PrefBlog

DBRS has announced:

downgraded the Issuer Rating and the Medium-Term Notes (MTNs) ratings of AltaGas Ltd. (AltaGas or the Company) to BBB (low) from BBB, and the Preferred Shares – Cumulative rating to Pfd-3 (low) from Pfd-3. The trends on the ratings are now Stable.

The downgrade removes the ratings from Under Review with Developing Implications where they were initially placed following the announcement that the Company had agreed to acquire WGL Holdings Inc. (WGL) in January 2017. Please refer to the DBRS press releases “DBRS Places AltaGas Ltd. Under Review with Developing Implications Following Announcement of WGL Holdings Acquisition,” January 26, 2017; “DBRS Maintains AltaGas Ltd. Under Review with Developing Implications,” November 6, 2017; and “DBRS Comments on AltaGas Ltd. Closing Its Acquisition of WGL Holdings, Inc.,” July 9, 2018.

DBRS’s rating action reflects the significant structural subordination and the weaker credit profile of the Company. Stand-alone debt at AltaGas is structurally subordinated to debt at its subsidiaries: WGL, Washington Gas Light Co. (Washington Gas) and SEMCO Energy, Inc (SEMCO). As at Q3 2018, $6.4 billion of debt at AltaGas, the parent, was subordinated to $3.5 billion of debt at WGL (including $1.8 billion at Washington Gas) and $469 million at SEMCO. Although the acquisition has added scale and diversification to the Company’s utility footprint in the United Sates, it does not mitigate the structural subordination caused by the acquisition. Following the close of the WGL acquisition, certain ring-fencing provisions were implemented whereby Washington Gas became a wholly owned subsidiary of a bankruptcy-remote entity, Wrangler SPE LLC, to insulate the utility and protect it from the financial policies of AltaGas and the financial risk from the rest of the Company’s operations, including the non-regulated operations of WGL. Regulatory conditions for the acquisition provide for restrictions on dividends should equity level fall below 48% of total capitalization at Washington Gas and a restriction on special dividends for the next three years. DBRS is of the opinion that while these ring-fencing provisions are credit positive for Washington Gas, they are credit negative for AltaGas, the parent.

DBRS notes that the credit profile of AltaGas has weakened since the sale of its unencumbered and contracted Northwest B.C Hydroelectric facilities, the San Joaquin gas-fired generation facilities in California and the monetization of its Canadian utility assets through the IPO of AltaGas Canada Inc. (rated BBB (high), Stable by DBRS) to primarily fund the acquisition of WGL. The acquisition of WGL has resulted in higher debt at AltaGas: non-consolidated debt at the parent company was $6.4 billion at Q3 2018 compared with $3.6 billion at Q3 2017. DBRS estimates that the non-consolidated debt-to-capital ratio at AltaGas was approximately 50% at Q3 2018, which is considered high. As part of the funding plan for the acquisition of WGL, the Company completed the sale of $2.4 billion of assets in 2018 with an additional $1.5 billion to $2.0 billion of asset sales to be completed in the first half of 2019, including the remaining 55% interest in the Northwest B.C. Hydroelectric facilities for $1.39 billion that is expected to close in Q1 2019. The Company recently announced additional asset sales of $1.5 billion to $ 2.0 billion and a 56% dividend cut to repay debt and to fund capex in 2019. DBRS is of the view that should the execution, timing and amount of asset sales not materialize as contemplated, the Company’s leverage could remain high and further pressure its credit profile. DBRS notes that the Company has indicated that new debt and debt maturities at WGL (excluding Washington Gas) will be funded at the parent company, while the utilities, Washington Gas and SEMCO, are expected to access the debt markets directly.
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While an upgrade to the rating is not contemplated in the near term, DBRS could consider upgrading the rating should the Company’s consolidated debt-to-capital ratio improve and stay at or below the 40% level for a sustained period while AltaGas executes on its capital programs. DBRS could revise the rating down should (1) consolidated debt-to-capital remain at or above 50% for a sustained period; (2) the Company fails to execute on the planned asset sales in 2019; or (3) adverse regulatory changes at Washington Gas or SEMCO affect the Company’s business risk profile.

