PrefBlog

Fortis Inc. has given notice:

that Fortis Inc. (the “Corporation”) has calculated the annual fixed dividend rate (the “Annual Fixed Dividend Rate”) for the five-year period from, and including, September 1, 2023 to, but excluding, September 1, 2028 (the “Subsequent Fixed Rate Period”) for the Corporation’s Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series G (the “Series G First Preference Shares”) in accordance with the terms of the Series G First Preference Shares incorporated in the provisions of its articles. The Annual Fixed Dividend Rate for the Subsequent Fixed Rate Period shall be equal to 6.123% per annum, being equal to the 3.993% yield to maturity of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on August 2, 2023 on the display designated as page “GCAN5YR Index” on the Bloomberg Financial L.P. service, plus 2.13%.During the Subsequent Fixed Rate Period, dividends on the Series G First Preference Shares shall, if, as and when declared by the directors of the Corporation, be payable quarterly at the Annual Fixed Dividend Rate.

This information is not on the Fortis website, nor is it on SEDAR. I obtained the document from Investor Relations. Presumably the company sent the notice to its only registered shareholder, CDS, with the hope that CDS would notify the brokerages and the brokerages would notify their clients. Ha-ha! We all know how careful the brokerages are to pass on every scrap of relevant information, don’t we?

FTS.PR.G was issued as a FixedReset, 5.25%+213 that commenced trading 2008-5-23 after being announced 2008-5-6. It reset to 3.883% in 2013 and to 4.393% in 2018.

Note that this issue does not have an option to convert into FloatingResets – the structure was very new at the time of issue and provisions had not yet standardized although, of course, there is nothing stopping a new issuer from coming out with an equivalent issue.

Enbridge Inc. has announced:

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series H (Series H Shares) (TSX: ENB.PR.H) on September 1, 2023. As a result, subject to certain conditions, the holders of the Series H Shares have the right to convert all or part of their Series H Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series I of Enbridge (Series I Shares) on September 1, 2023. Holders who do not exercise their right to convert their Series H Shares into Series I Shares will retain their Series H Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series H Shares outstanding after September 1, 2023, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on September 1, 2023; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series I Shares outstanding after September 1, 2023, no Series H Shares will be converted into Series I Shares. There are currently 14,000,000 Series H Shares outstanding.

With respect to any Series H Shares that remain outstanding after September 1, 2023, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series H Shares for the five-year period commencing on September 1, 2023 to, but excluding, September 1, 2028 will be 6.112 percent, being equal to the five-year Government of Canada bond yield of 3.992 percent determined as of today plus 2.12 percent in accordance with the terms of the Series H Shares.

With respect to any Series I Shares that may be issued on September 1, 2023, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series I Shares for the three-month floating rate period commencing on September 1, 2023 to, but excluding, December 1, 2023 will be 1.79258 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 5.07 percent plus 2.12 percent in accordance with the terms of the Series I Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series H Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2023 until 5:00 p.m. (EST) on August 17, 2023, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.H was issued as a FixedReset, 4.00%+212, that commenced trading 2012-3-29 after being announced 2012-3-20. It will reset to 4.376% effective 2018-9-1. The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Hot on the heels of yesterday’s downgrade, TC Energy has announced:

that its Board of Directors has approved plans for TC Energy to separate into two independent, investment-grade, publicly listed companies through the spinoff of TC Energy’s Liquids Pipelines business (the Transaction). The decision comes as a result of a two-year strategic review and is anticipated to be completed on a tax-free basis in the second half of 2024.

The spinoff will unlock shareholder value by providing both companies with the flexibility to pursue their own growth objectives through disciplined capital allocation, enhancing efficiencies and driving operational excellence. Once completed, the spinoff will result in two high-quality, focused energy industry leaders that are committed to providing safe and reliable service to their customers and the communities in which they operate.

TC Energy post-Transaction: A diversified, industry-leading natural gas and energy solutions company, uniquely positioned to meet growing industry and consumer demand for reliable, lower-carbon energy, by leveraging complementary business sets.
Liquids Pipelines Company: A critical infrastructure company with highly strategic assets that connect resilient and secure supply to the highest demand markets, while delivering incremental growth and value creation opportunities.
…
TC Energy intends that the initial combined dividends of the two companies will be equivalent to TC Energy’s annual dividend immediately prior to the completion of the Transaction, and that over time the combined value of the two companies’ dividends is expected to remain consistent. Dividends will be at the discretion of the respective boards of directors of each company following the Transaction.

