PrefBlog

DBRS has today:

downgraded the Preferred Shares issued by World Financial Split Corp. (the Company) to Pfd-2 (low) , with a Negative trend, from Pfd-2. The rating has been removed from Under Review with Developing Implications where it was placed on March 19, 2008.

In February 2004, the Company raised gross proceeds of approximately $471 million by issuing 18.85 million Preferred Shares at $10 each and an equal number of Class A Shares at $15 each. The net proceeds from the offering were invested in a portfolio of common shares (the Portfolio) that included the ten largest financial services companies by market capitalization in each of Canada, the United States and the rest of the world (only companies listed on a North American stock exchange). In addition, up to 20% of the net asset value (NAV) of the Company can be invested in financial services companies other than the 30 companies included in the Portfolio. The initial split share structure provided downside protection of approximately 57% to the Preferred Shares (after expenses).

The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 5.25% per annum. The fixed distributions of dividends on the Preferred Shares are funded from the dividends received on the Portfolio Shares, with covered call option premium income and, if necessary, from the sale of the Portfolio’s shares. Holders of the Class A Shares receive regular quarterly cash dividends targeted to yield 8.0% per annum. The Company is currently required to generate a return of about 8% from sources other than dividend income in order to maintain a stable NAV. However, there is a NAV test that greatly mitigates this grind if the Portfolio value continues to deteriorate as no distributions will be paid to the Class A Shareholders if the asset coverage available to the holders of the Preferred Shares drops below 1.5 times (NAV of $15).

The Company’s NAV has experienced downward pressure over the past year, dropping from $22.48 per share to $16.56, a decline of 28%. The current downside protection available to the Preferred Shareholders is approximately 40% (as of June 12, 2008). The downgrade of the Preferred Shares is primarily based on the reduced level of asset coverage available to cover the Preferred Shares principal. The rating has a Negative trend due to the high hurdle rate currently required in order to avoid further deterioration in the NAV.

The redemption date for both classes of shares issued is June 30, 2011

The DBRS mass review of financial splits has been previously discussed. The issue was removed from the S&P/TSX Preferred Share Index effective December with all the other split-shares. WFS.PR.A is a member of the HIMIPref™ Split-Share Index.

Update: See also previous post for WFS.PR.A.

DBRS has today:

downgraded the Class B Preferred Shares (the Preferred Shares) issued by 5Banc Split Inc. (the Company) to Pfd-2 (low), with a Stable trend, from Pfd-2. The rating has been removed from Under Review with Developing Implications where it was placed on March 19, 2008.

In December 2006 and January 2007, the Company raised gross proceeds of $282 million by issuing 14.1 million Preferred Shares at $10 each and an equal number of Capital Shares at $10 each. The net proceeds from the offering were invested in a portfolio of initially equally weighted common shares (the Portfolio) of the top five Canadian chartered banks: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank. The initial split share structure provided downside protection of approximately 48% to the Preferred Shares (after expenses).

The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.75% per annum. The fixed distributions of dividends on the Preferred Shares are funded from the dividends received on the Portfolio and, if necessary, with proceeds from the sale of the Portfolio’s shares. The current yield on the Portfolio fully covers the Preferred Shares dividend, providing dividend coverage of approximately 1.3 times. Excess dividends net of all expenses of the Company are paid as dividends on the Capital Shares.

The Company’s net asset value (NAV) has experienced downward pressure over the past year, dropping from $19.35 per share to $15.87, a decline of 18%. The current downside protection available to the Preferred Shareholders is approximately 37% (as of June 19, 2008). The downgrade of the Preferred Shares is primarily based on the reduced level of asset coverage available to cover the Preferred Shares principal.

The redemption date for both classes of shares issued is December 15, 2011

The DBRS mass review of financial splits has been previously discussed. FBS.PR.B had a partial call for redemption in November, and was removed from the S&P/TSX Preferred Share Index with all the other split-share corporations at the last rebalancing. It is a included in the HIMIPref™ Split-Share Index.

Update: See also previous post for FBS.PR.B.

DBRS has today:

downgraded the Preferred Securities issued by Top 10 Split Trust (the Trust) to Pfd-3 (high) , with a Stable trend, from Pfd-2 (low). The rating has been removed from Under Review with Developing Implications where it was placed on March 19, 2008.

In February and March of 2006, the Trust raised gross proceeds of approximately $70 million by issuing 2.72 million Preferred Securities at $12.50 each and an equal number of Capital Units at $13.10 each. The net proceeds from the offering were invested in a portfolio of common shares (the Portfolio) that included the six largest Canadian chartered banks (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank) and the four largest Canadian life insurance companies (Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.). The Portfolio is actively managed by Mulvihill Capital Management Inc., and the Trust will generally invest not less than 5% and not more than 15% of its assets in the securities of each issuer in the Portfolio. The initial split share structure provided downside protection of approximately 48% to the Preferred Securities (after expenses).

