PrefBlog

DBRS has announced that it:

changed the trends on Artis Real Estate Investment Trust’s (Artis or the Trust) Senior Unsecured Debentures and Preferred Trust Units to Negative from Stable and confirmed the ratings at BBB (low) and Pfd-3 (low), respectively. The Negative trends reflect increased debt and, therefore, leverage as Artis used fewer proceeds from property dispositions for debt reduction and more for unit buybacks than DBRS Morningstar expected based on the Trust’s strategic initiatives announced on November 1, 2018. In DBRS Morningstar’s view, Artis’s execution of its strategic initiatives to date has heavily favoured unitholders, which has resulted in elevated leverage (i.e., total debt-to-EBITDA of 10.0 times (x) and decreased EBITDA interest coverage of 2.63x in the last 12 months ended September 30, 2019). DBRS Morningstar anticipates that the Trust’s key financial risk metrics will likely remain near current levels in the near to medium term, despite Artis’s execution of its strategic initiatives, which is progressing ahead of schedule. The Trust’s current DBRS Morningstar-adjusted total debt of approximately $3.0 billion and DBRS Morningstar’s future expectations for key financial risk metrics contrast with DBRS Morningstar’s last review on December 21, 2018. At that time, DBRS Morningstar expected Artis’s key financial risk metrics to remain elevated, but stable with a total debt-to-EBITDA ratio of approximately 9.4x and EBITDA interest coverage of 2.8x through 2020 as Artis planned to use some proceeds from dispositions to pay down debt, such that total debt remained near September 30, 2018, levels of approximately $2.8 billion.
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DBRS Morningstar will likely consider a rating downgrade within the next 12 months if Artis continues to sell assets in a credit-dilutive way (e.g., deploying more sales proceeds toward unit buybacks than DBRS Morningstar expected), such that the total debt-to-EBITDA ratio remains above 9.8x or EBITDA interest coverage remains below 2.70x, all else equal, or if DBRS Morningstar foresees elevated liquidity or refinancing risk in light of the current short debt maturity schedule (weighted-average term to debt maturity of 2.3 years at September 30, 2019). DBRS Morningstar may revise the trend on the ratings to Stable if Artis demonstrates more balanced treatment of debt and unitholders by reducing debt, such that DBRS Morningstar can comfortably expect improved key financial risk metrics compared with current expectations while further benefitting from improved diversification as Artis concludes its strategic initiatives.

Affected issues are AX.PR.A, AX.PR.E and AX.PR.I.

Standard and Poor’s has announced:

• Growing wireless operations, improving wireline profitability, and noncore asset sales have enabled Calgary-based Shaw Communications Inc. to exit fiscal 2019 with S&P Global Ratings’ adjusted debt-to-EBITDA ratio of 2x.
• We believe Shaw can sustain leverage below 2.5x (post IFRS-16) over the next two years even assuming wireless spectrum investments and higher cash dividend outflow.
• As a result, S&P Global Ratings revised its outlook on Shaw to positive from stable. At the same time, S&P Global Ratings affirmed all of its ratings on Shaw, including its ‘BBB-‘ issuer credit and unsecured issue-level ratings.
• The positive outlook reflects our view that a more balanced competitive environment in wireline combined with disciplined growth in wireless can help sustain Shaw’s improved financial profile over the near term despite higher competition in wireless and generally rising regulatory risks.

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Growth in Shaw’s wireless subscriber base and improving profitability in wireline will support EBITDA growth and margins. In the past few years, Shaw has taken major steps to establish itself as a fourth national player in the Canadian wireless market. Concrete steps the company has taken to expand its wireless operations include: adding 266,000 net subscribers to expand its subscriber base to 1.7 million (about 10% market share of covered population), launching its Big Gig Unlimited and Absolute Zero Plans in the fourth quarter to compete against incumbents, expanding its network to cover 50% of Canadians (18.5 million people), deploying 700 MHz spectrum, and doubling its retail distribution network. A network quality closer to that of peers, a growing subscription base, and a significantly lower-priced offering should continue to support the company’s wireless growth.
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We could raise the rating within the next 12 months if the company continues to profitably expand its wireless business and maintain stable wireline EBITDA such that EBITDA shows growth year-over-year and S&P Global Ratings’ adjusted EBITDA margins remain strong (over 40%), reflecting the success of Shaw’s various strategies and arguably benign regulatory environment. Also taking into consideration spectrum auctions and shareholder returns, we expect Shaw’s peak leverage to remain below 2.75x in the future.

