PrefBlog

Pembina Pipeline Corporation has announced:

that it has entered into agreements pursuant to which it will acquire Kinder Morgan Canada Limited (TSX: KML) (“Kinder Morgan Canada” or “KML”) (the “Corporate Acquisition”) and the U.S. portion of the Cochin Pipeline system (“Cochin US”) from Kinder Morgan, Inc. (“KMI”) (the “Cochin US Acquisition”) for a total purchase price of approximately $4.35 billion (the “Transaction”). The Transaction values Kinder Morgan Canada at approximately $2.3 billion, or $15.02 per share, based on an all-share exchange ratio of 0.3068 of a common share of Pembina per KML security and Pembina’s 30-day volume weighted average price on the date hereof; and Cochin US at approximately $2.05 billion for cash consideration.

Subject to closing of the Transaction, Pembina’s board of directors has also approved a $0.01 per common share, or approximately five percent, increase to its monthly common share dividend rate.

Through the Transaction, Pembina will acquire strategically located assets including the Cochin Pipeline System, the Edmonton storage and terminal business and Vancouver Wharves, a bulk storage and export/import business. Upon closing, the Transaction immediately provides Pembina with well-established business platforms and substantial opportunities for growth.
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Under the terms of the arrangement agreement governing the Corporate Acquisition, Pembina will acquire all of the issued and outstanding restricted voting shares (the “Restricted Voting Shares”) and special voting shares (the “Special Voting Shares”) of Kinder Morgan Canada and all of the class B units (the “Class B Units”) of Kinder Morgan Canada Limited Partnership by way of a plan of arrangement under the Business Corporations Act (Alberta). Pembina is offering to acquire each of the outstanding Restricted Voting Shares and each Class B Unit in exchange for 0.3068 of a common share of Pembina, which represents a 32 percent premium, based on Pembina and Kinder Morgan Canada’s 30-day volume weighted average prices of $48.96 and $11.37, respectively, on the date hereof. The Corporate Acquisition is valued at approximately $2.3 billion including the assumption of Kinder Morgan Canada’s preferred shares and outstanding net debt.

The Corporate Acquisition is subject to approval of: (a) at least 66 2/3 percent of holders of Restricted Voting Shares and Special Voting Shares, voting together as a single class; and (b) a majority of holders of Restricted Voting Shares, in each case present in person or by proxy at a special meeting of the holders of Restricted Voting Shares and Special Voting Shares to be called to consider the Corporate Acquisition, approval of the Court of Queen’s Bench of Alberta, certain regulatory approvals in Canada, and other customary conditions.

KMI, who holds all of the Special Voting Shares (an approximate 70 percent of the voting rights of KML) and a corresponding 70 percent economic interest in Kinder Morgan Canada’s business and assets (by way of its ownership of all the Class B Units), has entered into a support agreement pursuant to which it has agreed to vote its Special Voting Shares in favor of the Corporate Acquisition. The Corporate Acquisition is also subject to clearance under the Competition Act (Canada) and the Canada Transportation Act.

The Corporate Acquisition is valued at approximately $2.3 billion including the assumption of Kinder Morgan Canada’s preferred shares and outstanding net debt. is the crucial phrase for preferred shareholders. There is no huge change in credit quality – KML was downgraded to Pfd-3 by DBRS in March, 2019, while PPL was confirmed at Pfd-3 in April, 2019. Meanwhile, S&P shows both KML and PPL at P-3(high).

The press release does not specify that preferred shareholders will be voting on this arrangement; I have checked with and been told:

The transaction requires 2 votes: (1) a favorable 66 2/3 vote by KML common shareholders in total (KMI will vote its shares in support of the transaction) and (2) a majority approval from holders of the restricted voting shares. So no, the pref holders will not be voting.

I confess I’m a little surprised by this. It may be because this is a plan of arrangement under the Business Corporations Act (Alberta) and we more often see a plan of arrangement under the Canada Business Corporations Act.

Following receipt of the eMail above, I received another one:

There will be a vote of preferred shareholders on whether or not they wish to convert the pref shares to PPL pref shares (under the same terms) if not they will remain as is (KML pref shares under the same terms).

Should you have any further question please reach out.

