PrefBlog

It will be recalled that MFC.PR.F will reset to 2.178% effective June 20.

Holders of MFC.PR.F have the option to convert to FloatingResets, which will pay 3-month bills plus 141bp on the par value of $25.00. The deadline for notifying the company of the intent to convert is 5:00 p.m. (EDT) on June 6, 2016; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is created, will be MFC.PR.P.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., MFC.PR.F and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market appears to have a distaste at the moment for floating rate product; all of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below zero, at -0.65% and -0.22%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the MFC.PR.F FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of MFC.PR.F continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Note as well that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of MFC.PR.F are tendered for conversion, then no conversions will be allowed; but if only 100,000 shares of MFC.PR.F will remain after the rest are all tendered, then conversion will be mandatory. However, this is relatively rare: all 39 Strong Pairs currently extant have some version of this condition and all but five have both series outstanding.

Standard & Poor’s has announced:

• •Mooresville, N.C.-based home improvement retailer Lowe’s Cos. Inc. has completed its previously announced acquisition of Quebec-based RONA Inc. for about C$3.2 billion.
• •As a result, we are raising our long-term corporate credit rating on RONA to ‘BBB+’ from ‘BB+’ and removing the company from CreditWatch, where we had placed it with positive implications Feb. 3, 2016. The outlook is stable.
• •At the same time, we are raising our issue-level rating on RONA’s senior unsecured notes to ‘BBB+’ from ‘BB+’ and our rating on its preferred shares to ‘BBB-‘ from ‘B+’.

…
“In our opinion, RONA’s operations are important to Lowe’s long-term growth strategy,” said S&P Global Ratings credit analyst Alessio Di Francesco. As such, we believe Lowe’s is unlikely to sell RONA and we expect that Lowe’s would likely provide additional liquidity, capital, or risk transfer in most foreseeable circumstances. We believe the 496 stores and nine distribution centers Lowe’s acquired from RONA should improve the competitive position of its Canadian business by increasing its scale and effectively taking out a competitor. Prior to completing this acquisition, Lowe’s had only 42 stores in Canada. Furthermore, RONA offers Lowe’s an important entry into Quebec (almost 25% of the Canadian home improvement market) where Lowe’s previously had no presence.

RON.PR.A and RON.PR.B were last mentioned on PrefBlog when the effective date of the Plan of Arrangement was announced.

DBRS has not yet resolved its Review-Positive of RONA, which was announced when the plan of arrangement was proposed.

DBRS has announced that it:

has today discontinued the Issuer Rating, Medium-Term Notes and Preferred Shares – Cumulative ratings of Emera Inc. (Emera or the Company). The ratings are being discontinued at the Company’s request. Prior to the rating discontinuation, Emera’s ratings were Under Review with Developing Implications following the announcement that the Company agreed to acquire TECO Energy Incorporated on September 4, 2015.

This follows the announcement by Emera:

that in connection with the proposed offering of unsecured, subordinated notes (the “Hybrid Notes”) of Emera, it has filed a preliminary short form base shelf prospectus (the “Base Shelf”) with the Nova Scotia Securities Commission (the “NSSC”) under the United States / Canada Multijurisdictional Disclosure System and a corresponding shelf registration statement (the “Registration Statement”) with the United States Securities and Exchange Commission (the “SEC”) on Form F-10.

In addition, Emera announced today that: (i) Emera US Finance LP (the “U.S. Notes Issuer”), a limited partnership wholly-owned directly and indirectly by Emera, intends to issue multiple series of United States dollar denominated senior, unsecured notes (the “U.S. Notes”), fully and unconditionally guaranteed by Emera US Holdings Inc., a wholly-owned subsidiary of Emera (“EUSHI”) and Emera (together with EUSHI, the “Guarantors”), pursuant to an offering memorandum; and (ii) Emera intends to issue one or more series of Canadian dollar denominated senior, unsecured notes (the “Canadian Notes”), and may issue Canadian dollar denominated unsecured, subordinated notes, in each case, on a private placement basis in each of the provinces of Canada pursuant to an offering memorandum.

Emera has filed the Base Shelf and Registration Statement relating to the proposed offering of the Hybrid Notes and is separately undertaking the proposed offerings of the U.S. Notes and the Canadian Notes, and may undertake an offering of Canadian dollar denominated unsecured, subordinated notes, to raise up to approximately Cdn$6.6 billion in the aggregate as part of the financing of the previously announced acquisition of TECO Energy, Inc. (“TECO Energy”) by Emera (the “Acquisition”).
…
Upon the closing of the Acquisition, Emera intends to use the net proceeds from any offering of Hybrid Notes, U.S. Notes and/or Canadian Notes to finance, directly or indirectly, part of the purchase price payable for the Acquisition (including acquisition-related expenses) and to reduce amounts outstanding under the credit facilities established in favour of Emera to fund the purchase price payable for the Acquisition, to the extent any amounts are drawn on such facilities in connection with the Acquisition. If certain of the net proceeds from any offering of Hybrid Notes, U.S. Notes or Canadian Notes are not otherwise required to complete the Acquisition, Emera intends to use such net proceeds for general corporate purposes.