We could stabilize the outlook if we view the competitive and regulatory risks to be detrimental to Shaw’s operations (either wireless or wireline) such that there is increasing risk that leverage will ultimately prove to be higher than 2.75x. We will also have lower tolerance if Shaw pursues aggressive shareholder returns (higher than our base-case scenario) at the expense of business growth or balance-sheet strength and this will likely be reflected by a lower tolerance if leverage metrics exceed 2.75x.

Affected issues are SJR.PR.A and SJR.PR.B.

TC Energy Corporation has announced (on November 21):

that it does not intend to exercise its right to redeem its Cumulative Redeemable First Preferred Shares, Series 1 (Series 1 Shares) and Cumulative Redeemable First Preferred Shares, Series 2 (Series 2 Shares) on December 31, 2019. As a result, subject to certain conditions:

(a) the holders of Series 1 Shares have the right to choose one of the following options with regard to their shares:

to retain any or all of their Series 1 Shares and continue to receive a fixed rate quarterly dividend; or

to convert, on a one-for-one basis, any or all of their Series 1 Shares into Series 2 Shares and receive a floating rate quarterly dividend, and
(b) the holders of Series 2 Shares have the right to choose one of the following options with regard to their shares:

to retain any or all of their Series 2 Shares and continue to receive a floating rate quarterly dividend; or

to convert, on a one-for-one basis, any or all of their Series 2 Shares into Series 1 Shares and receive fixed rate quarterly dividend.
The dividend rate applicable to the Series 1 Shares for the five-year period commencing on December 31, 2019 to, but excluding, December 31, 2024 will equal the Government of Canada five-year bond yield on December 2, 2019 plus 1.92 per cent. The dividend rate applicable to the Series 2 Shares for the three-month period commencing on December 31, 2019 to, but excluding, March 30, 2020 will equal the Government of Canada 90-day treasury bill rate on December 2, 2019 plus 1.92 per cent. Both rates will be calculated according to the terms of the prospectus supplement dated September 22, 2009 and announced by way of a news release on December 2, 2019.

Beneficial owners of Series 1 Shares and Series 2 Shares who want to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5 p.m. (EDT) on December 16, 2019. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide the broker or other nominee with time to complete the necessary steps.

The conversion of Series 1 Shares are subject to the conditions that: (i) if TC Energy determines that there would be less than one million Series 1 Shares outstanding after December 31, 2019, then all remaining Series 1 Shares will automatically be converted into Series 2 Shares on a one-for-one basis on December 31, 2019, and (ii) alternatively, if TC Energy determines that there would be less than one million Series 2 Shares outstanding after December 31, 2019, no Series 1 Shares will be converted into Series 2 Shares.

The conversion of Series 2 Shares are subject to the conditions that: (i) if TC Energy determines that there would be less than one million Series 1 Shares outstanding after December 31, 2019, then no Series 2 Shares will be converted into Series 1 Shares, and (ii) alternatively, if TC Energy determines that there would be less than one million Series 2 Shares outstanding after December 31, 2019, then all of the remaining outstanding Series 2 Shares will automatically be converted into Series 1 Shares on a one-for-one basis on December 31, 2019. In either case, TC Energy will issue a news release to that effect no later than December 23, 2019.

Beneficial owners of Series 1 Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series 1 Shares and receive the new annual fixed dividend rate applicable to the Series 1 Shares. Beneficial owners of Series 2 Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their Series 2 Shares and receive the floating rate quarterly dividend applicable to the Series 2 Shares, subject to the conditions stated above.

Holders of Series 1 Shares and Series 2 Shares will have the opportunity to convert their shares again on December 31, 2024 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with an investment in Series 1 Shares and Series 2 Shares, please see the Corporation’s prospectus supplement dated September 22, 2009 which is available on sedar.com or on the Corporation’s website.

TRP.PR.A commenced trading 2009-9-30 after being announced 2009-9-22. It commenced life as a FixedReset, 4.60%+192, that reset to 3.266% effective 2014-12-31. Assiduous Readers may recall that I have blamed the 2014 reset of TRP.PR.A for what we might now call ‘the first half’ of the current bear market. I recommended conversion to TRP.PR.F in 2014 and there was a conversion rate of about 62%.

