PrefBlog

The Great-West Life Assurance Company has announced:

its intention to redeem all 2,093,032 Non-Cumulative Preferred Shares, Series L on October 31, 2007 for the cash redemption price of $25.00 per share. The Series L Preferred Shares were issued on November 13, 1997.

GWL.PR.L is a relatively small issue (only 2,093,032 shares outstanding, according to the TSX), but this is an interesting development nevertheless.

This is a fixed-floater that was issued as consideration for the shares of London Insurance Group and have a paid-up capital of only $2.74. There will be a significant Deemed Dividend realized on the redemption of these shares – so holders should consult their personal tax advisors and figure out – pronto! – whether they should be sold instantly or not.

This deemed dividend WILL BE LIABLE FOR TAX irrespective of whether the holder actually got them in exchange for London Insurance shares or bought them yesterday, so pay attention and don’t waste any time before figuring out what this means for you! I’m only saying this once! Those who hold the shares on the redemption date will be putting a massive dividend on their tax returns. If the shares were bought at, say, $25, they will also be entitled to claim an equally massive capital loss. These effects might offset … they might not. CONSULT A TAX ADVISOR!

The timing of the call is not accidental – from the Takeover Document:

Until October 31, 2007, the holders of the GWL Preferred Shares, Series L will be entitled to receive quarterly non-cumulative preferential cash dividends, as and when declared by the Board of Directors of GWL, payable on the last day of January, April, July and October in each year at a rate equal to $0.325 per share to initially yield 5.20 %. The first such dividend, if declared, will be payable on January 31, 1998 in an amount per share equal to $1.30 multiplied by a fraction, the numerator of which is the number of days in the initial dividend period and the denominator of which is 365.

From October 31, 2007 (the ‘‘Floating Rate Period’’), the holders of the GWL Preferred Shares, Series L will be entitled to receive floating non-cumulative cash dividends, as and when declared by the Board of Directors of GWL, payable on the last day of January, April, July and October in each year at a rate in respect of each quarterly dividend period equal to one quarter of the greater of (a) 75% of Prime and (b) 4.50%.

October 31, 2007 was to have been an Exchange Date and these were to have been exchangeable into Series M, a fixed-reset issue … but none of this is applicable any more.

As mentioned by GWO on their site, full details of GWO.PR.L are available on SEDAR – look for “The Great-West Life Assurance Company” “Take-over Bid Circular” date September 11, 1997.

Great-West Lifeco, the parent, will announce second quarter results on August 1. I do hope they will announce the redemption of CL.PR.B … the continued existence of this issue is making my life miserable.
GWL.PR.L is not tracked by HIMIPref™.

BCX Split Corp. has announced:

that it has called 1,521,805 Preferred Shares for cash redemption on August 3, 2007 (in accordance with the Company’s Articles) representing approximately 71.183% of the outstanding Preferred Shares as a result of the special annual retraction of 1,642,307 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on August 2, 2007 will have approximately 71.183% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $15.71 per share.

This issue has not been tracked by HIMIPref™.

BMONT Split Corp. has announced:

that it has called 180,051 Preferred Shares for cash redemption on August 3, 2007 (in accordance with the Company’s Articles) representing approximately 36.364% of the outstanding Preferred Shares as a result of the special annual retraction of 413,492 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on August 2, 2007 will have approximately 36.364% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $27.45 per share.

This issue is tracked by HIMIPref™ but is such a low-volume issue that it is included only in the “Scraps” index.

DBRS has announced that it:

has today downgraded the long-term debt rating of Empire Company Ltd. (Empire or the Company) to BB (high) from BBB, the Preferred Share rating to Pfd-4 (high) from Pfd-3, and discontinued the short-term rating. The trends remain Negative for the long-term and Preferred Shares ratings.

DBRS placed Empire’s ratings Under Review with Negative Implications on April 27, 2007 following the announcement that Empire and Sobeys Inc. (Sobeys or the Company) had entered into an agreement by which Empire would acquire all of the outstanding common shares of Sobeys that it did not already own for approximately $1.06 billion. Empire previously owned 72.1% of the issued and outstanding shares of Sobeys.
…
The significant increase in financial leverage, combined with a weaker profitability at Sobeys, has led to DBRS’s two-notch reduction in long-term ratings. The negative trend reflects the challenges involved with reversing the declining profitability and cash flow at Sobeys. DBRS is also concerned with the high level of budgeted capex and/or additional acquisitions that could result in further increases to debt for the consolidated group.

EMP.PR.B is a tiny little issue with 331,900 shares outstanding, total par value $8.3 million, according to the 2006 Annual Report. They pay 75% of prime. The TSX indicates a listing date of July 9, 1982, which illustrates one of my hobby-horses: with floaters you get short-term rates and long-term credit risk.

This issue is not, has not been, and will not be tracked by HIMIPref™ – too small!

John Nagel, who was last mentioned in this blog touting BCE Prefs to the National Post, is now doing the same for the Globe and Mail:

Desjardins doesn’t believe another bid will hurt the BCE preferred shareholders. Here’s why. BCE’s board has issued conditions that must be met for it to approve a superior bid, including the condition that another bid must be “more favourable from a financial point of view to the affected shareholders.”

Furthermore, the definitive agreement over the takeover defines affected shareholders as common and preferred shareholders (see Article 1: Interpretation, Section 1.1: Definitions).

“From a preferred share perspective, we feel that any additional bid(s) that may surface in the future for BCE Inc. will likely include a bid for the preferred share issues – as anything short of this would be a lower quality bid,” Desjardins said in a recent report.Even in a scenario where Telus Corp. counters with a hostile bid for BCE Inc., preferred shareholders should be reminded that Telus stated in its initial conference call that it would not sacrifice itsinvestment grade credit rating, Desjardins said. “This would mean that BCE Inc. preferred share credit ratings would not be changed, and should continue to trade as they had pre-takeover rumours (adjusted for recent interest rate effects).

Well – as I have said previously: he may well be right. And as I have also said previously: these shares cannot be analyzed as fixed income investments – there is event risk up the wazoo here and a position in the shares amounts to a speculation on the course of near term events outside the control of – and beyond the knowledge of – investors.

With respect to the points made in this particular column – and remembering that I am not so much disagreeing with Mr. Nagel as I am being a devil’s advocate and a properly gloomy fixed income analyst:

• With respect to the protection for “Affected Shareholders” … in the first place, the definition refers to Affected Shareholders as a group. It does not say anything about each particular class of Affected Shareholder. So if, for instance, common shareholders get an extra $1.50 and preferred shareholders get to keep their wonderful preferreds, how confident are you that the board will turn it down? Are you prepared to fight it out in court if you disagree with their decision?
• The board only has to approve a friendly bid. That’s what will make it friendly. A hostile bidder, focussing on the common, won’t care two hoots about silly agreements and funny definitions.
• Telus has indeed stated that it would not sacrifice its investment grade rating. Well, that’s a fine ambition, but I’m not sure how much I want to bet on that.

Mr. Nagel’s long term track record was not disclosed.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.C, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z