If (i) the Acquisition is not consummated on or prior to the later of December 31, 2016 and the date that is no later than June 30, 2017 if the closing of the Acquisition has been extended by Emera or TECO Energy in accordance with the terms of the agreement and plan of merger relating to the Acquisition (the “Acquisition Agreement”) (as such date may be extended, the “special mandatory redemption triggering date”) or (ii) the Acquisition Agreement is terminated at any time prior to the special mandatory redemption triggering date, then Emera will be required to redeem any Hybrid Notes and may be required to redeem the Canadian Notes and the U.S. Notes Issuer will be required to redeem any U.S. Notes.

Standard & Poor’s has announced:

• •Nova Scotia-based electric utility Emera Inc. has announced its intention to issue subordinated hybrid notes and senior unsecured notes to finance in part its purchase of TECO Energy.
• •At the same time, Emera has announced its intention to issue senior unsecured notes in the U.S. through its wholly owned and unconditionally guaranteed subsidiary, Emera US Finance LP.
• •We are assigning our ‘BBB’ issue-level rating to the senior unsecured notes of Emera and Emera US Finance L.P., and our ‘BBB-‘ issue-level rating to Emera’s subordinated hybrid notes.

…
S&P Global Ratings today said it assigned its ‘BBB’ issue-level rating to Emera Inc. and Emera US Finance L.P.’s proposed senior unsecured notes. We expect that total issuance between the two entities of senior unsecured notes will be approximately US$3.4 billion. In addition, we have assigned our ‘BBB-‘ issue-level rating to Emera’s proposed subordinated hybrid note issuance. We expect that total issuance of hybrid notes will be up to approximately US$1.25 billion. These issuances are to finance in part Emera’s purchase of TECO Energy.

EMA had been rated Pfd-3(high) by DBRS; it is rated P-2(low) by S&P.

Affected issues are EMA.PR.A, EMA.PR.B, EMA.PR.C, EMA.PR.E and EMA.PR.F.

Quadravest has announced:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, and will also include Scotia Capital Inc., TD Securities Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% and the Class A Shares will be offered at a price of $10.50 per Class A Share to yield 11.43%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on May 31, 2016 was $10.16 and $10.87, respectively.

Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $6.41 per share and the aggregate dividends declared on the Class A Shares have been $18.10 per share (including five special distributions of $0.25 per share, one special distribution of $0.50 per share and one special stock dividend of $1.75 per share), for a combined total of $24.51 per unit. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains 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.	TELUS Corporation
The Bank of Nova Scotia	Manulife Financial Corp.	Thomson-Reuters Corporation
BCE Inc.	National Bank of Canada	The Toronto-Dominion Bank
Canadian Imperial Bank of Commerce	Royal Bank of Canada	TransAlta Corporation
CI Financial Corp.	Sun Life Financial Inc.	TransCanada Corporation

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends in the amount of 5.25% annually; and
ii. on or about the termination date, currently December 1, 2019 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends currently targeted to be $0.10 per share; and
ii. on or about the termination date, currently December 1, 2019 (subject to further 5 year extensions thereafter) to pay holders of Class A Shares at least the original issue price of those shares.

The sales period of this overnight offering will end at 9:00 a.m. EST on June 2, 2016.

DFN.PR.A was last mentioned on PrefBlog when it successfully concluded a $94-million treasury offering in May, 2015.

Update, 2016-6-13: Raised $47.7-million:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 2,328,000 Preferred Shares and up to 2,328,000 Class A Shares of the Company. The total proceeds of the offering are expected to be approximately $47.7 million.

Update, 2016-6-16: Closed:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight offering of 2,328,000 Preferred Shares and 2,328,000 Class A Shares of the Company. Total proceeds of the offering were $47.7 million, bringing the Company’s net asset to approximately $580.6 million. The shares will trade on the Toronto Stock Exchange under the existing symbols of DFN.PR.A (Preferred Shares) and DFN (Class A Shares).

The Preferred Shares were offered at a price of $10.00 per Preferred Share to yield 5.25% and the Class A Shares were offered at a price of $10.50 per Class A Share to yield 11.43%.

The offering was co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, and also included Scotia Capital Inc., TD Securities Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.