PrefBlog

My heart sank as I began tracking down these guys in response to a query. Union Gas Limited is owned by Spectra Energy, which I am sure is a very nice company, run by people who are kind to small fluffy animals, but is completely useless at communicating with preferred shareholders of its subsidiaries.

Union Gas still publishes audited financials on SEDAR and the 2008 Annual Report discloses:
12. Mandatorily Redeemable Preference Shares

The Class A Preference Shares, Series A and C are cumulative and redeemable at $50.50 per share. The Company is obligated to offer to purchase $170,000 of Series A and $140,000 of Series C shares annually at the lowest price obtainable, but not exceeding $50 per share.

Any further information will have to come from Spectra!

Here’s an odd one! I was asked about this issue today – but it’s such a small issue it’s not in my database. So, I’m putting a short description here, just to make sure I have the information handy in the future.

The company is Pacific Northern Gas, soon to become famous as the corporation with the world’s slowest website.

According to the prospectus for common shares dated 2005-4-6 (available on SEDAR):

6 3/4% Cumulative Redeemable Preferred Shares

The Preferred Shares are entitled to the payment of Ñxed cumulative preferential cash dividends at the rate of 63/4% per annum on the amounts from time to time paid up thereon as when declared by the board of directors of the Company, have priority in the event of the liquidation, dissolution or winding up of the Company over the Common Shares, are non-voting and are redeemable at the option of the Company at $26 per share plus any accrued and unpaid dividends at the date of redemption. The Company may not create shares ranking prior to the Preferred Shares but may create and issue other shares ranking on parity with those shares.

Annual dividends are $1.6875; the par value is $25.00. There are only 200,000 of these shares outstanding.

One wonders why such a small issue remains outstanding. Hey! Any investment bankers out there? I know that in the States, many of their 8,000 banks issue preferred shares not to the public, but to CDO packagers and resellers. There must be quite a few Canadian corporations that would love to issue $5-million or so in prefs, but can’t because the cost is ridiculous. Why don’t we have CDO packagers and resellers in Canada?

Or – even better – an ETF! Start it off with a $100-million IPO (the insurers could supply suitable product for the initial holdings out of their back pocket) and then make it grow with share exchanges: you give me a $5-million private placement, I’ll give you 200,000 shares, which you can then sell.

Commerce Split Corp. has announced:

that it has filed and mailed the Management Information Circular to all holders of Priority Equity shares and Class A shares of record on December 14, 2009 in connection with a special meeting of shareholders to be held on Wednesday, February 3, 2010.

As previously reported, the purpose of the meeting is to consider and vote upon a proposal which would essentially offer all Priority Equity and Class A shareholders an alternative investment option from their current holdings in the Fund. The special resolution, if passed, would provide shareholders with the ability to elect to 1) maintain the current investment characteristics of their existing shares (a status quo option), through the Original Commerce Split Fund, or 2) choose to have their existing Priority Equity and/or Class A shares reorganized into a new series of shares (the New Commerce Split Fund) that would potentially provide greater distribution and capital growth potential, especially if the common shares of CIBC increase over the remaining 5 year term of the Company.

Management and the Board of Directors of the Company believes the reorganization proposal is in the best interest of all shareholders in light of the current status of the Company and accordingly recommends that shareholders vote for the special resolution.

The reorganization is hopelessly complex. If it proceeds, shareholders can convert into the “New” or “Status Quo” structures; the status quo retains the rights and – presumably – claim on underlying assets of the existing structure.