I will have more to say once the reset rate is announced December 2.

Quadravest has announced:

a pro-rata redemption of YCM.PR.A Class I Preferred Shares (“Class I Preferred Shares”) and a YCM Capital Share (“Capital Share”) consolidation in order to maintain an equal number of Capital Shares, Class I Preferred Shares and YCM.PR.B Class II Preferred Shares (“Class II Preferred Shares”) outstanding.

In connection with the termination date extension of the Company for a further five years to December 1, 2024, an additional retraction right was offered allowing existing shareholders to tender any or all classes of Shares and receive a retraction price based on the November 29, 2019 net asset value per unit, payable on or before December 16, 2019. There were more Class II Preferred Shares retracted than Capital Shares and Class I Preferred Shares. As a result, pursuant to the Company’s guidelines, the Company is required to redeem 719,390 Class I Preferred Shares.

The Class I Preferred Shares will be redeemed on a pro-rata basis, so that shareholders of record on the close of business on November 29, 2019 will have approximately 44.35% of their Class I Preferred Shares redeemed. The redemption price of $5.00 per Class I Preferred Share will be paid on or before December 16, 2019. Holders of Class I Preferred Shares that have been called for redemption will be entitled to receive the November dividend payable on December 10, 2019 for holders of record on November 29, 2019.

As a result of the reduction in Class I and Class II Preferred shares, Capital shareholders will have their Capital Shares consolidated at a ratio of 0.578956069 for each Capital Share outstanding. The consolidation will be a non-taxable event. The expected post-consolidation trade date for the Capital Shares will be announced at a later date.

The aggregate intrinsic value of the Capital shareholders’ holdings will remain the same as a result of the net asset value per Capital Share increasing on a proportionate basis for each post-consolidation share on the consolidation date.

As at the consolidation date, the resultant increase in the net asset value per Capital Share will have the impact of increasing the asset coverage ratios for the Class I Preferred Shares and Class II Preferred Shares.

The Company invests in common shares of Canadian Imperial Bank of Commerce, a Canadian financial institution.

YCM.PR.A had a large partial redemption in 2014; the issue arose from a complex reorganization of XCM.PR.A. The issue is not tracked by HIMIPref™, as the market capitalization of just over $8-million is about to be cut by nearly half.

Quadravest has announced:

a pro-rata redemption of XMF.PR.B Class I Preferred Shares (“Class I Preferred Shares”) and a XMF.A Capital Share (“Capital Share”) consolidation in order to maintain an equal number of Capital Shares, Class I Preferred Shares and XMF.PR.C Class II Preferred Shares (“Class II Preferred Shares”) outstanding.

In connection with the termination date extension of the Company for a further five years to December 1, 2024, an additional retraction right was offered allowing existing shareholders to tender any or all classes of Shares and receive a retraction price based on the November 29, 2019 net asset value per unit, payable on or before December 16, 2019. There were more Class II Preferred Shares retracted than Capital Shares and Class I Preferred Shares. As a result, pursuant to the Company’s guidelines, the Company is required to redeem 867,100 Class I Preferred Shares.

The Class I Preferred Shares will be redeemed on a pro-rata basis, so that shareholders of record on the close of business on November 29, 2019 will have approximately 27.54% of their Class I Preferred Shares redeemed. The redemption price of $5.00 per Class I Preferred Share will be paid on or before December 16, 2019. Holders of Class I Preferred Shares that have been called for redemption will be entitled to receive the November dividend payable on December 10, 2019 for holders of record on November 29, 2019.

As a result of the reduction in Class I and Class II Preferred shares, Capital shareholders will have their Capital Shares consolidated at a ratio of 0.722920066 for each Capital Share outstanding. The consolidation will be a non-taxable event. The expected post-consolidation trade date for the Capital Shares will be announced at a later date.

The Company invests in common shares of Manulife Financial Corporation, the largest life insurer in Canada offering financial products and wealth management services.

XMF.PR.B was distributed in accordance with the reorganization of XMF.PR.A (on the second attempt, as the first attempt failed). The issue is not tracked by HIMIPref™, as there is only a market value of about $16-million outstanding; over a quarter of which is now being redeemed.