PrefBlog

Royal Bank of Canada has announced:

its intention, subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI), to redeem all of its issued and outstanding Non-Cumulative First Preferred Shares, Series W (Series W Shares), Non-Cumulative First Preferred Shares, Series AA (Series AA Shares), Non-Cumulative First Preferred Shares, Series AC (Series AC Shares), Non-Cumulative First Preferred Shares, Series AE (Series AE Shares), Non-Cumulative First Preferred Shares, Series AF (Series AF Shares), and Non-Cumulative First Preferred Shares, Series AG (Series AG Shares) on October 1, 2020, for cash at a redemption price per Series W, Series AA, Series AC, Series AE, Series AF, and Series AG share, respectively, of $25.00, together with all declared and unpaid dividends.

In addition, the Bank has also declared a 38-day dividend of $0.127534 per Series W share, $0.115822 per Series AA share, $0.119726 per Series AC share, $0.117123 per Series AE share, $0.115822 per Series AF share and $0.117123 per Series AG share covering the period from August 24, 2020 (the date of the last dividend payment), up to but excluding the redemption date of October 1, 2020. This results in a total amount of $25.127534 per Series W share, $25.115822 per Series AA share, $25.119726 per Series AC share, $25.117123 per Series AE share, $25.115822 per Series AF share and $25.117123 per Series AG share, to be paid upon surrender of the Series W shares, Series AA shares, Series AC shares, Series AE shares, Series AF shares, and Series AG shares.

There are 12,000,000 Series W shares outstanding, representing $300 million of capital; 12,000,000 Series AA shares outstanding, representing $300 million of capital; 8,000,000 Series AC shares outstanding, representing $200 million of capital; 10,000,000 Series AE shares outstanding, representing $250 million of capital; 8,000,000 Series AF shares outstanding, representing $200 million of capital and 10,000,000 Series AG shares outstanding, representing $250 million of capital. The redemptions will be financed out of the general corporate funds of Royal Bank of Canada.

RY.PR.W is something of an oddity, as it has a conversion to common provision similar to the ones which were used by CIBC to qualify as NVCC by assigning the right to pull the trigger to OSFI. For this reason the shares were not rated by DBRS. I’m glad that ambiguity has now been resolved!

None of the other issues, RY.PR.A, RY.PR.C, RY.PR.E, RY.PR.F or RY.PR.G, are NVCC-compliant and redemption has been expected for some time. I imagine that this mass redemption was the purpose of the Royal Bank LRCN issue, although they have carefully avoided saying so.

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

Dividend 15 Split Corp. has announced:

it will undertake an offering of Preferred Shares of the Company.

The offering will be co-led by National Bank Financial Inc. and CIBC World Markets Inc

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.50%.

The closing price on the TSX of the Preferred Shares on August 24, 2020 was $10.01.

Since inception of the Company, 197 consecutive dividends have been declared for the Preferred Shares. The aggregate dividends paid on the Preferred Shares have been $8.66 per share. All distributions to date have been made in tax advantage eligible Canadian dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 dividend yielding Canadian companies as follows:

Bank of Montreal	Enbridge Inc.	TC Energy
The Bank of Nova Scotia	Manulife Financial Corp.	TELUS Corporation
BCE Inc.	National Bank of Canada	Thomson-Reuters Corporation
Canadian Imperial Bank of Commerce	Royal Bank of Canada	The Toronto-Dominion Bank
CI Financial Corp.	Sun Life Financial Inc.	TransAlta Corporation

The Company’s investment objectives are:

Preferred Shares:

• to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends in the amount of 5.50% annually; and
• on or about the termination date, currently December 1, 2024 (subject to further 5 year extensions thereafter and it has been extended in the past), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on August 26, 2020. The offering is expected to close on or about September 2, 2020 and is subject to certain closing conditions including approval by the TSX.

A prospectus supplement to the Company’s short form base shelf prospectus dated June 18, 2020 containing important detailed information about the Preferred Shares and the Class A Shares being offered will be filed with securities commissions or similar authorities in all provinces of Canada. Copies of the prospectus supplement and the short form base shelf prospectus may be obtained from your registered financial advisor using the contact information for such advisor, or from representatives of the agents listed above. There will not be any sale or any acceptance of an offer to buy the securities being offered until the prospectus supplement has been filed with the Securities Commissions or similar authorities in each of the provinces of Canada.

There are a couple of unusual things about this announcement:

• There is no mention of a maximum size, and
• No Capital Units are on offer

I believe that this is due to the new rules regarding “At-the-Market Offerings”. DFN announced in November 2019 that they would be taking advantage of this distribution technique; in other words, I believe that the Capital Units have already been sold to investors through the market and that this offering is simply an effort to square the books. However, this is hard to reconcile with the 20H1 Semi-Annual Report, which discloses ATM distributions for the preferreds, but not for the Capital Units. Life is getting more complicated!