Management intends to capitalize the Liquids Pipelines Company with a financial structure that aligns with its asset base, business model and growth plans. Following the Transaction, management anticipates that TC Energy will retain its current credit ratings and that the Liquids Pipelines Company will have investment-grade credit ratings. TC Energy plans to transition an approximately proportionate share of its long-term debt to the Liquids Pipelines Company on a cost-effective basis.

Transaction details, approvals and business continuity
Under the proposed Transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares (TRP: TSX, TRP: NYSE) and receive a pro-rata allocation of common shares in the new Liquids Pipelines Company. The Transaction is expected to be tax-free for TC Energy’s Canadian and U.S. shareholders. The determination of the number of common shares in the new Liquids Pipelines Company to be distributed to TC Energy shareholders will be determined prior to the closing of the proposed transaction.

TC Energy expects to seek shareholder approval of the Transaction at a meeting of shareholders in mid-2024. The Transaction will be implemented through a court-approved plan of arrangement under the Canada Business Corporations Act. In addition to TC Energy shareholder and court approvals, the Transaction is subject to receipt of favourable tax rulings from Canadian and U.S. tax authorities, receipt of necessary regulatory approvals and satisfaction of other customary closing conditions. TC Energy expects that the Transaction will be completed in the second half of 2024.

TC Energy will ensure business continuity and reliable services to its valued customers throughout the separation. A separation management office will be established guiding the successful coordination and governance including the development of a separation agreement and a transition service agreement between the two entities once the Transaction is complete.

For additional detail on the Transaction, investor presentation materials and more, please visit our website at www.tcenergy.com/liquids-spinoff.

There can be no assurance that the Transaction will ultimately occur or, if it does occur, what its structure, terms or timing will be.

As noted in the release, the company has created a spinoff information page; this includes a slide deck that projects Debt / EBITDA of 4.75x for TC Energy commencing by the end of 2024 and an initial 5.0x for the liquids business. Assuming there has been no jiggery-pokery with the EBITDA calculations, this implies that debt will be redistributed more or less proportionately to EBITDA.

I have no information regarding what will happen to the preferreds. Most likely is that they will stay with TC Energy (by far the larger of the two companies going forward), but who knows?

Affected issues are: TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H and TRP.PR.I.

Update, 2023-7-28: DBRS states:

DBRS Limited (DBRS Morningstar) notes that TC Energy Corporation (TC Energy or the Company) has announced the spinoff of its liquids pipelines business into a separate listed company with an expected closing date in H2 2024. TC Energy expects the liquids pipeline company to be capitalized with approximately $8.0 billion of senior and junior subordinated debt, the proceeds of which will be used to repay debt at the Company. The transaction is subject to favourable tax rulings from Canadian and U.S. tax authorities, the receipt of necessary regulatory approvals, and shareholder approval.

DBRS Morningstar does not expect the spinoff to have an impact on the Company’s ratings. The spinoff has a modestly negative impact on TC Energy’s business risk profile because of the loss of diversification. Nevertheless, DBRS Morningstar foresees the Company’s business risk profile post spinoff remaining strong, underpinned by regulated/contracted cash flows, strong supply and demand fundamentals at its natural gas pipelines and power businesses, and an asset base that is still very diversified despite the spinoff. DBRS Morningstar also believes that the negative impact on the financial risk profile from the loss of cash flow from the spinoff will be more than offset by the reduction in debt. The spinoff also lowers TC Energy’s dividend payouts by approximately 14%. DBRS Morningstar’s upgrade and downgrade thresholds (as noted in its press release dated July 25, 2023) remain unchanged.

S&P states:

S&P Global Ratings said that TC Energy Corp.’s (BBB+/Negative/–) recently announced spinoff of its liquids business via a spinout to its existing shareholders does not affect its rating on the company. We view the proposed spinoff as being leverage neutral for the company’s credit measures.

The transaction is anticipated to close in the second half of 2024. This transaction is part of a broader asset-divestiture program that the company has undertaken and which we have built into our current ratings and outlook on the company.

Although the spinoff of the liquids business does, on balance, slightly weaken the business risk, overall, we believe that TC’s business risk remains excellent, as per our criteria. While the liquids business provided highly stable cash flows with largely take-or-pay contracts, the remaining gas pipeline transmission and power assets are also highly contracted and benefit from rate regulation.

We continue to expect the company will achieve credit metrics of 5.0x on a debt-to-EBITDA basis for 2023 and 4.7x for 2024. See our research update published July 24, 2023.