Month: June 2019

Canadian Imperial Bank of Commerce has announced:

that it has completed the offering of 10 million Non-cumulative Rate Reset Class A Preferred Shares Series 51 (Non-Viability Contingent Capital (NVCC)) (the “Series 51 Shares”) priced at $25.00 per share to raise gross proceeds of $250 million.

The offering was made through a syndicate of underwriters led by CIBC Capital Markets. The Series 51 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.Y.

The Series 51 Shares were issued under a prospectus supplement dated May 27, 2019, to CIBC’s short form base shelf prospectus dated July 11, 2018.

CIBC has designated the Series 51 Shares as eligible to participate in the CIBC Shareholder Investment Plan along with Series 41, 43, 45, 47 and 49. Holders of eligible shares may elect to have dividends on those preferred shares reinvested in common shares if they reside in Canada, or may elect stock dividends if they reside in the U.S. See “CIBC Shareholder Investment Plan” at www.cibc.com for more information.

CM.PR.Y is a FixedReset, 5.15%+362, NVCC, announced May 24. It will be tracked by HIMIPref™ and has been assigned to the FixedReset (Discount) subindex.

The issue traded 1,022,019 shares today in a range of 24.35-65 before closing at 24.37-40. Vital statistics are:

Given that the PerpetualDiscount index is down 5.64% from its pre-announcement close on May 23, this was actually a pretty good day for the issue!

The new issue is somewhat expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair price of the new issue is 23.71, down from the announcement day fair-value of 24.85, but alert Assiduous Readers will have noticed that the Implied Volatility plot is very peculiar, having three expensive issues and four cheap ones, with nothing in between.

The other two rich issues are:

• CM.PR.S, a FixedReset, 4.50%+245, NVCC-compliant issue that commenced trading 2018-1-18 after being announced 2018-1-10. It is 0.89 rich, being bid at 19.01 compared to a fair value of 18.12.
• CM.PR.T, a FixedReset, 5.20%+331, NVCC-compliant issue that commenced trading 2019-1-22 after being announced 2019-1-14. It is 2.17 rich, being bid at 24.40 compared to a fair value of 22.23. Alert readers will note that is is bid higher than CM.PR.Y despite having an Issue Reset Spread 31bp lower. Sometimes I despair of this market.

The extremely perplexing issue is CM.PR.R, a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-5-25. It is bid at 21.30 compared to a fair value of 22.56. Alert readers will note that it is bid much lower than CM.PR.T despite having an Issue Reset Spread 7bp higher.

I confess I don’t know quite what to make of this. It is common – normal, even – for a new issue to remain rich for quite some time, but I am at a loss to explain why CM.PR.S should remain rich after being on the market for sixteen months. CM.PR.R is just silly … but note that its current coupon is low relative to the new issue and it won’t reset until 2022-7-31 … three years, roughly, thirteen coupon payments, but that’s only a total of about $0.60 and doesn’t explain the differential with CM.PR.S anyway.

Fortunately, I don’t have to explain it! All I have to do is avoid buying the new issue and favour other, cheaper, choices for any allocation to CM that I care to make.

The Toronto Dominion Bank’s new issue closed today without an announcement on their website.

TD.PF.M is a FixedReset 5.10%+356, NVCC, announced 2019-5-24. It will be tracked by HIMIPref™ and has been assigned to the FixedReset (Discount) subindex.

The issue traded 680,093 shares today in a range of 24.60-78 before closing at 24.70-71. Vital statistics are:

Given that the PerpetualDiscount index is down 5.64% from its pre-announcement close on May 23, this was actually a pretty good day for the issue!

The new issue remains expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair price of the new issue is 23.58, down 0.69 from the announcement day fair value of 24.27.

It is most interesting to compare this issue with TD.PF.L, a FixedReset, 5.20%+327, that commenced trading 2019-1-28 after being announced 2019-01-17. Alert Assiduous Readers will have noticed that although the initial dividends of the two issues are similar, the spreads are 29bp different, which is significant. The fair price of TD.PF.L according to the analysis above is only 22.39 (down 0.84 from the TD.PF.M announcement day value of 23.23), yet the issue closed today at 24.63-68, not much below TD.PF.M’s 24.70-71. I am reminded of the BCE.PR.K Ridiculous Rip-off Wrinkle, in which BCE was able to reopen the issue since – presumably – the initial coupon rate was in-line with the market even though the spread to the Canada 5-year for the re-opened portion was 87bp lower than it should have been.

On March 26, S&P placed TA on Creditwatch-Negative:

• Calgary, Alta.-based TransAlta Corp. has announced that it entered into an agreement with Brookfield Renewable Partners L.P. with respect to the partial sale of TransAlta’s Alberta hydro assets.
• As part of this transaction, TransAlta will issue C$350 million in debentures to Brookfield over the coming weeks, mainly to fund future shareholder returns and subsequently issue C$400 million in preferred stock in October 2020 to repay debt maturing in November 2020. Brookfield will also increase its equity investment in TransAlta to 9%. The debentures and preferred shares are expected to convert to a partial interest in TransAlta’s hydro assets in 2025.
• S&P Global Ratings placed its ‘BBB-‘ issuer credit rating on TransAlta and its issue-level ratings on the company’s debt on CreditWatch with negative implications.
• TransAlta’s leverage remains elevated for the rating, and the CreditWatch placement reflects a greater than 1-in-2 chance of a downgrade if we are not convinced that the company can improve its funds from operations (FFO) to debt to about 22% or debt to EBITDA would not decrease below 3.5x by 2020.
• We expect to resolve the CreditWatch over the next 90 days after meeting with company management to evaluate its plans to reduce leverage over the next two years and to manage execution risk while increasing its natural gas and renewables generation portfolio.