So let us assume that every Preferred Shareholder converts to “Status Quo” and every Capital Unitholder converts to “New”, which seems to me to be the most rational option. What happens then? The Information Circular explains (contingency 8):

All Priority Equity Shares tendered for conversion into the Original Commerce Split Fund will be so converted. Class A Shareholders electing to convert into the New Commerce Split will only be allowed to so convert their Class A Shares, and Class A Shareholders failing to file an election form will only have their Class A Shares converted, on a pro rata basis, such that, at the end of the conversion, there are at least 500,000 Class A Shares converted into Class A Shares of the Original Commerce Split Fund. Additional Class A Shares will be converted into Class A Shares of the Original Commerce Split Fund on a pro rata basis, such that an equal number of Class A Shares and Priority Equity Shares are converted into Class A Shares and Priority Equity Shares of the Original Commerce Split Fund.

That part is at least half-way reasonable, but it’s a lot more reasonable to vote against the reorganization and pound it into the Capital Unitholders’ heads that their shares are basically worthless. Then buy ’em up and tender for the October retraction. If you want exposure to CM, allocate your current holdings of XCM.PR.A to your short-term bond portfolio and buy CM directly for your stock portfolio.

Vote No!

XCM.PR.A was last discussed on PrefBlog when the meeting date was announced. XCM.PR.A is not tracked by HIMIPref™.

M-Split Corporation has announced:

that it has filed and mailed the Management Information Circular to all holders of Priority Equity shares and Class A shares of record on December 14, 2009 in connection with a special meeting of shareholders to be held on Wednesday, February 3, 2010.
As previously reported, the purpose of the meeting is to consider and vote upon a proposal to reorganize the share capital of the Fund. The special resolution, if passed, would provide shareholders with the ability to have their existing Priority Equity and/or Class A shares reorganized into a new series of shares that would potentially provide greater distribution and capital growth potential, especially if the common shares of Manulife increase over the remaining 5 year term of the Company.
Management and the Board of Directors of the Company believes the reorganization proposal is in the best interest of all shareholders in light of the current status of the Company and accordingly recommends that shareholders vote for the special resolution.

The cover letter explains:

In summary, holders of the existing Priority Equity Shares would receive the following securities for each Priority Equity share held:

One $5 Class I Preferred share: paying fixed cumulative preferential monthly dividends to yield 7.5% per
annum and having a repayment objective on the Termination Date of $5

One $5 Class II Preferred share: paying distributions to yield 7.5% per annum on the $5 notional issue
price if and when the net asset value per Unit of the New M Split Fund exceeds $12.50 and having a repayment objective on the Termination date of $5.00

One 2011 Warrant: each Warrant can be used to purchase one Unit (consisting of one Class I Preferred share, one Class II Preferred share and one Capital share) for an exercise price of $10.00 at specified times until February 28, 2011

One 2012 Warrant: each Warrant can be used to purchase one Unit (consisting of one Class I Preferred share, one Class II Preferred share and one Capital share) for an exercise price of $12.50 at specified times until February 28, 2012

Holders of the existing Class A Shares would receive a Capital share for each Class A share held:

One Capital Share: Capital shares would continue to participate in any net asset value growth over $10.00 per Unit and dividends would only be reinstated if and when the net asset value per Unit exceeds $15.00. The increased exposure to the Manulife common shares would offer much greater capital appreciation potential, especially if the value of such common shares were to increase over the remaining life of the Fund.

The package offered to the Preferred shareholders is a nightmare to price, which may well be the whole point. Multiple options – which really just allow for the dilution of the capital unitholders, they’re not really priceable as options in the usual manner – differential dividend policies …. I would be much more inclined to look at a Monte Carlo simulation to price this muck rather than attempting a closed form solution.

Ultimately, though, preferred shareholders are offering capital unitholders a package with some value, as opposed to the value they have now, which is zero. If you want exposure to MFC, it’s a whole lot easier to consider the current preferreds as a short-term fixed income investment and simply buy MFC directly.

Vote No!

It’s much easier to buy up the extant capital units (quoted today at 0.36-38, 1×10, no volume) and tender for the annual October retraction.

XMF.PR.A was last discussed on PrefBlog when the meeting date for this proposal was announced. XMF.PR.A is not tracked by HIMIPref™.