PrefBlog

Fortis Inc. has declared:

NOTICE OF ANNUAL FIXED DIVIDEND RATE

CUMULATIVE REDEEMABLE FIVE-YEAR FIXED RATE RESET

FIRST PREFERENCE SHARES, SERIES G

NOTICE IS HEREBY GIVEN that Fortis Inc. (the “Corporation”) has calculated the annual fixed dividend rate (the “Annual Fixed Dividend Rate”) for the five-year period from and including September 1, 2018 to but excluding September 1, 2023 (the “Subsequent Fixed Rate Period”) for the Corporation’s Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series G (the “Series G First Preference Shares”) in accordance with the terms of the Series G First Preference Shares incorporated in the provisions of its articles.

The Annual Fixed Dividend Rate for the Subsequent Fixed Rate Period shall be equal to 4.393% per annum, being equal to the 2.263% yield to maturity of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on August 2, 2018 on the display designated as page “GCAN5YR Index” on the Bloomberg Financial L.P. service, plus 2.13%.

During the Subsequent Fixed Rate Period, dividends on the Series G First Preference Shares shall, if, as and when declared by the directors of the Corporation, be payable quarterly at the Annual Fixed Dividend Rate.
Dated the 2nd day of August, 2018.

BY ORDER OF THE BOARD OF DIRECTORS
[signed]
James R. Reid
Executive Vice President, Chief Legal Officer and Corporate Secretary

This information is not on the Fortis website, nor is it on SEDAR. I obtained the document from Investor Relations. Presumably the company sent the notice to its only registered shareholder, CDS, with the hope that CDS would notify the brokerages and the brokerages would notify their clients. Ha-ha! We all know how careful the brokerages are to pass on every scrap of relevant information, don’t we?

FTS.PR.G commenced trading 2008-5-23 after being announced 2008-5-6 as a FixedReset, 5.25%+213. It reset to 3.883% in 2013.

Note that this issue does not have an option to convert into FloatingResets – the structure was very new at the time of issue and provisions had not yet standardized although, of course, there is nothing stopping a new issuer from coming out with an equivalent issue.

Financial 15 Split Corp has released its Semi-Annual Report to May 31, 2018.

Figures of interest are:

MER: 1.17% of the whole unit value, “presented to reflect the normal operating expenses of the Company excluding any one time offering expenses.”

Average Net Assets: We need this to calculate portfolio yield. The Total Assets of the fund at year end was $610.1-million, compared to $700.9-million on May 31, so call it an average of $655.5-million. Preferred share dividends of $9,579,729 were paid over the half year at 0.55 p.a. (a temporary boost from the required 0.525), implying average units outstanding 34.836-million, at an average NAVPU of (17.31 + 18.32)/2 = 17.815, implies net assets of $620.6-million. Say the Average Net Assets are the average of the two estimates, $660.8-million.

Underlying Portfolio Yield: Income received of $8,304,005 divided by average net assets of $660.8-million, multiplied by two because it’s semiannual is 2.51%.

Income Coverage: Net investment income of $4,279,848 (before capital gains) divided by preferred share dividends of $9,579,729 is a very low 45%.

The income coverage calculated is fairly close to the 0.4 times calculated by DBRS in December 2017.

Enbridge Inc. has announced (on August 2):

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series H (Series H Shares) (TSX: ENB.PR.H) on September 1, 2018. As a result, subject to certain conditions, the holders of the Series H Shares have the right to convert all or part of their Series H Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series I of Enbridge (Series I Shares) on September 1, 2018. Holders who do not exercise their right to convert their Series H Shares into Series I Shares will retain their Series H Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series H Shares outstanding after September 1, 2018, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on September 1, 2018; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series I Shares outstanding after September 1, 2018, no Series H Shares will be converted into Series I Shares. There are currently 14,000,000 Series H Shares outstanding.

With respect to any Series H Shares that remain outstanding after September 1, 2018, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series H Shares for the five-year period commencing on September 1, 2018 to, but excluding, September 1, 2023 will be 4.376 percent, being equal to the five-year Government of Canada bond yield of 2.256% percent determined as of today plus 2.12 percent in accordance with the terms of the Series H Shares.

With respect to any Series I Shares that may be issued on September 1, 2018, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series I Shares for the three-month floating rate period commencing on September 1, 2018 to, but excluding, December 1, 2018 will be 0.88756 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 1.44 percent plus 2.12 percent in accordance with the terms of the Series I Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series H Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2018 until 5:00 p.m. (EST) on August 17, 2018, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.H is a FixedReset, 4.00%+212, that commenced trading 2012-3-29 after being announced 2012-3-20. The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., ENB.PR.H and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market appears to be relatively uninterested in floating rate product; the implied rates until the next interconversion bracket the current 3-month bill rate as the averages for investment-grade and junk issues are at +1.49% and +1.22%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the ENB.PR.H FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of ENB.PR.H continue to hold the issue and not to convert, but I will wait until it’s closer to the August 17 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Manulife Financial Corporation has announced (although not yet on their website):

