PrefBlog

Veresen Inc. has announced:

it will pursue the sale of its power generation business and will suspend its Premium Dividend™ and Dividend Reinvestment Plan. Proceeds from the divestiture will be invested to develop Veresen’s significant inventory of contracted capital projects in the core natural gas and NGL infrastructure business.
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Divestiture of Power Business and Funding Strategy

Veresen’s power business, which consists of approximately 625 MW of primarily renewable and gas-fired generation, is expected to contribute EBITDA of approximately $100 million in 2016 and had asset level debt financing of $382 million at June 30, 2016. Veresen has engaged TD Securities Inc. as the company’s sole financial advisor on the divestiture of the power business.

Veresen intends to initially apply the proceeds of the sale of the power business to reduce its debt outstanding and subsequently fund the remaining equity component of projects currently under construction through 2018. At the end of the second quarter, approximately $535 million of the aggregate $1.4 billion of capital required to complete Veresen’s existing capital projects had been incurred, with a remaining equity component of approximately $350 to $450 million. The enhanced funding plan will meaningfully improve the company’s balance sheet strength at closing, eliminating the need for external equity financing for these projects and increasing growth on a per share basis.

Dividend and Suspension of DRIP

Veresen’s Board of Directors has confirmed the annualized dividend rate of $1.00 per Common Share. As a result of the growth and diversification of Veresen’s businesses over the last five years, the dividend is now underpinned entirely by distributable cash from take-or-pay and fee-for-service businesses with a weighted average contract life of over eight years.

In response, DBRS has announced that it:

has today placed the Issuer Rating, Senior Unsecured Notes rating and Preferred Share rating of Veresen Inc. (Veresen or the Company) Under Review with Negative Implications. The rating actions follow the Company’s announcement that it will pursue the sale of its power generation business and will suspend its Premium Dividend and Dividend Reinvestment Plan (DRIP) from August 2016. Proceeds from the divestiture of the power business will be invested to develop Veresen’s significant inventory of approximately CAD 1.4 billion of contracted capital projects in the core natural gas and natural gas liquids infrastructure business. The Company will also maintain its current dividend payout.

DBRS believes that the above-noted announcement is negative with respect to Veresen’s business risk profile.
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DBRS notes that Veresen had previously planned to fund its share of the large capital expenditure program at Veresen Midstream by raising equity through its DRIP. Veresen’s decision to suspend the DRIP and maintain its high dividend payout is expected to erode the Company’s equity base from current levels, resulting in higher non-consolidated leverage. The net proceeds from the proposed sale of power assets after repaying related subsidiary level debt (CAD 382 million at June 30, 2016) are expected to fund Veresen’s large capital expenditure program. Although, this results in an initial reduction in leverage, Veresen will likely need incremental borrowings to fund its capex and dividend commitments going forward. As a result, the Company’s non-consolidated credit metrics are likely to be weak in the medium term.

Overall, DBRS believes that the weakness in Veresen’s business risk profile will not be mitigated by any meaningful improvement in the Company’s financial risk profile and will likely result in lower ratings. DBRS recognizes that there are execution risks related to the sale of the power business, and any delays in the execution and change in market conditions could affect the Company’s financial risk profile. Consequently, DBRS has placed Versen’s ratings Under Review with Negative Implications. DBRS expects any downgrade of the Company’s ratings to be one notch. DBRS will further review the details relating to the sale of the power business as they become available, with a view to resolving the Under Review with Negative Implications status.

Affected issues are VSN.PR.A, VSN.PR.C and VSN.PR.E.

Brookfield Office Properties has announced (although not yet on their website):

that BPY and other related entities of BPY have provided full and unconditional guarantees (the “Guarantees”) for all of the Company’s Class AAA Preference Shares (the “Preference Shares”) and all of the debt securities of the Company issued pursuant to its indenture dated December 8, 2009 (the “Debt Securities”).

At the time of entering into the Guarantees, the Company had C$2,363 million of Preference Shares outstanding and C$350 million principal amount of Debt Securities outstanding. As a result of the Guarantees, the Company has received an exemption from the requirements to file certain continuous disclosure documents with Canadian securities regulators, including financial statements, on the basis that holders of the Preference Shares and the Debt Securities will have access to certain continuous disclosure filings on BPY as the guarantor. Certain financial information of the Company will be included in the consolidated summary financial information in BPY’s consolidated annual financial statements and interim reports going forward. This will simplify the Company’s reporting requirements and reduce costs.