Element Fleet Management Corp. has announced:

• The Company will redeem Series G shares in full on September 30, 2020, further maturing its capital structure by eliminating its most expensive preferred series
• The redemption is enabled by the Company’s strategic plan to deliver a consistent, superior client experience by improving operating performance and profitability, which has materially enhanced free cash flow over the last two years
• With the redemption, the Company will have cumulatively eliminated or replaced over $1 billion of high-cost hybrid instruments from its capital structure in the last 18 months, simplifying and strengthening its investment-grade balance sheet

…its intention to redeem – in accordance with the terms of the Cumulative 5-Year Rate Reset Preferred Shares, Series G (the “Series G Shares”) as set out in the Company’s articles – all of its 6,900,000 issued and outstanding Series G Shares on September 30, 2020 (the “Redemption Date”) for a redemption price equal to $25.00 per Series G Share, together with all accrued and unpaid dividends up to but excluding the Redemption Date (the “Redemption Price”), less any tax required to be deducted and withheld by the Company.

“The ongoing success of our strategic plan to transform Element’s business by delivering a consistent, superior client experience and improving profitability enables us to take advantage of this opportunity to further mature our capital structure by eliminating the most expensive series of our preferred shares,” said Jay Forbes, President and Chief Executive Officer of Element. “This redemption advances our strategic priority of simplifying and strengthening Element’s investment-grade balance sheet.”

With this redemption, the Company will have cumulatively eliminated or replaced over $1 billion of high-cost hybrid instruments from its capital structure in the last 18 months.

The Company remains on track to achieve sub-6.0x tangible leverage by the end of this year.

“We expect that achieving our tangible leverage target – combined with Element’s focus on organic profitable revenue growth – will result in our business generating excess free cash flow in the near future,” Mr. Forbes added. “We are evaluating the timing and scope of further potential capital allocation measures and look forward to sharing our Board’s capital allocation strategy along with our Q3 2020 results at the end of October.”

As previously announced, the Company’s Board of Directors has declared a dividend of $0.406250 per Series G Share for the third quarter of 2020 payable on the Redemption Date to holders of record as of the close of business on September 14, 2020. This will be the final quarterly dividend on the Series G Shares, although holders will receive on redemption of the Series G Shares all accrued and unpaid dividends up to but excluding the Redemption Date.

The Company has provided notice today of the Redemption Price and the Redemption Date to the sole registered holder of the Series G Shares in accordance with the terms of the Series G Shares as set out in the Company’s articles. Non-registered holders of Series G Shares should contact their broker or other intermediary for information regarding the redemption process for the Series G Shares in which they hold a beneficial interest. The Company’s transfer agent for the Series G Shares is Computershare Investor Services Inc. Questions regarding the redemption process may be directed to Computershare Investor Services Inc. at 1-800-564-6253 or by email to corporateactions@computershare.com.

EFN.PR.G is a FixedReset, 6.50%+534, that was announced 2015-5-20, but not added to HIMIPref™ at the time due to the lack of a credit rating. It, together with EFN’s other three preferred share issues, were added to HIMIPref™ in September, 2015, after the company was rated Pfd-3 by DBRS.

As a matter of interest, EFN.PR.G was quoted at 22.70-30 today to yield 6.39%-6.19% to perpetuity. The closing price was 23.20 on volume of 200 shares. The redemption may be considered another piece of evidence that the Canadian preferred share market is still really cheap!

Dundee Corporation has announced:

that it has received confirmation of support from a few of the largest investors that hold an aggregate of 590,700 Cumulative 5-Year Rate Reset First Preference Shares, Series 2 in the capital of the Corporation (the “Series 2 Shares”) who have agreed to tender all such Series 2 Shares to the Corporation’s previously announced substantial issuer bid (the “Offer”) at a price of $19.50 per Series 2 Share. As a result, the Corporation intends to mail and file a notice of variation in accordance with applicable Canadian securities laws on or before August 27, 2020 to amend the Offer to: (i) increase the price payable per Series 2 Share to a fixed price of $19.50 (the “Amended Purchase Price”); and (ii) increase the aggregate number of Series 2 Shares subject to the initial Offer from $44,000,000 in value to all of the issued and outstanding Series 2 Shares, representing approximately $61,000,000 in value based on the Amended Purchase Price. The Offer was initially made by way of a “modified Dutch auction”, which would have allowed holders who chose to participate in the initial Offer to individually select the price, within a price range of not less than C$16.00 and not more than C$18.50 per Series 2 Share, at which to tender.

In addition to the Amended Purchase Price, Shareholders who have Series 2 Shares taken up and paid for by the Corporation pursuant to the amended Offer will be entitled to receive a portion of the $0.33025 dividend declared by the Board of Directors on such Series 2 Shares for the quarter ended September 30, 2020. As an example, assuming the amended Offer expires on September 8, 2020 and the Series 2 Shares are taken up and paid for by the Corporation on September 10, 2020, the accrued dividend amount payable per Series 2 Share validly tendered, taken up and paid for under the amended Offer is estimated to be approximately C$0.26.