Thanks,

DBRS comments:

DBRS views the proposed Transaction as having a modestly positive impact on Pembina’s business risk profile,
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Based on the current proposed financing plan, DBRS expects a modestly negative impact on Pembina’s credit metrics because of the issuance of incremental debt of approximately $2.05 billion for the Transaction. Although Pembina’s credit metrics are expected to weaken, the impact is modest and would not affect the current ratings. Pembina’s financial profile remained strong in 2018 and during the LTM 2019 with solid liquidity and strong credit metrics. For the LTM 2019, the cash flow-to-debt ratio was approximately 26%, EBIT interest coverage was approximately 6.65 times, and debt-to-capital (adjusted for the debt treatment of preferred shares) was under 40%. DBRS has done a pro forma assessment on the impact of the $2.05 billion acquisition debt on the three above-mentioned metrics and is satisfied that these metrics would still solidly support the BBB ratings.

Affected issues are KML.PR.A and KML.PR.C. Both issues were up smartly on the day; KML.PR.A up $0.68 to 22.35 (close/close) and KML.PR.C up $0.80 to 22.25 (close/close).

KML.PR.A is a FixedReset 5.25%+365M525 that commenced trading 2017-8-15 after being announced 2017-8-3. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.

KML.PR.C is a FixedReset, 5.20%+351M520, that commenced trading 2017-12-15 after being announced 2017-12-6. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.

Update, 2019-08-22: KML.PR.A & KML.PR.C On Review-Developing by DBRS until additional information becomes available with respect to Pembina’s intention for the Preferred Shares and the proposed capital structure at KMU post completion of the Acquisition.

DBRS has announced:

DBRS Limited (DBRS) placed the following ratings Under Review with Developing Implications:

— Kinder Morgan Canada Limited (KML), Preferred Shares – Cumulative (the Preferred Shares) rating of Pfd-3
— Kinder Morgan Cochin ULC (KMU), Issuer Rating of BBB

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KMU’s Issuer Rating is based on its strong financial profile and expectation that leverage will remain reasonable for the current rating. The Preferred Shares rating of KML, which owns 30% of KMU and holds no other material assets, is based on the strength of KMU, the structural support in place for the benefit of the holders of the Preferred Shares (please see DBRS’s report on Kinder Morgan Canada Limited and Kinder Morgan Cochin ULC, dated March 25, 2019, for details) and the expectation that no debt will be issued by KML. DBRS expects to resolve the Under Review status once additional information becomes available with respect to Pembina’s intention for the Preferred Shares and the proposed capital structure at KMU post completion of the Acquisition.

This follows yesterday’s news that PPL To Acquire KML Under Proposed Plan of Arrangement.

KML.PR.A is a FixedReset 5.25%+365M525 that commenced trading 2017-8-15 after being announced 2017-8-3. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.

KML.PR.C is a FixedReset, 5.20%+351M520, that commenced trading 2017-12-15 after being announced 2017-12-6. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.

Strathbridge Asset Management Inc. has announced:

Premium Income Corporation (the “Fund”) is pleased to announce that it is undertaking an overnight treasury offering of Preferred Shares and Class A Shares.

The sales period for the overnight offering will end at 9:00 am EST tomorrow, August 21, 2019. The offering is expected to close on or about August 28, 2019 and is subject to certain conditions including approval by the Toronto Stock Exchange (“TSX”). The Preferred Shares will be offered at an indicative price of $14.70 per Preferred Share to yield 5.97% and the Class A Shares will be offered at an indicative price of $6.10 per Class A Share to yield 13.3%. The trading price on the TSX for the Preferred Shares and Class A Shares as at 2:30 pm EST on August 20, 2019 was $14.70 and $6.27, respectively.

Since the inception of the Fund, the aggregate dividends declared on the Preferred Shares have been $19.83 per share and the aggregate dividends declared on the Class A Shares have been $25.21 per share, for a combined total of $45.04 per unit.

The Fund invests in a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank. To generate additional returns above the dividend income earned on the Fund’s portfolio, the Fund will selectively write covered call and put options in respect of some or all of the common shares in the Fund’s portfolio. The manager and investment manager of the Fund is Strathbridge Asset Management Inc.

The Preferred Shares pay fixed cumulative preferential quarterly cash distributions in the amount of $0.215625 ($0.8625 per annum) per Preferred Share representing a yield of 5.75% on the original issue price of $15.00. The Class A Shares currently pay quarterly distributions in the amount $0.20319 ($0.81276 per annum) per Class A Share.

The syndicate of agents for the offering is being co-led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank.

For further information, please contact Investor Relations at 416.681.3966, toll free at 1.800.725.7172, email at info@strathbridge.com or visit www.strathbridge.com

John Germain, Senior VP & CFO

So they’re offering Whole Units at an “indicative” price (I don’t know what that means) of 20.80, whereas the NAVPU on August 19 was 19.41. A premium of 7.2% is good business!

They last got bigger about ten weeks ago.