that it does not intend to exercise its right to redeem all or any of its currently outstanding 8,000,000 Non-cumulative Rate Reset Class 1 Shares Series 13 (the “Series 13 Preferred Shares”) (TSX: MFC.PR.K) on September 19, 2018. As a result, subject to certain conditions described in the prospectus supplement dated June 17, 2013 relating to the issuance of the Series 13 Preferred Shares (the “Prospectus”), the holders of the Series 13 Preferred Shares have the right, at their option, to convert all or part of their Series 13 Preferred Shares on a one-for-one basis into Non-cumulative Floating Rate Class 1 Shares Series 14 of Manulife (the “Series 14 Preferred Shares”) on September 19, 2018. A formal notice of the right to convert Series 13 Preferred Shares into Series 14 Preferred Shares will be sent to the registered holders of the Series 13 Preferred Shares in accordance with the share conditions of the Series 13 Preferred Shares. Holders of Series 13 Preferred Shares are not required to elect to convert all or any part of their Series 13 Preferred Shares into Series 14 Preferred Shares. Holders who do not exercise their right to convert their Series 13 Preferred Shares into Series 14 Preferred Shares on such date will retain their Series 13 Preferred Shares, unless automatically converted in accordance with the conditions below.

The foregoing conversion right is subject to the conditions that: (i) if, after September 4, 2018, Manulife determines that there would be less than 1,000,000 Series 13 Preferred Shares outstanding on September 19, 2018, then all remaining Series 13 Preferred Shares will automatically be converted into an equal number of Series 14 Preferred Shares on September 19, 2018, and (ii) alternatively, if, after September 4, 2018, Manulife determines that there would be less than 1,000,000 Series 14 Preferred Shares outstanding on September 19, 2018, then no Series 13 Preferred Shares will be converted into Series 14 Preferred Shares. In either case, Manulife will give written notice to that effect to any registered holders of Series 13 Preferred Shares affected by the preceding minimums on or before September 11, 2018.

The dividend rate applicable to the Series 13 Preferred Shares for the 5-year period commencing on September 20, 2018, and ending on September 19, 2023, and the dividend rate applicable to the Series 14 Preferred Shares for the 3-month period commencing on September 20, 2018, and ending on December 19, 2018, will be determined and announced by way of a news release on August 21, 2018. Manulife will also give written notice of these dividend rates to the registered holders of Series 13 Preferred Shares.

Beneficial owners of Series 13 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on September 4, 2018. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825.

Subject to certain conditions described in the Prospectus, Manulife may redeem the Series 13 Preferred Shares, in whole or in part, on September 19, 2023 and on September 19 every five years thereafter and may redeem the Series 14 Preferred Shares, in whole or in part, after September 19, 2018.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 14 Preferred Shares effective upon conversion. Listing of the Series 14 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 14 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.K is a FixedReset, 3.80%+222, that commenced trading 2013-6-21 after being announced June 17. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex. Since it is an insurance holding company issue without a NVCC clause, a Deemed Maturity at par as of 2025-1-31 has been added to the redemption schedule as is my normal practice.

I will have more to say once the reset dividend rate is announced on August 21.

Emera Incorporated has announced:

that after having taken into account all conversion notices received from holders of its outstanding Cumulative Rate Reset First Preferred Shares, Series C (the “Series C Shares”) by the July 31, 2018 deadline for conversion notices, less than the 1,000,000 Series C Shares required to give effect to conversions into Cumulative Floating Rate First Preferred Shares, Series D (the “Series D Shares”) were tendered for conversion. As a result, none of Emera’s outstanding Series C Shares will be converted into Series D Shares on August 15, 2018. The Series C Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol EMA.PR.C.

It will be recalled that after notice of extension the rate was reset to 4.721% and that I recommended against conversion.

EMA.PR.C was issued as a FixedReset, 4.10%+265, that commenced trading 2012-6-7 after being announced 2012-5-29. DBRS discontinued coverage of Emera in June, 2016. The preferreds are rated P-2(low) by S&P. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex.

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake 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 TD Securities Inc., BMO Capital Markets, Canaccord Genuity Corp., Industrial Alliance Securities Inc., Echelon Wealth Partners, GMP Securities L.P., Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.6% and the Class A Shares will be offered at a price of $8.80 per Class A Share to yield 13.6%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on August 7, 2018 was $10.14 and $8.90, respectively.

Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $7.26 per share and the aggregate dividends declared on the Class A Shares have been $12.15 per share, for a combined total of $19.41. 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 5.50% 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 August 9, 2018. The offering is expected to close on or about August 16, 2018 and is subject to certain closing conditions including approval by the TSX.

So they’re charging 18.70 per Whole Unit, a hefty 8.2% premium to the 2018-07-31 NAVPU of 17.28. What a nice business it is!

FFN.PR.A last got bigger in October, 2017. It will be recalled that there was a temporary boost in preferred Dividend at the end of September, 2017; there is no current word on whether this boost will be extended.

Update, 2018-8-12: The offering was successful:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 3,363,000 Preferred Shares and up to 3,363,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $62.9 million.