PrefBlog

National Bank of Canada has announced:

all of the Preferred Shares validly deposited under the Offers and not withdrawn as of April 11, 2011 have been taken up and accepted for payment by the Bank. As a result, the Bank has taken up 4,372,089 Preferred Shares Series 21, 4,162,483 Preferred Shares Series 24 and 3,629,923 Preferred Shares Series 26 under the Offers for an aggregate consideration of $335,636,846.27.

The Preferred Shares taken up under the Offers represent approximately (i) 54.31% of the outstanding Preferred Shares Series 21, (ii) 61.21% of the outstanding Preferred Shares Series 24, and (iii) 62.58% of the outstanding Preferred Shares Series 26.

The Bank also announced that it is extending the expiry date of the Offers to 5:00 p.m. (Montréal Time) on April 26, 2011 (the “Expiration Time”) to allow more holders of the Preferred Shares (the “Shareholders”) who desire to deposit their Preferred Shares to do so, unless the Offers are otherwise extended or withdrawn by the Bank. Aside from the above-described extension, the terms and conditions set forth in the Offers and issuer bid circular dated March 4, 2011 remain unchanged. A formal notice of extension will be mailed promptly to Shareholders of the Bank. The notice of extension will also be available at www.sedar.com.
…
If, by the Expiration Time or within 120 days after the date of the issuer bid circular, whichever occurs first, an Offer has been accepted by the holders of not less than 90 per cent of the Preferred Shares of any series to which such Offer relates, the Bank currently intends to acquire the Preferred Shares held by those Shareholders who have not accepted such Offer either by extending the relevant Offer or pursuant to the compulsory acquisition provisions of Sections 283 to 293 of the Bank Act (Canada) on the same terms and at the same price for which the Preferred Shares were acquired under the relevant Offer (a “Compulsory Acquisition”). For greater certainty, in the event that less than 90 per cent of any of the Preferred Shares of any series is taken up, then a Compulsory Acquisition would only apply to the series of Preferred Shares of which 90 per cent or more were taken up and paid for under the Offer.

If the Bank acquires less than 90 per cent of the Preferred Shares of any series under the Offers, the Bank currently intends to redeem all outstanding Preferred Shares held by those Shareholders who have not accepted the Offers, and which have not been taken up and paid for by the Bank, in accordance with the redemption right attached to such Preferred Shares on the first date at which such Preferred Shares may be redeemed by the Bank at a price equal to $25.00 per share (together with all declared and unpaid dividends thereon up to the date set for redemption).

I strongly recommend that holders tender their shares or sell on the market. It will be remembered that tendering has important tax implications as the premium paid above par is a deemed dividend for tax purposes.

The three issue tickers are NA.PR.N, NA.PR.O, NA.PR.P

Dividend 15 Split Corp. II has released its Annual Report to November 30, 2010.

Using the S&P TSX 60 index rather than “Dividend Aristocrats” seems a little odd to me – but we’ll let them choose their benchmark!

Figures of interest are:

MER: 1.23% of the whole unit value

Average Net Assets: We need this to calculate portfolio yield. No change in Number of Units Outstanding, so the Net Assets figure for the whole corporation can be used: $84.2-million

Underlying Portfolio Yield: Dividends received (net of withholding) of 3,239,572 divided by average net assets of 84.2-million is 3.85%

Income Coverage: Net Investment Income of 2,210,176 divided by Preferred Share Distributions of 2,655,975 is 83%.

Brompton Group has announced:

At special meetings of Preferred and Class A shareholders of Brompton Equity Split Corp. (“BE”) and Dividend Growth Split Corp. (“DGS”) held today, shareholders approved special resolutions to amalgamate BE and DGS to form a new fund to be named Dividend Growth Split Corp. (“New DGS”). The effective date of the merger is expected to be May 18, 2011, subject to applicable regulatory approvals. The merger is expected to be implemented on a tax deferred basis to shareholders of BE and DGS, subject to the assumptions and qualifications outlined in the joint management information circular for the meetings.

At the meeting, the extension of the term for New DGS for up to 5 years beyond the scheduled termination date for DGS of November 30, 2014 and thereafter for successive terms of up to 5 years as determined by the New DGS Board of Directors was approved. Shareholders will be able to redeem either their Preferred Shares or Class A Shares of New DGS at Net Asset Value per Share prior to any such extension and New DGS will provide at least 60 days’ notice to Shareholders of the extended retraction date by way of press release.

