PrefBlog

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BK. Royal Bank of Canada issued 27 million Preferred Shares Series BK at a price of $25 per share to raise gross proceeds of $675 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BK will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.Q.

The bank has granted the underwriters’ an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series BK at the same offering price. The underwriters have 30 days from the closing of the preferred share offering to exercise the option.

The Preferred Shares Series BK were issued under a prospectus supplement dated December 10, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.Q is a FixedReset 5.50%+453, announced December 8. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,558,368 shares today (consolidated exchanges) in a range of 24.95-30 before closing at 25.10-20, 4×15. Vital statistics are:

Implied Volatility analysis must be interpreted with caution, as the fact that RY.PR.Q has such a greatly different Issue Reset Spread from the other NVCC issues (RY.PR.Z, RY.PR.H, RY.PR.J and RY.PR.M) gives it a disproportionate influence over the calculated overall slope of the relationship curve. Be that as it may, the calculation results in Implied Volatility consistent with that of other series of issues:

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Standard and Poor’s has announced:

• •We are revising our outlook on AltaGas Ltd. to negative from stable.
• •We are also affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on the company.
• •We base the outlook revision on weaker forecast financial metrics at the lower end of the “significant” financial risk profile.
• •The negative outlook reflects our view of the company’s weaker financial metrics, given the low commodity environment and high leverage due to ongoing capital programs and recent acquisitions.

…
We are forecasting lower cash flows and higher leverage due to ongoing capital programs and recent acquisitions. Our forecast financial metrics have fallen as a result, with funds from operations (FFO)-to-debt in the low end of the “significant” category (12%-15%) over the next two years. However, we still expect the financial metrics to improve as new gas gathering and processing facilities are brought into service and the GWF Energy Holdings LLC (GWF) acquisition starts contributing cash flow for a full year in 2016.

We view AltaGas’ business risk profile as “strong.” We expect about one-third of cash flow from very low-risk regulated utility subsidiaries, a third from midstream gathering and processing, and the rest from highly contracted unregulated power.
…
We view the financial risk profile as “significant” based on the medial volatility cash flow leverage table. Although we expect credit metrics to improve as contracted projects come online to contribute full-year cash flows and capital expenditures start to decline in 2017, the company has little cushion to absorb weaker-than-expected cash flows over the next two years.

The negative outlook reflects Standard & Poor’s view that AltaGas’ financial metrics are at the lower end of the “significant” category and has little cushion to absorb weaker-than-expected cash flows over the next two years. We are expecting metrics to continue to improve in 2016 and 2017 as the company realizes full-year cash flows from completed projects and the GWF acquisition.

AltaGas is the proud issuer of ALA.PR.A, ALA.PR.B, ALA.PR.E, ALA.PR.G and ALA.PR.I. DBRS continues to rate the issues Pfd-3 with a stable trend following a confirmation 2015-10-12.

TransCanada Corporation has announced:

that it does not intend to exercise its right to redeem its Cumulative Redeemable First Preferred Shares, Series 5 (Series 5 Shares) on January 30, 2016. As a result, subject to certain conditions, the holders of Series 5 Shares have the right to choose one of the following options with regard to their shares:
1.To retain any or all of their Series 5 Shares and continue to receive a fixed rate quarterly dividend; or
2.To convert, on a one-for-one basis, any or all of their Series 5 Shares into Cumulative Redeemable First Preferred Shares, Series 6 (Series 6 Shares) of TransCanada and receive a floating rate quarterly dividend.

The dividend rate applicable to the Series 5 Shares for the five-year period commencing on January 30, 2016 to, but excluding, January 30, 2021 will equal the Government of Canada five-year bond yield on December 31, 2015 plus 1.54 per cent. The dividend rate applicable to the Series 6 Shares for the three-month period commencing on January 30, 2016 to, but excluding, April 30, 2016 will equal the Government of Canada 90-day treasury bill rate on December 31, 2015 plus 1.54 per cent. Both rates will be calculated according to the terms of the prospectus supplement dated June 17, 2010, and announced by way of a news release on December 31, 2015.