This follows the S&P one notch downgrade to P-3 reported yesterday.

Affected issues are: ALA.PR.A, ALA.PR.B, ALA.PR.E, ALA.PR.G ALA.PR.I and ALA.PR.K.

Investment Executive reported yesterday:

Toronto-based Faircourt Asset Management Inc. is migrating two closed end funds to the NEO Exchange from the Toronto Stock Exchange (TSX), Aequitas NEO Exchange Inc. announced Wednesday.

Faircourt Split Trust, including both units (FCS.UN) and preferred securities (FCS.PR.C), and Faircourt Gold Income Corp. (FGX) will be voluntarily delisted from the TSX effective Dec. 20, and begin trading on NEO on Dec 21, NEO says in a news release.

“We look forward to migrating our funds to NEO later this week and begin realizing costs savings with our listing fees. We are committed to pass along these savings to our securityholders,” says Charles Taerk, president and CEO, Faircourt, in a statement.

Well, I find it hard to believe that Faircourt’s all that pleased about it – when you’re pleased about a business development, you usually put a notice about it on your website – but the Faircourt website has nothing I can find.

Of course, given their performance as reported in the 2017 Annual Report, perhaps they want to draw as little attention to the fund as possible:

Note that the figures reported above for “Faircourt Split Trust” are for the Capital Units only, which at year-end 2017 and year-end 2016 were levered up with the preferred securites big-time … roughly $2 of preferreds per $1 Capital Unit.

FCS.PR.C commenced trading 2014-12-30 after being announced 2014-12-10. It has been tracked by HIMIPref™ but relegated to the Scraps subindex due to credit concerns. It will no longer by tracked by HIMIPref™

Element Fleet Management Corp. has announced:

that none of its outstanding Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A shares”) will be converted into Cumulative Floating Rate Preferred Shares, Series B (the “Series B shares”) on December 31, 2018.

During the conversion notice period, which commenced on December 3, 2018 and ended at 5:00 p.m. (EST) on December 17, 2018, 209,460 Series A shares were tendered for conversion into Series B shares. In accordance with Section 4.03(a)(iii) of the rights, privileges, restrictions and conditions attaching to the Series A shares, as provided in the Corporation’s restated articles of incorporation dated October 4, 2016, since there would be outstanding on December 31, 2018 less than 500,000 Series B shares, after having taken into account all Series A shares tendered for conversion into Series B shares, holders of Series A shares who elected to tender their shares for conversion will not have their Series A shares converted into Series B shares on December 31, 2018.

As a result, no Series B shares will be issued on December 31, 2018.

It will be recalled that EFN.PR.A will reset at 6.933% effective December 31, 2018.

EFN.PR.A is a FixedReset, 6.60%+471, that was announced 2013-12-9; HIMIPref™ commenced tracking the issue in September 2015 after it received a DBRS rating. The notice of extension dated 2018-11-20 was reported on PrefBlog. The issue is relegated to the Scraps – FixedReset Discount subindex on credit concerns.

I recommended against conversion.

Partners Value Split Corp. has announced (although not yet on their website):

its intention to redeem all 7,631,100 of its Class AA Preferred Shares, Series 3 (“Preferred Shares, Series 3”) for cash on January 10, 2019 (the “Redemption Date”) in accordance with the terms of the Preferred Shares, Series 3.

The redemption price per Preferred Shares, Series 3 will be equal to C$25.00 plus accrued and unpaid dividends of C$0.1222 per share to January 9, 2019, representing a total redemption price of C$25.1222 per share (the “Redemption Price”).

Notice will be delivered to holders of the Preferred Shares, Series 3 in accordance with the terms of the Preferred Shares, Series 3.

