PrefBlog

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, Scotia Capital Inc., RBC Capital Markets and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Industrial Alliance Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% and the Class A Shares will be offered at a price of $9.10 per Class A Share to yield 13.19%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on April 4, 2017 was $10.19 and
$9.25, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $6.50 per share and the aggregate dividends paid on the Class A Shares have been $10.45 per share, for a combined total of $16.95. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal	National Bank of Canada	Bank of America Corp.
The Bank of Nova Scotia	Manulife Financial Corporation	Citigroup Inc.
Canadian Imperial Bank of Commerce	Sun Life Financial Services of Canada Inc.	Goldman Sachs Group Inc.
Royal Bank of Canada	Great-West Lifeco Inc.	JP Morgan Chase & Co.
The Toronto-Dominion Bank	CI Financial Corp.	Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2019; and
ii. on or about the termination date, currently December 1, 2019 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on April 6, 2017.

So the offering price is $19.10 per whole unit and the whole units have a NAVPU of 17.67 as of 2017-03-31. It’s nice work if you can get it!

Update, 2017-04-07: The offering was quite successful!

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 2,833,000 Preferred Shares and up to 2,833,000 Class A Shares of the Company. The total proceeds of the offering are expected to be approximately $54.1 million.

The offering is being co-led by National Bank Financial Inc., CIBC, Scotia Capital Inc., RBC Capital Markets and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Industrial Alliance Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.

Bank of Montreal has announced (apparently on April 3, but there was nothing on their website until April 5):

its intention to redeem all of its $250,000,000 Non-Cumulative Perpetual Class B Preferred Shares, Series 15 (“Preferred Shares Series 15”) on May 25, 2017.

The Preferred Shares Series 15 are redeemable at Bank of Montreal’s option on or after May 25, 2017, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on or after May 25, 2017, upon surrender of the Preferred Shares Series 15.

Separately from the payment of the redemption price, the final quarterly dividend of $0.3625 per share for the Preferred Shares Series 15 will be paid in the usual manner on May 25, 2017, to shareholders of record on May 1, 2017.

Notice will be delivered to holders of the Preferred Shares Series 15 in accordance with the terms outlined in the Preferred Shares Series 15 prospectus supplement.

BMO.PR.L is a 5.80% Straight Perpetual that commenced trading 2008-4-2 after being announced 2008-3-25. It has been tracked by HIMIPref™ and as it is NVCC non-compliant, it is included in the DeemedRetractible sub-index.

Bank of Montreal has announced (apparently on April 3, but there is still nothing on their website):

its intention to redeem all of its $250,000,000 Non-Cumulative Perpetual Class B Preferred Shares, Series 14 (“Preferred Shares Series 14”) on May 25, 2017.

The Preferred Shares Series 14 are redeemable at Bank of Montreal’s option on or after November 25, 2016, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on or after May 25, 2017, upon surrender of the Preferred Shares Series 14.

Separately from the payment of the redemption price, the final quarterly dividend of $0.328125 per share for the Preferred Shares Series 14 will be paid in the usual manner on May 25, 2017, to shareholders of record on May 1, 2017.

Notice will be delivered to holders of the Preferred Shares Series 14 in accordance with the terms outlined in the Preferred Shares Series 14 prospectus supplement.

(added 2017-4-5): BMO has finally published the press release on their website

BMO.PR.K is a 5.25% Straight Perpetual that commenced trading 2007-10-9 after being announced 2009-9-27. It has been tracked by HIMIPref™ and as it is NVCC non-compliant, it is included in the DeemedRetractible sub-index.

Note: This post has been corrected from an earlier version, which referred to BMO.PR.L. Both issues are being redeemed, but due to an error I only announced one, with the quoted press release not matching the headline. The actual BMO.PR.L redemption has been reported.

DBRS has announced that it:

has today downgraded the Issuer Rating and Unsecured Debt/Medium-Term Notes rating of TransAlta Corporation (TAC) to BBB (low) from BBB. DBRS also downgraded TAC’s Preferred Shares rating to Pfd-3 (low) from Pfd-3. The trends for all the above-mentioned ratings were changed to Stable from Negative, where they were placed on March 10, 2016.

DBRS’s rating actions follow a review of TAC’s 2016 financial results and refinancing plan for corporate debt over the medium term, the Off-Coal Agreement (OCA) with the government of Alberta and the potential structure of the Alberta whole-sale power market post-2020. The rating downgrades reflect the fact that the business risk profile of TAC will weaken following the expiry of the Alberta power purchase arrangements (PPAs). Currently, stable cash flow from coal facilities in Alberta (majority under Alberta PPAs) account for approximately 35% of total EBITDA. Post-2020, some coal plants will retire and the remaining coal plants (to be converted into gas-fired generation) and hydro plants will be subject to the whole-sale market capacity auction structure, which remains uncertain at this time. There is also uncertainty with respect to the plan to convert most coal plants to gas-fired generation. DBRS will evaluate additional information regarding the market structure and coal-to-gas conversions as it becomes available and will assess the credit quality of TAC on an ongoing basis.