Beneficial owners of Series 5 Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5 p.m. (EDT) on January 15, 2016. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

The foregoing conversions are subject to the conditions that: (i) if TransCanada determines that there would be less than one million Series 5 Shares outstanding after January 30, 2016, then all remaining Series 5 Shares will automatically be converted into Series 6 Shares on a one-for-one basis on January 30, 2016, and (ii) alternatively, if TransCanada determines that there would be less than one million Series 6 Shares outstanding after January 30, 2016, no Series 5 Shares will be converted into Series 6 Shares. In either case, TransCanada will issue a news release to that effect no later than January 22, 2016.

Holders of the Series 5 Shares and the Series 6 Shares will have the opportunity to convert their shares again on January 30, 2021, and every five years thereafter as long as the shares remain outstanding.

TRP.PR.C is a FixedReset, 4.40%+154, that commenced trading 2010-6-29 after being announced 2010-6-17.

I will report the reset rate when it is announced and recommend whether or not to convert closer to the company’s deadline.

The proposed Plan of Arrangement involving DC.PR.C has been covered on PrefBlog in the posts DC.PR.C: Coercive Exchange Offer, DC.PR.C: Coercive Offer Attracts Wider Notice and DC.PR.C: Consider Exercising Dissent Rights To Defeat Management’s Coercive Plan.

This morning, Dundee blinked:

Dundee Corporation (TSX:DC.A)(TSX:DC.PR.C) is today announcing that it continues to seek a collaborative dialogue with its Series 4 Preferred Shareholders in respect of its proposed plan of arrangement. Since the mailing of its Circular, the Corporation has heard from a broader group of beneficial shareholders, including large institutional holders, who have expressed concerns.

The Corporation continues to engage in dialogue with known beneficial shareholders, in order to achieve a favourable result. However there can be no assurance that this dialogue will result in the support necessary for the proposed transaction to become effective. Accordingly, it is possible that, among other things, the proposed transaction terms may be amended or withdrawn.

But the shares plunged anyway, down a stunning 14.50% (close / close) on heavy volume of 68,201 shares:

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They’ve been going in one direction ever since the announcement:

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I have no idea how sincere they are or with whom they are negotiating, but the “known beneficial shareholders” will, I’m sure, appreciate a bit of support to strengthen their hand. Don’t delay – vote “No” now and seriously consider exercising your right of dissent. The objective is to obtain a “Special Retraction Right”, as is standard when the maturities of Split Shares are extended, that will allow shareholders to opt to receive the original deal. That’s the main thing. But those who are interested in extending term should demand that the company renew and maintain a public credit rating from two major credit rating agencies – it was almost three years ago that the company cancelled this service which, while being of controversial intrinsic value, serves admirably to focus management’s and directors’ attention during bad times – which is particularly important in the fragmented, retail preferred share market.

Westcoast Energy Inc. has announced:

that it has closed its previously announced public offering (the “Offering”) of Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 10 (the “Series 10 First Preferred Shares”). The Offering was conducted through a syndicate of underwriters co-led by BMO Capital Markets and Scotiabank (collectively, the “Underwriters”).

In connection with closing, the Underwriters exercised the previously granted option (the “Over-Allotment Option”) to purchase an additional 15% of the Series 10 First Preferred Shares at the offering price. As a result of the exercise in full of the Over-Allotment Option, the Corporation issued 4,600,000 Series 10 First Preferred Shares at a price of $25.00 per share for total gross proceeds of $115,000,000. The Series 10 First Preferred Shares will begin trading on the TSX today under the symbol W.PR.K. The proceeds are expected to be used to refinance upcoming debt maturities and for general corporate purposes.

The Series 10 First Preferred Shares were offered only in the provinces of Canada by means of a short form prospectus of the Corporation dated December 7, 2015.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution.

Westcoast Energy Inc. is an indirect subsidiary of Spectra Energy Corp.

