PrefBlog

Element Fleet Management has announced (in their 24Q1 earnings release, I don’t see a redemption press release):

Capital structure

Redemption of all outstanding 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C

To further optimize the Company’s balance sheet and mature its capital structure, the Company announced today its intention to redeem – in accordance with the terms of the 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C (the “Series C Shares”) as set out in the Company’s articles – all of its 5,126,400 issued and outstanding Series C Shares on June 30, 2024 (the “Share Redemption Date”) for a redemption price equal to CAD$25.00 per Series C Share for an aggregate total amount of approximately US$94.6 million (CAD$128 million), together with all accrued and unpaid dividends up to but excluding the Share Redemption Date (the “Redemption Price”), less any tax required to be deducted and withheld by the Company.

The Company has provided notice today of the Redemption Price and the Share Redemption Date to the sole registered holder of the Series C Shares in accordance with the terms of the Series C Shares as set out in the Company’s articles. Non-registered holders of Series C Shares should contact their broker or other intermediary for information regarding the redemption process for the Series C Shares in which they hold a beneficial interest. The Company’s transfer agent for the Series C Shares is Computershare Investor Services Inc. (“Computershare Investor Services”). Questions regarding the redemption process may be directed to Computershare Investor Services at 1-800-564-6253 or by email to corporateactions@computershare.com.

Following their redemption on June 30, 2024, the Series C Shares will be de-listed from and no longer trade on the Toronto Stock Exchange (“TSX”).

The Company also currently anticipates using a portion of its free cash flow to redeem all its outstanding 5.903% Cumulative 5-Year Rate Reset Preferred Shares Series E (due September 2024) for an approximate aggregate total amount of US$98.2 million (CAD$133 million).

This announcement validates their earlier anticipation of a redemption.

EFN.PR.C was announced 2014-2-26 as a FixedReset, 6.50%+481, but was not added to HIMIPref™ at that time as the company did not have a credit rating. The company received an initial rating from DBRS on 2015-9-24 and HIMIPref™ commenced tracking its four issues then outstanding shortly thereafter. The extension of the issue was announced 2019-5-22 and it was later announced that EFN.PR.C would reset at 6.210% effective June 30, 2019. I recommended against conversion and there was no conversion. The issue has been tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader IrateAR for bringing this to my attention!

Capital Power Corporation has announced:

that it is considering an offering of hybrid subordinated debt securities (the “Notes”) in Canada under its short form base shelf prospectus dated June 10, 2022.

If a successful offering is priced and completed, the Company intends to allocate an amount equal to the net proceeds from the sale of the Notes to repay certain amounts drawn on the Company’s credit facilities (which include amounts drawn for the acquisition of a 50% interest in New Harquahala Generating Company, LLC, and a 100% interest in CXA La Paloma, LLC, and related expenses, development purposes and in respect of ongoing operations), to potentially redeem all of the Company’s outstanding Cumulative Minimum Rate Reset Preferred Shares, Series 11 (TSX: CPX.PR.K) (the “Preferred Shares”), and for general corporate purposes.

There is no certainty that Capital Power will ultimately complete the offering being considered, or as to the timing or terms on which such an offering might be completed. This press release does not constitute a notice of redemption of the Preferred Shares and there is no certainty that the Company will redeem the Preferred Shares.

A preliminary prospectus supplement to the Company’s short form base shelf prospectus dated June 10, 2022 in respect of the potential offering of Notes has been filed with the securities regulatory authorities in each of the provinces and territories of Canada. Any potential offering, if and when launched, would only be made pursuant to a final prospectus supplement to the short form base shelf prospectus of the Company dated June 10, 2022. The short form base shelf prospectus and preliminary prospectus supplement contain important detailed information about the Notes. Copies of these documents are available electronically on the System for Electronic Document Analysis and Retrieval + at www.sedarplus.ca. Investors should read the short form base shelf prospectus and preliminary prospectus supplement, or any final prospectus supplement, before making an investment decision.