Update, 2019-09-15: They raised $27.8-million:

Premium Income Corporation (the “Fund”) is pleased to announce that it has completed the previously announced treasury offering of 1,335,100 Preferred Shares and 1,335,100 Class A Shares for gross proceeds of approximately $27.77 million. The Preferred and Class A Shares will continue to trade on the Toronto Stock Exchange under the existing symbols PIC.PR.A (Preferred Shares) and PIC.A (Class A Shares).

Brookfield Asset Management Inc. has announced:

it has received approval from the Toronto Stock Exchange (“TSX”) for its proposed normal course issuer bid to purchase up to 10% of the public float of each series of the company’s outstanding Class A Preference Shares that are listed on the TSX (the “Preferred Shares”). Purchases under the bid will be made through the facilities of the TSX and/or alternative Canadian trading systems. The period of the normal course issuer bid will extend from August 20, 2019 to August 19, 2020, or an earlier date should Brookfield complete its purchases. Brookfield will pay the market price at the time of acquisition for any Preferred Shares purchased. All Preferred Shares acquired by Brookfield under this bid will be cancelled.

Under the normal course issuer bid, Brookfield is authorized to repurchase each respective series of the Preferred Shares as follows:

Series	Ticker	Issued and outstanding shares1	Public float1	Average daily trading volume2	Maximum number of shares subject to Purchase
					Total	Daily
Series 2	BAM.PR.B	10,457,685	10,220,175	6,171	1,022,017	1,542
Series 4	BAM.PR.C	3,995,910	3,983,910	3,339	398,391	1,000
Series 8	BAM.PR.E	2,476,185	2,475,185	928	247,518	1,000
Series 9	BAM.PR.G	5,515,981	2,022,881	691	202,288	1,000
Series 13	BAM.PR.K	9,640,096	8,792,596	12,049	879,259	3,012
Series 17	BAM.PR.M	7,840,204	7,840,204	2,913	784,020	1,000
Series 18	BAM.PR.N	7,866,749	7,681,088	3,555	768,108	1,000
Series 24	BAM.PR.R	9,282,910	9,281,610	6,314	928,161	1,578
Series 25	BAM.PR.S	1,529,133	1,529,133	976	152,913	1,000
Series 26	BAM.PR.T	9,774,812	9,774,012	7,764	977,401	1,941
Series 28	BAM.PR.X	9,241,457	9,237,347	10,008	923,734	2,502
Series 30	BAM.PR.Z	9,790,374	9,790,274	9,037	979,027	2,259
Series 32	BAM.PF.A	11,754,099	11,754,099	11,858	1,175,409	2,964
Series 34	BAM.PF.B	9,879,277	9,879,277	8,901	987,927	2,225
Series 36	BAM.PF.C	7,842,909	7,842,909	4,384	784,290	1,096
Series 37	BAM.PF.D	7,830,091	7,830,091	3,488	783,009	1,000
Series 38	BAM.PF.E	7,914,556	7,908,396	5,742	790,839	1,435
Series 40	BAM.PF.F	11,848,165	11,845,195	10,856	1,184,519	2,714
Series 42	BAM.PF.G	11,899,900	11,890,300	7,938	1,189,030	1,984
Series 44	BAM.PF.H	9,831,929	9,831,929	8,357	983,192	2,089
Series 46	BAM.PF.I	11,740,797	11,740,797	15,201	1,174,079	3,800
Series 48	BAM.PF.J	11,885,972	11,885,972	9,161	1,188,597	2,290
1. Calculated as at August 6, 2019. 2. Calculated for the six months prior to July 31, 2019. 3. In accordance with TSX rules, any daily repurchases with respect to: (i) the Series 4, Series 8, Series 9, Series 17, Series 18, Series 25 and Series 36 Preferred Shares will be limited to 1,000 shares of the respective series and (ii) each of the other series of Preferred Shares (excluding the Series 4, Series 8, Series 9, Series 17, Series 25 and Series 36 Preferred Shares) will be limited to 25% of the average daily trading volume on the TSX of the respective series.