W.PR.K is a FixedReset, 5.25%+426M525, announced November 24. At the close on November 24, the TXPL Total Return Index Value was 802.86; at the close December 15, this index stood at 746.11, a decline of about 7.1%. By that standard, the decline of less than 4% in W.PR.K from issue price looks pretty good! Purists will object that TXPL contains a lot of junk and W.PR.K is investment grade (at least, according to DBRS); purists will also object that W.PR.K has a floor on reset and is therefore even less comparable with the index. Purists can suck eggs.

The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 241,305 shares in a range of 23.75-37 before closing at 24.10-15, 19×9. Vital statistics are:

Assiduous Reader prefman alerted me in the comments to the post “DC.PR.C: Coercive Exchange Offer” that the Notice of Special Meeting of Holders of First Preference Shares, Series 4 of Dundee Corporation to be held on January 7, 2016 and Management Information Circular has been published on Dundee’s website.

Update, 2015-12-16: The company announced the mailing of the information circular and published some FAQs on December 10.

Simultaneously, the market has shown distinct distasted for the plan by giving the issue a good thumping: it closed today at 14.62 with a VWAP of 14.75, which compares to par value of 17.84. The performance of the issue since the November 24 announcement and the Globe story on December 4 doesn’t look very good!

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One thing that is made clear in the Information Circular is that widespread dissent can be fatal to the plan:

Completion of the Arrangement is conditional on the occurrence of the following, each of which may be waived
by the Company to the extent permitted under applicable law:

• • Approval of the Arrangement Resolution. The Arrangement Resolution is approved by not less than two-thirds (662/3%) of the votes cast by the holders of Series 4 Preferred Shares who vote in respect of the Arrangement Resolution in person or by proxy at the Meeting;
• • Interim Order and Final Order. The Interim Order and the Final Order shall have each been obtained on terms acceptable to the Company, and shall not have been set aside or modified in a manner unacceptable to the Company;
• • TSX Approval. The approval of the TSX (including the approval of the TSX for the listing and posting for trading of the Series 5 Preferred Shares to be issued pursuant to the Arrangement on the TSX) is obtained on terms acceptable to the Company;
• • Dissent Rights. Dissent Rights shall not have been validly exercised and not withdrawn with respect to more than 10% of the issued and outstanding Series 4 Preferred Shares;
• • Legality. No applicable law, constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgement, decree ruling or other similar requirement shall be in effect that makes the consummation of the Arrangement illegal or otherwise prohibits or enjoins the Company from consummating the Arrangement; and
• • Board of Directors of the Company. The Board of Directors not having determined not to proceed with the Arrangement.

So while a “no” vote of just over one-third is required to defeat the plan, a “dissent” of just over 10% is sufficient to defeat it.

The company maintains its cheerful outlook:

The Company has received substantial support for the Arrangement based on confidential consultations with representatives of significant holders of the Series 4 Preferred Shares.

… but the meaning of the phrase “substantial support” is rendered dubious by the price action of the issue since the announcement, the fact that the company is including a very substantial payment to advisors who are able to obtain favourable votes, and the fact that the company is not allowing holders to get out on the original terms. Assiduous Readers of PrefBlog will know that such an offer is de rigueur when Split Share Corporations extend term (see, for example, the “Special Retraction Rights” offered on the past FTN.PR.A term extension) and that I get very upset when a Special Retraction is not part of the deal.

Dissent rights may be exercised as follows (emphasis in original removed):

A Beneficial Shareholder who wishes to exercise Dissent Rights should immediately contact the Intermediary with whom the Beneficial Shareholder deals in respect of its Series 4 Preferred Shares and either: (i) instruct the Intermediary to exercise the Dissent Rights on the Beneficial Shareholder’s behalf (which, if the Series 4 Preferred Shares are registered in the name of CDS or other clearing agency, may require that such Series 4 Preferred Shares first be re-registered in the name of the Intermediary), or (ii) instruct the Intermediary to re-register such Series 4 Preferred Shares in the name of the Beneficial Shareholder, in which case the Beneficial Shareholder would be able to exercise the Dissent Rights directly.