The trends were changed to Stable, reflecting the following: (1) Under the OCA, TAC will receive $37.4 million per year from 2017 to 2030, which will increase cash flow to TAC. However, TAC intends to monetize the OCA payments in the next 12 to 18 months. The amount from the OCA monetization is expected to be used to partially refinance the debt maturing in 2018 (approximately $959 million). DBRS notes that as part of its refinancing plan, TAC intends to raise funds at the project level. The funds from these issues will be used to finance the remaining South Hedland project capital expenditures (capex) and for upcoming maturities at Canadian Hydro Developers, Inc. (rated BBB with a Stable trend by DBRS; indirectly majority owned by TAC through TransAlta Renewables Inc.). Although TAC’s strategy of issuing debt at the project level helps to support deconsolidated metrics, it also increases the structural subordination of the debt issued by TAC. (2) The South Hedland project in Australia is on time and on budget and is expected to be commissioned by mid-2017. This project will contribute approximately $80 million in EBITDA per year. The financing of the remaining work at the project is manageable; as at the end of 2016, TAC has funded approximately $336 million, with approximately $240 million to be financed. (3) Relatively stable cash flow is expected from the contracted arrangements and Alberta PPAs between now and 2020. (4) Lower growth capex over the medium term (compared with the 2013 to 2015 period) should help to generate positive net free cash flow and support TAC’s financial flexibility.

DBRS recognizes that TAC’s 2016 financial results were solid and its current consolidated and deconsolidated metrics are supportive of the current ratings. DBRS does not expect any further material shift in TAC’s 2017 financial metrics, which benefit from the recently announced dividend cut, lower capex levels and the commission of South Hedland by mid-2017.

The following issues are affected: TA.PR.D, TA.PR.E, TA.PR.F, TA.PR.H and TA.PR.J.

DBRS has announced that it:

has today downgraded the Issuer Rating and Senior Unsecured Debt rating of Capital Power Corporation (CPC) to BBB (low) from BBB. The trends of all of the above-mentioned ratings were changed to Stable from Negative. The Issuer Rating was assigned on October 27, 2016, with a Negative trend, and the Senior Unsecured Debt rating was given a Negative trend on March 10, 2016. DBRS has concurrently confirmed CPC’s Preferred Shares rating at Pfd-3 (low) with a Stable trend.

DBRS’s rating actions follow a review of CPC’s 2016 financial results, the Off-Coal Agreement (OCA) with the government of Alberta and the potential structure of the Alberta capacity market post-2020. In DBRS’s view, the long-term business risk profile of CPC has weakened, particularly post-2020 once all the Alberta Power Purchase Agreements (Alberta PPAs) expire. The weakening of the business risk profile reflects two major issues: (1) Post-2020, all current Alberta PPAs will end, exposing all assets under the current Alberta PPAs to either merchant risk or the uncertainty of the Alberta capacity market. In 2016, Alberta-contracted plants generated approximately 45% of the total consolidated operating margin before corporate expenses. (2) The implementation of the Alberta Climate Leadership Plan (ACLP) will accelerate the phase-out of all coal emissions by 2030. All of CPC’s coal assets in the province will be stranded effective December 31, 2030. However, the Company is planning to convert its coal plants to gas-fired generation. DBRS believes that the cost of the coal-to-gas conversion is lower than the cost of building new gas-fired projects. DBRS recognizes that CPC and the government of Alberta reached an OCA under which CPC will receive cash payments of $52.4 million per year. This will mitigate, but not eliminate, the potential loss of cash flow from the retirement of these assets. In addition, under the ACLP, the imposition of a carbon tax of $20 per tonne of carbon dioxide emissions beginning January 1, 2017, and $30 per tonne beginning 2018. DBRS recognizes that the near-term impact is manageable as CPC has the ability to pass through the carbon tax to Alberta PPA counterparties and the carbon tax will be reflected in increased power prices in 2018. Over the longer term, DBRS believes that CPC will maintain its competitive position in the post-2020 market in Alberta. DBRS will evaluate additional information regarding market structure as it becomes available and will continue to assess the credit quality of CPC on an ongoing basis.

The trends were changed to Stable from Negative, reflecting the following: (1) Government payments of $52.4 million per year for 14 years will begin July 31, 2017, which will significantly improve CPC’s cash flow and liquidity. (2) CPC’s 2016 financial results were solid, with stable cash flow and modestly lower debt levels over 2015, resulting in strong financial metrics for the current ratings. (3) All of CPC’s commercial activities in Alberta are fully hedged for 2017 and over 50% are hedged for 2018, significantly reducing this segment’s exposure to commodity price risk. Although the hedges are at lower prices because of the currently weak pricing environment, the impact on cash flow (before government payments) is not expected to be material. (4) Cash flow should benefit from distributions from the proposed acquisition of 294 megawatts of contracted capacity in Ontario and British Columbia (expected to close in Q2 2017) and the construction of the 184-megawatt Bloom Wind project in Kansas (expected to be commissioned in Q3 2017). In the medium term, DBRS expects CPC to generate positive free cash flow, which will limit its need for additional debt and maintain its strong financial metrics for the current rating levels.

The company has the following issues outstanding: CPX.PR.A, CPX.PR.C, CPX.PR.E and CPX.PR.G.