From and after the Redemption Date, the Preferred Shares, Series 3 will cease to be entitled to dividends or any other participation in any distribution of the assets of the Company and the holders thereof shall not be entitled to exercise any of their other rights as shareholders in respect thereof except to receive the Redemption Price (less any tax required to be deducted and withheld by the Company). After the redemption of the Preferred Shares, Series 3, the Company will consolidate the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

PVS.PR.B commenced trading as a ticker change from BNA.PR.C. BNA.PR.C commenced trading 2007-1-10 as a SplitShare, 12-Year, 4.35% after being announced 2006-12-20. It is famous for the immense confusion surrounding its first dividend and for having been recommended in the December 2008 PrefLetter with a quote of 8.15-39 and a yield of 20.59%. Asset Coverage even in those dark days was “just under 1.7:1 as of December 12, based on 2.4 shares of BAM.A per unit.” It was recommended at other times too, of course, but that one sticks in my mind because the yield was so awesome.

Farewell, PVS.PR.B! You were a very useful issue for a very long time!

Standard & Poor’s has announced:

• •S&P Global Ratings lowered its long-term issuer credit rating on utilities and midstream company AltaGas Ltd. to ‘BBB-‘ from ‘BBB’. S&P Global Ratings lowered its rating on the company’s senior unsecured debt to ‘BBB-‘ from ‘BBB’. It lowered its global scale rating on the company’s preferred shares to ‘BB’ from ‘BB+’ and its Canada scale rating on the preferred shares to ‘P-3’ from ‘P-3(High)’.
• •The company is continuing its capital program with a focus on organic opportunities in its midstream and utilities business.
• •Notwithstanding asset sales and a dividend cut to fund its capital program, AltaGas’ financial metrics remain pressured.
• •The negative outlook reflects the possibility that if the company is not able to undertake the proposed asset sales as forecast, further financial pressure will result.

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The negative outlook reflects the uncertainty associated with the timing and pricing for the proposed asset sales to meet cash needs for the next two years. We expect the company will reduce debt, and that AFFO-to-debt will stay above 10% on a sustained basis by 2020, with regulated utility EBITDA representing approximately 50% of consolidated EBITDA.

We could lower the ratings if AltaGas is not able to sell the planned assets or receives lower-than-expected proceeds, or acquires debt that results in forecast AFFO-to-debt below 10%. We also expect the company to maintain its business mix, which is highly weighted toward the more stable utility cash flows. A material increase in the proportion of more volatile cash flows, such as from riskier midstream or unregulated power, without a corresponding improvement in financial metrics, could also lead to a downgrade.

We could revise the outlook to stable if AltaGas completes the sale as expected, maintains AFFO-to-debt in the 10%-12% range, and is able to successfully integrate WGL Holdings Inc. (and subsidiaries) (WGL).

Affected issues are: ALA.PR.A, ALA.PR.B, ALA.PR.E, ALA.PR.G ALA.PR.I and ALA.PR.K.

Capital Power Corporation has announced:

that after having taken into account all Election Notices following the December 17, 2018 conversion deadline, in respect of the Cumulative Rate Reset Preference Shares, Series 3 (Series 3 Shares) tendered for conversion into Cumulative Floating Rate Preference Shares, Series 4 (Series 4 Shares), the holders of Series 3 Shares were not entitled to convert their shares. There were approximately 47,270 Series 3 Shares tendered for conversion, which was less than the required one million shares required for conversion into Series 4 Shares.

There are six million Series 3 Shares listed on the Toronto Stock Exchange (TSX) under the symbol CPX.PR.C. Effective December 31, 2018, the Annual Fixed Dividend Rate for the next five-year period has been reset to 5.45300%.

For more information on the terms of, and risks associated with an investment in the Series 3 Shares, please see Capital Power’s prospectus supplement dated December 10, 2012 which is available on sedar.com or on Capital Power’s website at capitalpower.com.

It will be recalled that CPX.PR.C will reset at 5.453% effective December 31, 2018.

CPX.PR.C is a FixedReset, 4.60%+323, that commenced trading 2012-12-18 after being announced 2012-12-6. It is tracked by HIMIPref™ but relegated to the Scraps – FixedReset Discount index on credit concerns.

The issue will reset at 5.453% effective December 31, 2018. I recommended against conversion.