A Registered Series 4 Preferred Shareholder who wishes to dissent must provide a written notice of dissent (the “Dissent Notice”) to the Company at 1 Adelaide St. East, Suite 2100, Toronto, Ontario, Canada, M5C 2V9, Attention: Lili Mance, to be received not later than 9:00 a.m. (Toronto time) on January 5, 2016 (or, in the case of any adjournment or postponement of the Meeting, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of such adjourned or postponed meeting). Failure to properly exercise Dissent Rights may result in the loss or unavailability of the right to dissent.

The filing of a Dissent Notice does not deprive a Registered Series 4 Preferred Shareholder of the right to vote
at the Meeting.

Once dissent has been exercised, we get into the whole back and forth ritual that is such a complete waste of time and money for all concerned:

Within ten days after the holders of Series 4 Preferred Shares adopt the Arrangement Resolution, the Company is required to notify each Dissenting Shareholder that the Arrangement Resolution has been adopted. Such notice is not required to be sent to any holder of Series 4 Preferred Shares who voted FOR the Arrangement
Resolution or who has withdrawn its Dissent Notice.

A Dissenting Shareholder who has not withdrawn its Dissent Notice prior to the Meeting must then, within twenty days after receipt of notice that the Arrangement Resolution has been adopted, or if the Dissenting Shareholder does not receive such notice, within twenty days after learning that the Arrangement Resolution has been adopted, send to the Company, care of the Company’s transfer agent, Computershare Investor Services Inc. (the “Transfer Agent”) at its Toronto office located at 100 University Avenue, 8th Floor, Toronto, Ontario, Canada, M5J 2Y1, a written notice containing his or her name and address, the number of Series 4 Preferred Shares in respect of which it, he or she dissents (the “Dissenting Shares”), and a demand for payment of the fair value of such Series 4 Preferred Shares (the “Demand for Payment”). Within thirty days after sending a Demand for Payment, the Dissenting Shareholder must send to the Company, care of the Transfer Agent, certificates representing the Series 4 Preferred Shares in respect of which he or she dissents.

The Company will or will cause the Transfer Agent to endorse on the applicable Series 4 Preferred Share certificates received from a Dissenting Shareholder a notice that the holder is a Dissenting Shareholder and will forthwith return such Series 4 Preferred Share certificates to the Dissenting Shareholder.

Failure to strictly comply with the requirements set forth in section 185 of the OBCA, as modified by the Plan of Arrangement and Interim Order, may result in the loss of any right to dissent.

One of the many things about the Way We Do Business In Canada that appalls me is the fact that notices such as this continue to babble about certificates. Why does this bother me? Well, let’s look at the original prospectus, available on SEDAR, a public document to which I am not entitled to link because the regulators have no intention or interest in furthering the interests of investor-taxpayer scum. You will have to search for “Dundee Corporation Jun 21 2006 14:01:56 ET Final short form prospectus – English -PDF 336 K”. It will be recalled that this issue was issued as DBC.PR.A; the symbol changed to DC.PR.A, and then DC.PR.C was issued as partial consideration for DC.PR.A. As stated in the original prospectus:

BOOK-BASED SYSTEM

Registration of interests in and transfers of the Series 1 Shares will only be made through the book-based system administered by CDS. On or about the date of closing of this offering, the Corporation will deliver to CDS a certificate evidencing the aggregate number of Series 1 Shares subscribed for under this offering. Series 1 Shares must be purchased, transferred and surrendered for redemption, conversion or retraction through a participant in CDS (a ‘‘CDS Participant’’). All rights of an owner of Series 1 Shares must be exercised through, and all payments or other property to which such owner is entitled will be made or delivered by, CDS or the CDS Participant through which the owner holds Series 1 Shares. Upon a purchase of any Series 1 Shares, the owner will receive only the customary confirmation. References in this short form prospectus to a holder of Series 1 Shares mean, unless the context otherwise requires, the owner of the beneficial interest in such shares.

The ability of a beneficial owner of Series 1 Shares to pledge such shares or otherwise take action with respect to such owner’s interest in such shares (other than through a CDS Participant) may be limited due to the lack of a physical certificate.

