PrefBlog

Capstone Infrastructure Corporation has announced:

that it does not intend to exercise its right under the terms of its Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A shares”) to redeem all or part of the currently outstanding 3,000,000 Series A shares on July 31, 2016. As a result, subject to certain conditions, the holders of the Series A shares have the right to convert all or part of their Series A shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series B (the “Series B shares”) on August 2, 2016 (the “Conversion Date”) in accordance with the terms of the Series A shares.

Holders of Series A shares who do not exercise their right to convert their Series A shares into Series B shares on the Conversion Date will retain their Series A shares, subject to the conditions set out below.

The dividend rate applicable to the Series A shares for the five-year period from July 31, 2016 to but excluding July 31, 2021, and the dividend rate applicable to the Series B shares for the three-month period from July 31, 2016 to October 31, 2016, will be determined and announced by way of a news release on July 4, 2016.

Beneficial owners of Series A shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 4, 2016 until July 18, 2016 at 5:00 p.m. (EST).

The foregoing conversion rights are subject to the conditions, as set out in the terms of the Series A shares, that: (i) if Capstone determines that there would remain outstanding on the Conversion Date less than 1,000,000 Series B shares, after having taken into account all Series A shares tendered for conversion into Series B shares, then holders of Series A shares will not be entitled to convert their shares into Series B shares and all holders will continue to hold Series A shares, and (ii) alternatively, if Capstone determines that there would remain outstanding on the Conversion Date less than 1,000,000 Series A shares, after having taken into account all Series A shares tendered for conversion into Series B shares, then all remaining Series A shares will automatically be converted into Series B shares on a one-for-one basis on the Conversion Date and all holders will hold Series B shares. In either case, Capstone will give written notice to that effect to the registered holder of Series A shares no later than July 26, 2016.

I will report on the rate when determined and my recommendation for converting or holding in due course.

Standard & Poor’s has announced:

• •We believe Royal Bank of Canada’s (RBC) risk appetite has grown relative to peers’.
• •We are revising our outlook on RBC to negative from stable, reflecting credit quality metrics that have recently converged to the peer average and the risk that this may continue (or worsen).
• •We are affirming our ratings on the bank, including our ‘AA-/A-1+’ long- and short-term issuer credit ratings.
• •The negative outlook reflects RBC’s higher risk appetite and aggregate loan risk exposure relative to those of its peers.

…
“The outlook revision reflects concerns over what we see as RBC’s higher risk appetite, relative to peers’,” said S&P Global Ratings credit analyst Lidia Parfeniuk. “We see one example of this in its aggressive growth in loans and commitments in the capital markets wholesale loan book, particularly in the U.S., with an emphasis on speculative-grade borrowers, including exposure to leveraged loans. RBC also has higher-than-peer average exposure to the highly indebted Canadian consumer and to oil and gas-producing regions. These exposures, and potential future growth, in aggregate, could lead to higher loan losses than peers’.”

RBC’s U.S. wholesale loan portfolio has grown very rapidly. The growth has been, on average, 16% per year, adjusted for foreign exchange from 2010 through 2015. We believe that the emphasis has been on speculative-grade loans. We also believe the bank has been increasing risky exposure to improve risk-adjusted returns amid low interest rates.

Adding to the bank’s risk exposures is its higher-than-peers exposure to leveraged loans, which we view as a frothy segment within wholesale lending. We believe that while credit conditions have been benign over the last few years, they may begin to worsen, particularly in a rising-rate environment.
…
The outlook is negative. We could lower the rating over the next two years if RBC’s credit quality metrics remain at the peer average (or worse) for several quarters. This would most likely result in the issuer credit rating falling by one notch to ‘A+’, to reflect the higher risk profile. We could revise the outlook to stable if we were to see evidence that risk appetite is moderating and that credit quality metrics recover to a more favorable stance than the peer average.

Oddly, the press release made no reference to the ‘bail-in’ regime, which the agency has previously assigned a position of some importance and which has been endorsed by the new government, as discussed March 22, 2016.

Affected issues are: RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G, RY.PR.H, RY.PR.I, RY.PR.J, RY.PR.K, RY.PR.L, RY.PR.M, RY.PR.N, RY.PR.O, RY.PR.P, RY.PR.Q, RY.PR.R, RY.PR.W and RY.PR.Z.

Shaw Communications Inc. has announced:

that it has given the registered shareholder of its Cumulative Redeemable Rate Reset Class 2 Preferred Shares, Series A (the “Series A Shares”) notices of the conversion right and dividend rates.

Beginning on May 31, 2016 and ending on June 15, 2016 holders of the Series A Shares will have the right to elect to convert any or all of their Series A Shares into an equal number of Cumulative Redeemable Floating Rate Class 2 Preferred Shares, Series B (the “Series B Shares”).

If Shaw does not receive an Election Notice from a holder of Series A Shares during the time fixed therefor, then the Series A Shares shall be deemed not to have been converted (except in the case of an Automatic Conversion). Holders of the Series A Shares and the Series B Shares will have the opportunity to convert their shares again on June 30, 2021, and every five years thereafter as long as the shares remain outstanding.

Effective June 30, 2016, the Annual Fixed Dividend Rate for the Series A Shares was set for the next five year period at 2.791%. Effective June 30, 2016, the Floating Quarterly Dividend for the Series B Shares was set for the first Quarterly Floating Rate Period (being the period from and including June 30, 2016 to but excluding September 30, 2016) at 2.539%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series A Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series A Shares is the Canadian Depository for Securities Limited (“CDS”). All rights of beneficial holders of Series A Shares must be exercised through CDS or the CDS participant through which the Series A Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series A Shares into Series B Shares is 3:00 p.m. (MT) / 5:00 p.m. (ET) on June 15, 2016. Any notices received after this deadline will not be valid. As such, holders of Series A Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and 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.

After June 15, 2016, (i) if Shaw determines that there would remain outstanding on June 30, 2016, fewer than 1,000,000 Series A Shares, all remaining Series A Shares will be automatically converted into Series B Shares on a one-for one basis effective June 30, 2016; or (ii) if Shaw determines that there would remain outstanding after June 30, 2016, fewer than 1,000,000 Series B Shares, no Series A Shares will be permitted to be converted into Series B Shares effective June 30, 2016. There are currently 12,000,000 Series A Shares outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series B Shares effective on conversion. Listing of the Series B Shares is subject to the Shaw fulfilling all the listing requirements of the TSX and on approval, the Series B Shares will be listed on the TSX under the trading symbol SJR.PR.B. The Series A Shares are listed on the Toronto Stock Exchange under the ticker symbol SJR.PR.A.

For more information on the terms of, and risks associated with an investment in, the Series A Shares and the Series B Shares, see Shaw’s prospectus supplement dated May 20, 2011 which is available on sedar.com.

SJR.PR.A is a FixedReset 4.50%+200, that commenced trading 2011-5-31 after being announced 2011-5-18.

The new rate therefore represents a 38% cut in dividends.

As noted, the deadline to notify the company is 5 p.m. (ET) on June 15, 2016.; brokers will have internal deadlines a day or two in advance.

I will post a recommendation regarding whether or not to convert closer to the deadline.