Each of the Guarantees will terminate (subject to any existing rights or claims at the time of such termination) upon, among other things, the date that no Preference Shares or Debt Securities, respectively, are outstanding. A copy of the Guarantees have been filed on SEDAR under the profile of the Company. Investors should refer to that filing for the complete terms of the Guarantees.

In response, DBRS has announced that it:

has today placed the ratings of Brookfield Office Properties Inc.’s (Brookfield or the Company) Senior Unsecured Notes and Cumulative Redeemable Preferred Shares, Class AAA (Preferred Shares) Under Review with Developing Implications. This rating action follows the announcement yesterday that Brookfield Property Partners (BPY) and other related entities of BPY will provide full and unconditional guarantees for all of Brookfield’s Senior Unsecured Notes ($350 million in principal amounts) and all of Brookfield’s Preferred Shares ($2.4 billion outstanding) at the time of entering into the guarantees.

DBRS will review the implications of the announcement and assess the credit risk profile of BPY, which is an indirect holding company of Brookfield, against the DBRS methodology, “Rating Holding Companies and Their Subsidiaries” (January 2016). DBRS will also review the guarantee documents for Brookfield’s Senior Unsecured Notes and Preferred Shares against the DBRS Criteria “Guarantees and Other Forms of Support” (February 2016). DBRS aims to resolve the Under Review status over the next several weeks.

Affected issues are: BPO.PR.A, BPO.PR.C, BPO.PR.J, BPO.PR.K, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T, BPO.PR.W BPO.PR.X and BPO.PR.Y.

It is interesting to see another company reduce its reporting obligations by having its parent reporting issuer provide a guarantee. RONA recently did the same with a guarantee from Lowe’s.

Brookfield Infrastructure has announced:

the completion of its previously announced issue of Cumulative Class A Preferred Limited Partnership Units, Series 5 (“Series 5 Preferred Units”) in the amount of $250,000,000. The offering was underwritten by a syndicate led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets, and Scotiabank.

Brookfield Infrastructure issued 10,000,000 Series 5 Preferred Units at a price of $25.00 per unit, for total gross proceeds of $250,000,000. Holders of the Series 5 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.35% annually for the initial period ending September 30, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.64%, and (ii) 5.35%. The Series 5 Preferred Units will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BIP.PR.C.

BIP.PR.C is a FixedReset 5.35%+464M535 issue announced 2016-7-25. It will be remembered that distributions from this issue are not Eligible Dividends, but will be a mixture of Return of Capital and Ordinary Income, in proportions that will change from year to year.

The issue traded 1,330,574 shares today in a range of 25.31-45 before closing at 25.37-38, 10×133.

This issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex. Vital statistics are:

BCE Inc. has announced:

that 5,081,951 of its 10,754,990 fixed-rate Cumulative Redeemable First Preferred Shares, Series AI (“Series AI Preferred Shares”) have been tendered for conversion on August 1, 2016, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AJ (“Series AJ Preferred Shares”). In addition, 276,845 of its 3,245,010 Series AJ Preferred Shares have been tendered for conversion on August 1, 2016, on a one-for-one basis, into Series AI Preferred Shares. Consequently, on August 1, 2016, BCE will have 5,949,884 Series AI Preferred Shares and 8,050,116 Series AJ Preferred Shares issued and outstanding. The Series AI Preferred Shares and the Series AJ Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.I and BCE.PR.J, respectively.

The Series AI Preferred Shares will pay on a quarterly basis, for the five-year period beginning on August 1, 2016, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 2.75%.

The Series AJ Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on August 1, 2016, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AJ Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

The issues closed the day at 13.45-64 (BCE.PR.I) and 13.95-10 (BCE.PR.J), resulting in an implied Canada Prime breakeven rate of 3.25%. This is consistent with other FixedFloater / RatchetRate Strong Pairs and up from the mid-July break-even rate of about 3.00%. Assiduous Readers will remember that I advised converting to, or continuing to hold, BCE.PR.J