The Corporation has the option to terminate registration of the Series 1 Shares through the book-based system, in which event certificates for Series 1 Shares in fully registered form will be issued to the beneficial owners of such shares or their nominees.

When we prudently check the Management Information Circular for the conversion to DC.PR.C [SEDAR, Dundee Corporation Apr 18 2013 16:57:07 ET Management information circular – English PDF 7227 K], we find:

As soon as practicable following the Effective Time, the global certificate formerly representing the Dundee Series 1 Preference Shares registered in the name of CDS will be withdrawn from CDS and replaced with a global certificate representing the Dundee New Series 4 Preference Shares and a global certificate representing the DREAM Series 1 Preference Shares.

So … ain’t no certificates. The politicians can’t be bothered to make a minor change in the law to acknowledge the existence of the 21st century, and the regulators can’t be bothered to make sure that circulars of this type have any degree of relationship to reality. It’s nice work, if you can get it.

So, basically, read the information circular carefully, tell your custodial broker what you want to do, and keep written records of all conversations.

So what happens then?

The Company is required, not later than seven days after the later of the Effective Date or the date on which a Demand for Payment is received from a Dissenting Shareholder, to send to each Dissenting Shareholder who has sent a Demand for Payment an Offer to Pay for its Dissenting Shares in an amount considered by the Board of Directors to be the fair value of the Series 4 Preferred Shares, accompanied by a statement showing the manner in which the fair value was determined. Every Offer to Pay for Series 4 Preferred Shares must be on the same terms. The Company must, subject to applicable law, pay for the Dissenting Shares of a Dissenting Shareholder within ten days after an Offer to Pay has been accepted by a Dissenting Shareholder, but any such offer lapses if the Company does not receive an acceptance within thirty days after the Offer to Pay has been made.

If the Company fails to make an Offer to Pay for Dissenting Shares, or if a Dissenting Shareholder fails to accept an Offer to Pay that has been made, the Company may, within fifty days after the Effective Date or within such further period as a court may allow, apply to a court to fix a fair value for the Dissenting Shares. If the Company fails to apply to a court, a Dissenting Shareholder may apply to a court for the same purpose within a further period of twenty days or within such further period as a court may allow. A Dissenting Shareholder is not required to give security for costs in such an application.

If the Company or a Dissenting Shareholder makes an application to court, the Company will be required to notify each affected Dissenting Shareholder of the date, place and consequences of the application and of its right to appear and be heard in person or by counsel. Upon an application to a court, all Dissenting Shareholders who have not accepted an Offer to Pay will be joined as parties and be bound by the decision of the court. Upon any such application to a court, the court may determine whether any person is a Dissenting Shareholder who should be joined as a party, and the court would then be expected to fix a fair value for the Dissenting Shares of all Dissenting Shareholders. The final order of a court would be expected to be rendered against the Company in favour of each Dissenting Shareholder for the amount of the fair value of its Dissenting Shares as fixed by the court. The court may, in its discretion, allow a reasonable rate of interest on the amount
payable to each Dissenting Shareholder from the Effective Date until the date of payment.

So, if there’s no agreement on what constitutes fair value, it will go to court. In many cases, as I understand it, the court will decide that Fair Value is what everybody else took, which [since it got this far in the first place] will be the new, extended-term shares. However, a good argument could be made that Fair Value is represented by the original deal: you either get your $17.64 in June, 2016, or you get discounted DC.A Subordinate Voting Shares in lieu, if the company would rather pay you that way.

It’s a tangled web and one that is not without risk – by dissenting, a holder is giving up the Consent Payment, for instance, which is one reason why the company is abusing its investors by making the consent payment so high. There may be costs associated with the court case, if the company makes a derisory “Fair Value” offer. On the other hand, the market is clearly showing its distaste for the plan by marking down the market value of DC.PR.C and the current highlighting of junk bond liquidity woes may make institutional holders more diligent in their protection of their investors’ interests.

I make no recommendation; I do investment analysis, not investment law! However, from an investment perspective, I suggest that the dissenting route is worthy of consideration.