As a result of the variation in the terms of the Offer, the amended Offer will now expire at 5:00 p.m. (Toronto time) on September 8, 2020 or such later time and date to which the amended Offer may be extended by Dundee, unless varied or withdrawn by Dundee.

The Board of Directors of the Corporation will continue to review various options for the allocation of capital. Throughout 2019 and during 2020 to date, the Corporation has continued to implement its strategy of rationalizing its portfolio of investments and monetizing non-core assets as it exits business lines which are no longer deemed to be aligned with its longer-term strategy, while remaining committed to creating value for the Corporation and considering opportunities that might present themselves, including potential returns to shareholders of the Corporation. In line with the Corporation’s longer-term strategy and commitment to creating value for the Corporation, the Board believes that the purchase of Series 2 Shares under the amended Offer represents an attractive investment opportunity for Dundee and will be welcomed by certain holders of Series 2 Shares who may wish to reduce their share ownership positions.

“We believe that the amended purchase price gives greater certainty for a successful bid, which locks in long term value for our shareholders,” said Jonathan Goodman, Chairman and CEO.
…
As a result of the amendments to the terms of the Offer, if a shareholder has previously tendered Series 2 Shares, such tender is no longer valid, and the shareholder WILL BE REQUIRED TO PROPERLY RETENDER THEIR SERIES 2 SHARES to accept the amended Offer. For greater certainty, any and all Series 2 Shares previously tendered will be deemed to be withdrawn, and the shareholder must take additional steps if they wish to participate in the amended Offer.

I don’t know how the requirement to retender shares will interact with procedures at the various brokerages; those who have tendered are urged to contact their brokers and ensure that their shares are properly retendered.

The original Normal Course Issuer Bid (a Dutch Auction) was discussed on PrefBlog. Thanks to Assiduous Reader Dan Good for bringing this amendment to our attention.

DBRS has announced that it:

maintained the Under Review with Developing Implications status on GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares rating of Pfd-4 (high). DBRS Morningstar has maintained this status since June 18, 2019, given the lack of clarity on the ultimate composition and financial fundamentals of the Company.
…
On August 13, 2020, GMP announced that it had entered into a definitive purchase agreement with RFGL to consolidate 100% ownership of RGMP under GMP. Under the terms of the agreement, GMP will acquire all common shares of Richardson GMP that it does not already own (65.9% stake) for a purchase price of 1.875 GMP common shares (originally two GMP common shares) per one common Richardson GMP share. Following the impact of the coronavirus pandemic, RBC Capital Markets, LLC (RBC) revised its valuation of Richardson GMP from $500 million to $420 million. Accordingly, they concluded that the common shares now carry a value between $3.55 to $4.50 (previously $4.25 to $5.15) while GMP common shares carry a value of between $2.00 to $2.55 (previously $2.20 to $2.90) on an en bloc basis.

Furthermore, GMP will pay a special dividend of $11.3 million to the preclosing GMP shareholders and will resume paying quarterly dividends on its outstanding preferred shares following the special meeting, while $36 million in retention payments will be made to Richardson GMP’s investment advisors upon closing of the transaction. Additionally, Richardson Financial will not redeem its $32 million preferred share ownership in order to invest in the growth in the new business; instead, their preferred share terms will be amended to add a right to redeem the preferred shares for cash any time following the third anniversary of closing. The DBRS Morningstar-rated Cumulative Preferred Shares will remain with the consolidated entity.

GMP has called a special meeting of common shareholders on October 6, 2020, to approve the transaction, which would require a majority of the minority shareholders (excluding RFGL) to vote in favour of the proposal. GMP will subsequently require regulatory approval from the Investment Industry Regulatory Organization of Canada. The transaction is expected to close in the fourth quarter of 2020.

Following the approval of the transaction, RFGL is expected to have the largest ownership interest representing 40% of the consolidated entity. GMP shareholders and the Richardson GMP investment advisors and management would retain 31.4% and 28.5%, respectively.

KEY RATING CONSIDERATIONS
The continued Under Review period considers that even though the transaction’s parties have reached a definitive agreement the consolidation of GMP with Richardson GMP is still subject to shareholder and regulatory approval. DBRS Morningstar will assess GMP’s pro forma structure once it consolidates full ownership of Richardson GMP. This assessment will review the Company’s assets and liabilities composition, ownership, future strategic direction, and management’s ability to execute on this plan. If the consolidation were not to occur, DBRS Morningstar would need to assess GMP’s standalone intrinsic strength, including its credit fundamentals, prospects for growth, and ability to maintain debt service payments on its Cumulative Preferred Shares.

The last extension of the Review-Developing status was in June, 2020. The suspension of dividends was announced on July 31, 2020.