In addition, as a result of the approval of the special resolutions, shareholders of BE will have the opportunity to redeem their shares of BE prior to the merger if they do not wish to participate in the merger. Shareholders wishing to redeem their BE shares may surrender such BE shares to Computershare Investor Services Inc. up until 5:00 p.m. (Toronto time) on April 15, 2011. Shares are held on behalf of beneficial holders through CDS Participants who may have earlier cut off times.

New DGS will have the same investment objectives, strategies and restrictions as DGS as well as substantially the same preferred share and class A share attributes. DGS invests on an equally weighted basis in a portfolio of 20 large capitalization Canadian equities that have among the highest dividend growth rates on the TSX.

Under the merger proposal, each issued and outstanding preferred share of BE will become one preferred share of DGS. Each issued and outstanding class A share of BE will become the number of class A shares of DGS determined by dividing the net asset value per class A share of BE by the net asset value per class A share of DGS, each calculated on April 28, 2011. In order to maintain the same number of DGS class A and preferred shares outstanding following the merger, class A shares or preferred shares of BE may be redeemed by BE on a pro-rata basis prior to the merger as outlined in the joint management information circular.

The plan was reported on PrefBlog in the post BE.PR.A and DGS.PR.A to Merge?. BE.PR.A is not tracked by HIMIPref™. DGS.PR.A is tracked by HIMIPref™ but is assigned to the Scraps index on credit concerns.

DBRS comments:

If the 1:1 ratio of preferred shares to class A shares outstanding is maintained, the merger will not result in a decrease in downside protection for existing DGS Preferred Shareholders. As a result, provided BE exercises its right to restore the 1:1 ratio, DBRS expects that the New DGS Preferred Shares will be assigned the same rating as the DGS Preferred Shares.

BCE Inc. has announced:

BCE Inc. will, on May 1, 2011, continue to have Cumulative Redeemable First Preferred Shares, Series AG outstanding if, following the end of the conversion period on April 21, 2011, BCE Inc. determines that at least two million Series AG Preferred Shares would remain outstanding. In such a case, as of May 1, 2011, the Series AG Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 4.50%.

BCE.PR.G forms a Strong Pair with BCE.PR.H. BCE has announced previously that the date for providing notice of conversion is April 21. Most brokers will have an internal deadline a few days in advance of this date.

A Pairs Equivalency Calculator for determining the break-even Prime Rate when choosing between these two (and other) issues has been published on PrefBlog.

While the pundits have been tireless in warning us that Prime is set to increase, they are less voluble on the matter of how much and how fast. There is also the question of how corporate paper will react to the increase – I suggest there will be some effect, but it won’t be one-to-one.

BCE Ratchet Rate issues such as BCE.PR.H are trading in the $23-24 range and have been paying 100% of prime for quite some time. As noted in the prospectus:

From May 1, 2006, Öoating adjustable cumulative preferred cash dividends, if declared, will be payable monthly on the twelfth day of each month following the month of May 2006, with the annual Öoating dividend rate for the Ñrst month equal to 80% of Prime. The dividend rate will Öoat in relation to changes in Prime and will be adjusted upwards or downwards on a monthly basis whenever the Calculated Trading Price of the Series 18 Preferred Shares is $24.875 or less or $25.125 or more respectively. The maximum monthly adjustment for changes related to the Calculated Trading Price will be
4.00% of Prime. However, the annual Öoating dividend rate applicable in a month will in no event be less than 50% of Prime or greater than Prime.

Thus, if prime should increase dramatically, there is every possibility that the proportion paid on Prim will decline equally dramatically.

The break-even rate for the Ratchet Rate is equal to the new Fixed-Floater rate of 4.5% over the next five years, given that the prices are identical (if not, you can currently buy the cheaper and convert to the more expensive issue). To achieve this breakeven rate, Prime would have to increase by 300bp over the next five years, or 60bp per year. I consider that not only such an increase to be a bit on the high side but, as mentioned, the calculation of the break-even is dependent upon BCE.PR.H continuing to pay 100% of Prime, which is by no means assured in such a scenario.

Thus, I recommend that holders of BCE.PR.G hold on to their issue, and that holders of BCE.PR.H exercise their conversion rights. If I’m wrong and hyperinflation comes to Canada … fear not! You’ll get another chance to convert in 2016.