As of August 6, 2019, under its current normal course issuer bid that commenced on August 20, 2018 and will expire on August 19, 2019, and which the company sought and received approval from the TSX, Brookfield purchased Preferred Shares as follows

Series	Number of shares purchased	Maximum number of shares subject to purchase	Weighted average price paid per purchased share (C$)
Series 2	7,415	1,022,759	13.79
Series 4	4,090	398,800	13.68
Series 8	3,400	247,858	19.54
Series 9	3,134	202,601	18.92
Series 13	7,604	880,020	13.85
Series 17	110,552	795,075	20.45
Series 18	99,409	778,049	20.42
Series 24	112,640	939,425	18.38
Series 25	4,000	153,313	16.96
Series 26	129,336	990,334	18.30
Series 28	122,040	935,938	16.69
Series 30	143,776	993,405	22.68
Series 32	228,469	1,198,256	23.02
Series 34	98,612	997,788	21.09
Series 36	106,115	794,902	20.90
Series 37	118,992	794,908	21.21
Series 38	91,604	800,000	20.40
Series 40	154,805	1,200,000	21.80
Series 42	109,700	1,200,000	21.50
Series 44	113,260	994,518	25.71
Series 46	154,993	1,189,579	25.44
Series 48	114,028	1,200,000	24.44

Brookfield is renewing its normal course issuer bid because it believes that, from time to time, the Preferred Shares may trade in price ranges that do not fully reflect their value. Brookfield believes that, in such circumstances, acquiring the Preferred Shares represents an attractive and desirable use of its available funds.

Brookfield will enter into an automatic purchase plan on or about the week of September 23, 2019 in relation to the normal course issuer bid. The automatic purchase plan will allow for the purchase of Preferred Shares, subject to certain trading parameters, at times when Brookfield ordinarily would not be active in the market due to its own internal trading black-out period, insider trading rules or otherwise. Outside of these periods, Preferred Shares will be repurchased in accordance with management’s discretion and in compliance with applicable law.

Brookfield Asset Management Inc. is a leading global alternative asset manager with over $385 billion in assets under management. The company has more than a 120-year history of owning and operating assets with a focus on real estate, renewable power, infrastructure and private equity. Brookfield offers a range of public and private investment products and services, and is co-listed on the New York, Toronto and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA, respectively.

For more information, please visit our website at www.brookfield.com or contact:

Claire Holland
Communications & Media
Tel: (416) 369-8236
Email: claire.holland@brookfield.com

Linda Northwood
Investor Relations
Tel: (416) 359-8647
Email: linda.northwood@brookfield.com

This is significant because Brookfield spent just under $44-million over the year. So, OK, $44-million isn’t going to turn the market around. Its effect can be cancelled simply by the exercise of a greenshoe option on a normal-sized new issue. But monny a mickle maks a muckle, as we say in Glasgow, or would say if we ever went there, and since the average price paid per share is a hair under $21.50, that’s a profit on cancellation of $3.50 per share, or a total of a little over $7-million, which is always a nice thing to have.

I note that last year’s NCIB release stated:

Under its current normal course issuer bid that commenced on August 18, 2017 and expired on August 17, 2018, under which Company sought and received approval from the TSX, Brookfield purchased 34,986 Series 28 Preferred Shares, 2,587 Series 30 Preferred Shares, 30,625 Series 44 Preferred Shares and 104,210 Series 46 Preferred Shares at weighted average prices of C$17.59, C$24.50, C$26.31 and C$26.14 per Preferred Share, respectively. No other Preferred Shares were purchased by Brookfield under the normal course issuer bid.

I mentioned their 2015-2016 NCIB on August 12, 2015 – the final effects of that were much smaller:

Under its current normal course issuer bid that commenced on August 12, 2015 and expired on August 11, 2016, Brookfield purchased 1,000 Series 9 Preferred Shares, 72,617 Series 24 Preferred Shares, 96,652 Series 26 Preferred Shares, 5,627 Series 28 Preferred Shares, 49,548 Series 30 Preferred Shares, 17,432 Series 32 Preferred Shares and 22,111 Series 34 Preferred Shares at weighted average prices of C$15.19, C$15.22, C$15.27, C$14.19, C$18.86, C$18.63 and C$17.77 per Preferred Share, respectively. No other Preferred Shares were purchased by Brookfield under the normal course issuer bid.

I like to see these buy-backs – they show that the company is not worried about being able to find cheaper financing elsewhere and also shows that the Treasury department is watching for opportunities. It’s always nice to see that somebody’s really thinking about what they’re doing – it’s sometimes a little dubious.

Thanks to Assiduous Reader mbarbon for bringing this to my attention.

Brompton Group has announced:

that it will hold a special meeting (the “Meeting”) of holders of Class A Shares and Preferred Shares (the “Shareholders”) of Brompton Lifeco Split Corp. (the “Fund”). The purpose of the Meeting is to consider and vote upon an extraordinary resolution to implement amendments to update and modernize the investment objectives, investment guidelines and investment restrictions of the Fund (the “Amendments”). The Fund was launched in April 2007.