CPX.PR.K was issued as a FixedReset 5.75%+415M575 issue that commenced trading 2019-5-16 after being announced 2019-5-7. It has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Whether or not a redemption comes to pass, I suggest that this is good news for the Canadian preferred share market. The fact that the company can even consider redeeming the preferred issue using proceeds of an issue on the hybrid bond market is at least a small sign that refinancing there is not restricted to investment-grade banks – even the junkier issuers can participate! Of course, the massive 415bp spread over GOC-5 – and the minimum reset guarantee – make this an easier decision than most, but at least it’s another data point to reinforce the indication provided by ALA in November, 2023 that such money was available.

Thanks to Assiduous Reader IrateAR for bringing this to my attention!

Geez, it’s been a long time since I reported the first day of trading for a new issue!

Further to the information in the post Infrastructure Dividend Split Corp., Maybe?, Middlefield has announced (but not yet on their website):

Infrastructure Dividend Split Corp. (the “Company”), is pleased to announce that the Company has completed its initial public offering of 5,264,370 preferred shares for total gross proceeds of $52,643,700. The class A and preferred shares are listed on the Toronto Stock Exchange under the symbols IS and IS.PR.A, respectively.

The Company invests in a diversified, actively managed portfolio of dividend-paying securities of issuers operating in the infrastructure sector. The investment strategy of the Company is to initially invest in a portfolio of approximately 15 dividend-paying issuers operating in the infrastructure sector that Middlefield Capital Corporation (the “Advisor”), the investment advisor of the Company, believes offers investors the potential for both income through attractive dividend yields and capital appreciation and that it believes are undervalued and well-positioned to benefit from the Advisor’s outlook for a gradual reduction in interest rates, the continuation of global decarbonization, and favourable demographics (such as a growing middle class and urbanization).

The Company’s investment objectives for the:

Class A shares are to provide holders with:

(i) non-cumulative monthly cash distributions; and
(ii) the opportunity for capital appreciation through exposure to the portfolio

Preferred shares are to:

(i) provide holders with fixed cumulative preferential quarterly cash distributions; and
(ii) return the original issue price of $10.00 to holders upon maturity

The initial target distribution yield for the class A shares is 10.0% per annum based on the notional $15 issue price (or $0.125 per month or $1.50 per annum). On May 1, 2024, the Company announced that the first distribution on Class A shares will be payable to shareholders of record as at May 10th, 2024, and payable on or about May 15th, 2024.

The initial target distribution yield for the preferred shares is 7.2% per annum based on the original subscription price (or $0.18 per quarter or $0.72 per annum).

The syndicate of agents was co-led by CIBC Capital Markets, RBC Capital Markets, and Scotiabank, and included Canaccord Genuity Corp., National Bank Financial Inc., Hampton Securities Limited, BMO Capital Markets, iA Private Wealth Inc., Raymond James Ltd., Manulife Wealth Incorporated, Echelon Wealth Partners Inc., Wellington-Altus Private Wealth Inc., Desjardins Securities Inc. and Research Capital Corporation.

For further information, please visit our website at www.middlefield.com or contact Nancy Tham in our Sales and Marketing Department at 1.888.890.1868.

Fifty-two million is a nice size for a start-up SplitShare preferred, so it’s now been added to HIMIPref™

The prospectus is available on the fund’s main web page:

The Company intends that an equal number of Preferred Shares and Class A Shares will be outstanding at all material times. Following completion of the Offering, the Company may undertake further offerings of Preferred Shares or Class A Shares in order that an equal number of Preferred Shares and Class A Shares is outstanding at all material times.
…
The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return $10.00 to holders on April 30, 2029 (the “Maturity Date”), subject to extension for successive terms of up to five years each as determined by the Company’s board of directors (the “Board of Directors”). The quarterly cash distribution until April 30, 2029 will be $0.18 per Preferred Share $0.72 per annum), representing a yield of 7.2% per annum on the issue price of $10.00 per Preferred Share.
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Holders of record of Preferred Shares on the last business day of each of April, July, October and January will be entitled to receive fixed, cumulative preferential quarterly cash distributions equal to $0.18 per Preferred Share until April 30, 2029. On an annualized basis, this would represent a yield on the $10.00 Preferred Share issue price of 7.2% per annum. Such quarterly distributions are expected to be paid by the Company before the last business day of the month following the period in respect of which the distribution was payable. Based on the expected closing date of the Offering, currently being May 8, 2024 (the “Closing Date”), the initial distribution is expected to be payable to the holders of Preferred Shares of record on July 31, 2024. The first distribution will be pro-rated to reflect the period from the Closing Date to July 31, 2024.
…
No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution by the Company, the net asset value (“NAV” or “Net Asset Value”) per “Unit”, comprised of one Preferred Share and one Class A Share, would be less than $15.00 following the payment of such distributions.
…
…in order to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit, the Company will be required to generate an average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%. The Portfolio is currently expected to generate dividend income of approximately 6.73% per annum. Accordingly, the Portfolio would be required to generate an additional approximately 3.65% per annum, including from dividend growth and realized capital appreciation, in order for the Company to distribute the targeted amount on the Class A Shares.
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The Preferred Shares have been provisionally rated Pfd-3 (high) by DBRS Limited.
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Monthly: Preferred Shares may be surrendered at any time for retraction to TSX Trust Company (in such capacity, the “Registrar and Transfer Agent”), the Company’s registrar and transfer agent, but will be retracted only on the second last business day of a month (the “Retraction Date”). Preferred Shares surrendered for retraction by 5:00 p.m. (Toronto time) on or before the twentieth business day prior to the Retraction Date will be retracted on such Retraction Date and the holder will be paid on or before the last business day of the following month (the “Retraction Payment Date”).

Holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share. Any declared and unpaid distributions payable on or before a Retraction Date in respect of Preferred Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date. Subject to the terms of the Recirculation Agreement (as defined under “Redemptions and Retractions”), on any monthly retraction of Preferred Shares the Company will purchase or cause to be purchased for cancellation an equal number of Class A Shares in the market so that there will be an equal number of Preferred Shares and Class A Shares outstanding at all material times.
…
Annual management fee of 1.10% of the NAV of the Company calculated and payable monthly, based on the average NAV for that month, plus applicable taxes, provided that the management fee payable to the Manager shall not be paid in respect of the NAV attributable to any assets invested in the securities of any investment funds (including mutual funds) managed by the Manager or an affiliate of the Manager.
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As the distributions to holders of Preferred Shares are expected to qualify as eligible dividends, the pre-tax equivalent yield for an individual in Ontario subject to the highest marginal tax rate (53.53%) on an annualized basis would be approximately 9.4% per annum.

How can one not love the bit about “to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit … average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%.” Afficionados of SplitShare Credit Quality will knpw that given the presence of a cash drag, this requirement is highly sensitive to the price volatility of the underlying portfolio. Innumerate idiots, such as Capital Unit buyers and regulators, will remain blissfully ignorant of such high-school level math. But whatever, as long as the preferreds have a nice chunk of first-loss protection courtesy of the Capital Unitholders’ savings and the ‘minimum NAVPU rule’, this is not a major concern here.

DBRS has not yet confirmed its provisional Pfd-3(high) rating, but I can’t imagine any kind of problem with it.

The issue closed today on excellent volume of 839,091 shares. Vital Statistics are:

Update, 2024-05-09: DBRS has announced:

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of Pfd-3 (high) assigned to the Preferred Shares issued by Infrastructure Dividend Split Corp. (the Company), managed by Middlefield Limited (the Manager).
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Based on the initial asset coverage of 2.5x, the initial downside protection available to holders of the Preferred Shares is approximately 59% (after issuance fee and offering expenses). Downside protection available to the Preferred Shares consists of the NAV of the Class A Shares. The fixed distributions of dividends on the Preferred Shares will be funded from the dividends received on the securities in the Portfolio, which are expected to cover more than 1x the annual Preferred Shares distributions. The payment of regular monthly distributions to the holders of the Class A Shares, totalling $1.50 per annum, may reduce the downside protection over time. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 4.9% per year over the next five years. The grind in the portfolio is mitigated by a 1.5x NAV test.