initial share price.

The NAV of the Portfolio has declined sharply since inception. On July 2, 2008, DBRS downgraded the Preferred Shares to Pfd-5 when the NAV of the Preferred Shares was $9.70 (slightly below the par value of the Preferred Shares). Since then, the NAV has declined to $7.74 (a 20% decrease). As of November 3, 2008, holders of the Preferred Shares would have experienced a loss of approximately 23% of their initial issuance price if the Portfolio holdings had been liquidated and proceeds distributed. The Portfolio requires an annualized return of more than 11% for the remaining term of the Company (about four years) in order to pay all cumulative dividends and full principal with respect to the Preferred Shares on the final maturity date. These returns will need to be generated from dividend income and capital appreciation in the Portfolio’s holdings.

There is now a significant chance that holders of the Preferred Shares will experience losses. DBRS will not lower its rating to D until it becomes clear that losses are unavoidable. Since there are still four years remaining until final maturity, there is sufficient time for the Portfolio NAV to increase above the $10 Preferred Shares issuance price through capital appreciation.

The redemption date for both classes of shares issued is December 15, 2012.

GBA.PR.A was reviewed as part of the DBRS Mass Review of Splits.

GBA.PR.A is not tracked by HIMIPref™.