The Fund invests, on an approximately equal weighted basis, in a portfolio consisting of common shares of Canada’s four largest publicly traded life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc. The Fund provides a low cost, efficient way to gain exposure to Canadian life insurance companies, with the added benefit of a proprietary covered call option strategy employed by Brompton which can lower portfolio volatility along with generating cash flows for distribution to Shareholders.

The Manager believes that the financial sector continues to be an attractive sector for investment and dividend growth, however, in order to respond to the changing business environment including the interest rate environment, regulation, fintech and evolving asset and wealth management businesses generally, the Manager believes that it would be advisable to make certain changes to the Fund’s investment objectives, investment guidelines, investment restrictions and distribution target. These changes will allow the Fund to diversify its holdings and expand its investment universe which the Manager believes will enhance long-term returns and would be for the benefit of Shareholders.

The proposed changes are primarily designed to accomplish the following:

• expand investment holdings and diversify the portfolio by changing the investment universe of the Fund from only four Canadian life insurance companies to a portfolio of between 10 to 20 equity securities of primarily North American financial services companies including insurance companies, banks, asset management companies and diversified financials, selected by the Manager, in its discretion. In addition, the Fund may hold up to 20% of its total assets in financial services-related companies or global financial services companies;
• the diversification of the Fund’s portfolio should provide opportunities to increase the value of the Fund’s portfolio which in turn would result in a higher net asset value of the Class A Shares and as the net asset value of the Class A Shares appreciates, the asset coverage for the Preferred Shares will also improve;
• by increasing the number of securities held by the Fund, the Manager will be provided with more opportunities to write covered call options and potentially generate additional returns for the Fund;
• the Manager will be permitted to rebalance and/or reconstitute the Fund’s portfolio at its discretion so that the Fund may respond to security or market developments on a more timely basis and provide more active portfolio management;
• the Manager believes that amending the target rate for distributions from $0.90 per Class A Share per annum to an amount initially targeted to be approximately 10% per annum of the net asset value per Class A Share is still a high distribution rate for holders of Class A Shares; however, it is expected to be a more sustainable distribution rate for the Fund. A lower Class A Share distribution rate would also improve the Preferred Share coverage.

In keeping with industry trends over the past several years to lower investor costs and in connection with the proposed changes to the Fund, the Manager will discontinue the service fee paid to dealers based on the number of Class A Shares held by dealers’ clients of 0.40% per annum of the Class A Share net asset value beginning January 1, 2020. In addition, the management fee will not be increased for the Fund as a result of the additional work associated with the aforementioned enhancements.

As a result of the changes described above, the Manager is also proposing to change the name of the Fund to “Brompton Financial Split Corp.” and the ticker symbols in respect of the Fund’s Class A Shares and Preferred Shares to BFS and BFS.PR.A, respectively.

A special meeting of Shareholders will be held on September 26, 2019 to consider and vote on the proposed Amendments. Shareholders of record at the close of business on August 27, 2019 will be entitled to vote at the Meeting. The Manager expects the effective date of the Amendments to take place shortly after the Meeting. Details of the proposed Amendments will be further outlined in the Fund’s notice of meeting and management information circular that will be prepared and delivered to Shareholders in connection with the Meeting and will be available on www.sedar.com

The current NAVPU of the fund is $14.18, obtained by summing the separately reported $4.17 for the Capital Units and $10.01 for the preferreds.

I consider the verbiage regarding their covered call writing strategy to be so much eyewash – neither Brompton nor anybody else, to the best of my knowledge, has ever published any data to demonstrate that this is an actual skill they have that benefits unitholders.

As for the diversification – I guess they’re tired of insurance companies underperforming and want to get some more assets in the door. It’s a good thing … for those among us who care about the safety of preferred shares and don’t give two hoots about what happens to the Capital Units.

The interesting thing about all this is that they’re grabbing the trailer fees (paid to stockbrokers who stick their clients’ money into the Capital Units) and stuffing the cash into their own pockets. Now THAT’S interesting!

My interpretation was incorrect. See LCS.PR.A : Correction & Apology for Comment

LCS.PR.A was added to the HIMIPref™ database in October, 2014, backdated to 2014-5-1, following its term extension and treasury offering earlier in the year. Capital Units dividends were suspended in January 2015, but reinstated in November, 2016. Only one of the scheduled monthly Capital Unit distributions has been made since the September, 2018, payment became due. The company announced the five year extension in March, 2018. The issue reset to 6.25% with an end-date of 2024-4-29 in April, 2019. The issue is tracked by HIMIPref™ but relegated to the Scraps – Splitshares subindex on credit concerns.