They have now downgraded Transalta:

• Calgary, Alberta-based TransAlta Corp.’s leverage is expected to remain elevated over the next two years following its agreement with Brookfield to borrow $350 million in subordinated debentures and planned $400 million preferred stock issuance (which we view as debt) to fund share repurchases, refinance debt, and accelerate coal-to-gas power plant conversion.
• We expect the company’s funds from operations (FFO) to debt to remain below 22% and debt to EBITDA above 3.5x (our downgrade thresholds for the rating) for a prolonged period. Consequently, we are lowering our issuer credit rating and senior unsecured issue-level ratings on TransAlta to ‘BB+’ from ‘BBB-‘. We are also lowering our preferred stock rating to ‘B+’ from ‘BB’ and our Canadian preferred stock rating to ‘P-4’ (high) from ‘P-3’.
• We are assigning our ‘3’ recovery rating to the company’s senior unsecured debt, reflecting our expectation of meaningful recovery in a default scenario.
• We are removing the ratings from CreditWatch, where we placed them March 26, 2019, with negative implications following the announcement of the Brookfield transaction. The outlook is stable.
• The stable outlook reflects our expectation of relatively stable operating performance under transitionary industry conditions toward cleaner burning fuels. We expect FFO to debt to remain 16%-17% through 2020 and leverage reduction in the longer term to be driven by improved realizations for its hydroelectric plants following the expiration of under-market-price power purchase agreements (PPAs) in 2020 and the placement of a capacity market in Alberta in November 2021.

…
We could lower our ratings if we expect FFO to debt to fall below 14% or debt to EBITDA to increase above 4.75x for a prolonged period. This could likely result from significant declines in capacity and power prices in Alberta or significant operating challenges resulting from the coal-to-gas conversion. While less likely, we could lower ratings because of aggressive financial policy changes characterized by meaningful increases in dividends or share repurchases, or a weaker business profile characterized by the sale of contracted assets such that less than 50% of EBITDA is generated by contracted assets.

While unlikely over the next 24 months, we could consider an upgrade if TransAlta successfully pursues coal-to-gas conversions, exhibits good profitability from the converted plants, and materially improves financial performance. More specifically, an upgrade would require sustained FFO to debt above 22% and debt to EBITDA below 3.5x.

Affected issues are TA.PR.D, TA.PR.E, TA.PR.F, TA.PR.H and TA.PR.J.

Strathbridge Asset Management Inc. has announced:

Premium Income Corporation (the “Fund”) is pleased to announce that it is undertaking an overnight treasury offering of Preferred Shares and Class A Shares.

The sales period for the overnight offering will end at 9:00 am EST tomorrow, June 4, 2019. The offering is expected to close on or about June 11, 2019 and is subject to certain conditions including approval by the Toronto Stock Exchange (“TSX”). The Preferred Shares will be offered at a price of $14.75 per Preferred Share to yield 5.94% and the Class A Shares will be offered at an indicative price of $6.45 per Class A Share to yield 12.6%. The trading price on the TSX for each of the Preferred Shares and Class A Shares as at 2:30pm EST on June 3, 2019 was $14.78 and $6.63, respectively.

Since the inception of the Fund, the aggregate dividends declared on the Preferred Shares have been $19.62 per share and the aggregate dividends declared on the Class A Shares have been $25.01 per share, for a combined total of $44.63 per unit.

The Fund invests in a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank (the “Banks”). To generate additional returns above the dividend income earned on the Fund’s portfolio, the Fund will selectively write covered call and put options in respect of some or all of the common shares in the Fund’s portfolio. The manager and investment manager of the Fund is Strathbridge Asset Management Inc.

The Preferred Shares pay fixed cumulative preferential quarterly cash distributions in the amount of $0.215625 ($0.8625 per annum) per preferred share representing a yield of 5.75% on the original issue price of $15.00. The Class A Shares currently pay quarterly distributions in the amount $0.20319 ($0.81276 per annum) per Class A Share.

The syndicate of agents for the offering is being co-led by RBC Capital Markets, CIBC Capital Markets, National Bank Financial Inc. and Scotiabank and also includes BMO Capital Markets, TD Securities Inc., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Echelon Wealth Partners Inc., GMP Securities L.P. and Industrial Alliance Securities Inc.

For further information, please contact Investor Relations at 416.681.3966, toll free at 1.800.725.7172, email at info@strathbridge.com or visit www.strathbridge.com

So the total offering price is 21.20 per Whole Unit and the May 31 NAVPU was 20.28 for a premium of 4.5%. Not as high as the really hot ones, but still … what a business!

Update, 2019-06-16: They raised approximately $13.25-million.