The holders of the Preferred Securities receive fixed quarterly distributions equal to 6.25% per annum. The interest payments on the Preferred Securities are funded from the dividends received from the Portfolio, covered call option premium income and, if necessary, with proceeds from the sale of the Portfolio’s shares. Holders of the Capital Units receive regular quarterly cash dividends targeted to yield 7.5% of the net asset value (NAV) of the Trust per annum. Basing the distributions on the NAV of the Trust reduces the hurdle rate for the Trust and its requirement to write more options in the event of a declining NAV. The Trust is currently required to generate a return of about 5% from sources other than dividend income in order to maintain a stable NAV.

The Trust’s NAV has experienced downward pressure over the past year, dropping from $23.87 per share to $19.61, a decline of about 18%. The current downside protection available to the Preferred Shareholders is approximately 36% (as of June 12, 2008). The downgrade of the Preferred Securities is primarily based on the reduced level of asset coverage available to cover the Preferred Securities principal.

The DBRS mass review of financial splits has been previously discussed. TXT.PR.A is not tracked by HIMIPref™.

The Fixed Reset 5.20%+165bp issue announced on June 12 settled today with good volume and tone. 308,269 shares traded in a range of 24.90-97, closing with a quote of 24.90-92, 14×230.

I have not yet seen a press release regarding the successful closing, which should also indicate how much, if any, of the greenshoe was taken up. There were 10-million shares in the issue, with a greenshoe for an additional 2-million shares exercisable prior to closing.

I still don’t like this issue structure … but with six of them now outstanding, it would appear that many people do! Once we get to ten good sized issues with this type of reset mechanism, I will commence tracking the issues with HIMIPref™ … and who knows, perhaps taking the occasional position when the yields get out of line!

Loblaw’s has announced:

the completion today of the sale of 9.0 million cumulative redeemable convertible Second Preferred Shares, Series A, to yield 5.95% per annum, to a syndicate of underwriters co-led by RBC Dominion Securities Inc. and CIBC World Markets Inc. for distribution to the public. The aggregate gross proceeds of the sale were $225 million. The Preferred Shares, Series A have been listed and posted to trade on the Toronto Stock Exchange under the symbol “L.PR.A”.

The announcement of this issue was reported on PrefBlog with the opinion:

This issue looks expensive.

It would appear the market agrees! The terms of the greenshoe were that the option had to be exercised prior to closing; but the size shown in the current press release indicates that the extra shares have not been issued.

It was a thoroughly pathetic opening day, with 4,448 shares trading in a range of 24.70-90, closing at 24.00-70, 10×52. The underwriters didn’t pretend to support the issue; at one point today the bid was 23.00.

More later.

Later, more:At $24.00, it doesn’t look so bad … but it’s scarcely an inventory blow-out sale!

Bear in mind that Pfd-3 issues (regardless of modifier) are considerably less liquid than they would be if they were higher grade. They will also tend to trade with higher correlation to the company’s common than they would otherwise; they are more equity-like than higher grade issues, both in theory and practice. I do not recommend a weighting of more than 10% total Pfd-3 issues in a diversified preferred share portfolio, with no more than 5% in any one name; have more than this if you like, but I will consider your portfolio to be “equity-substitute” rather than “fixed-income”.

The credit rating of Allbanc Split Corp. II has been confirmed by DBRS:

DBRS has today confirmed the Preferred Shares issued by Allbanc Split Corp. II (the Company) at Pfd-2 (low) with a Stable trend. The rating has been removed from Under Review with Developing Implications where it was placed on March 19, 2008.

In February 2006, the Company raised gross proceeds of approximately $322 million by issuing 6.73 million Preferred Shares at $25.00 each and 13.46 million Capital Shares at $11.40 each. The net proceeds from the offering were invested in a portfolio of common shares (the Portfolio Shares) of the top six Canadian chartered banks: Bank of Montreal (19%), Bank of Nova Scotia (19%), Canadian Imperial Bank of Commerce (19%), Royal Bank of Canada (19%), The Toronto-Dominion Bank (19%) and National Bank of Canada (5%). The initial split share structure provided downside protection of approximately 45% to the Preferred Shares (after expenses).

The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.25% per annum. The fixed distributions of dividends on the Preferred Shares are funded from the dividends received on the Portfolio Shares and, if necessary, with proceeds from the sale of Portfolio Shares or from covered call option premium income as determined by the board of directors. The current yield on the Portfolio Shares fully covers the Preferred Shares dividends, providing dividend coverage of approximately 1.6 times. Excess dividends net of all expenses of the Company are paid as dividends on the Capital Shares or re-invested by the Company in additional Portfolio Shares as determined by the board of directors of the Company.

The Company’s net asset value has experienced downward pressure over the past year, dropping from $52.86 to $42.87, a decline of about 19%. The current downside protection available to the Preferred Shareholders is approximately 41% (as of June 12, 2008). The confirmation of the Preferred Shares is based on the current level of asset coverage available to cover the Preferred Shares principal, the high dividend coverage ratio and the strong credit quality of the banks included in the Portfolio.

The redemption date for both classes of shares issued is February 28, 2011.

This would not normally be considered newsworthy, but I am tracking the effects of the DBRS mass review of financial split-shares. On 3/13, the asset coverage ratio was 1.6:1; as of June 19, the coverage is 1.7:1.

ALB.PR.A is tracked by HIMIPref™ and is incorporated in the Split-Share Index.

Update: See also previous post for ALB.PR.A.