PrefBlog

DBRS commented on the Enbridge deal:

DBRS Limited (DBRS) notes that Enbridge Inc. (ENB; rated BBB (high) with a Stable trend by DBRS), the parent of Westcoast Energy Inc. (Westcoast or the Company; rated A (low) with a Stable trend by DBRS), has announced that it has agreed to sell its Canadian natural gas gathering and processing business in British Columbia (B.C.) and Alberta to Brookfield Infrastructure Partners and its institutional partners for a cash purchase price of $4.31 billion, subject to customary closing adjustments and receipt of regulatory approvals. The assets include 19 natural gas processing plants and liquids handling facilities with a total operating capacity of 3.3 billion cubic feet per day and 3,550 kilometres of natural gas gathering pipelines. ENB has entered into separate sale agreements for those assets governed by provincial regulations in Alberta and B.C. and those governed by federal National Energy Board (NEB) regulations. The sale of the provincially regulated assets is expected to close in 2018, while the sale of the federally regulated assets is expected to close in mid-2019.
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DBRS views the sale of Westcoast’s gas gathering and processing business as moderately positive for the Company’s business risk profile, as it eliminates volume risk. However, in the absence of detailed information on the EBITDA for the assets being sold and how the proceeds will be used at the Westcoast level, the impact of the sale on Westcoast’s financial risk profile is not clear at this time. DBRS expects ENB to use the proceeds of the sale that are directly owned by Westcoast in a manner that will maintain Westcoast’s financial metrics at levels consistent with the current ratings and will review details of the sale, regulatory approvals and use of proceeds as they become available.

With respect to ENB, DBRS believes that the transaction is consistent with the goals of ENB’s previously communicated strategic plan and financial outlook and is supportive of the current ratings.

PerpetualDiscounts now yield 5.47%, equivalent to 7.11% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 3.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”> is now about 325bp, a significant narrowing from the 335bp reported June 27.

PerpetualDiscounts now yield 5.51%, equivalent to 7.16% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 3.80%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 335bp, a slight (and perhaps spurious) narrowing from the 340bp reported June 20.

I’ve never really understood the stock market excitement about marijuana. Sure, there will be some good money to be made in branding and retailing, but at its core the business is about farming. Now it’s even more about farming:

However, new regulations the federal government is expected to unveil this week will open the door to commercial outdoor cultivation. While it is too late in the production cycle in most of the country to start outdoor cultivation this year, the new rules will be in place for next year’s production season.

“Our decision to allow outdoor grow under strict rules is the result of extensive consultations and will contribute to creating a diverse and competitive legal cannabis industry with the ultimate goal of displacing the illegal market,” said Thierry Bélair, a spokesman for Health Minister Ginette Petitpas Taylor.

Nothing wrong with farming and a lot of people earn their daily bread by farming … but it’s not a business that gushes money. Now, if we can only convince the politicians that it cannot be infinitely taxed, we might even be able to squeeze organized crime out of the picture.

I indulged myself on February 26, complaining about sales competition from Mortgage Investment Corporations:

I have a great personal interest in this matter, as every now and then a prospective client sneers at the pathetic yield offered by preferred shares and condescendingly informs me that he can get 8%, no problem, from a mortgage investment corporation. I don’t think these guys know about risk … but then, they don’t have to! Every one I’ve ever talked to is smart enough that he’ll get out before problems become apparent to the hoi polloi.

So I’m following the Fortress receivership with great interest:

Syndicated mortgage loans for real estate projects developed by Fortress Real Developments Inc. are “under considerable stress,” and lenders could face “significant losses,” according to a new report from a court-appointed receiver.

In its first update since it was appointed in April, FAAN Mortgage Administrators Inc. said some of the largest loans provided for Fortress projects are at risk because senior mortgage lenders are moving to foreclose on the properties.
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FAAN said it needs more time and money to do more appraisals of the projects to find the best potential outcomes for the syndicated lenders, whose loans often rank in third place or lower to those of other lenders.
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FAAN’s update also said about 35 per cent of the money raised from syndicated lenders was used to pay “development consultant fees,” about half going to the brokers who raised the funds from individual investors, and the other half paid to BDMC in its capacity as the borrowers’ broker and to Fortress.

It’s hard to make money when 35% of your investment pays up-front brokerage fees!

FAAN is communicating well, with links to relevant material prominently displayed on the index page of their website. There are a few juicy bits in the Report of the Receiver:

Moreover, many Investors agreed to terms that permit repayment “waterfalls” that, at least in some instances, appear to permit owners of the real estate (including the borrowers and owners of the borrowers) to recover some of the amounts they invested in the developments in priority to the amounts loaned by the Investors.
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The Trustee has been advised that many of the projects need further funding to permit developments to continue and that such funding is only available if the security interests granted to BDMC are further postponed and subordinated to new financing.

Professional fees appear to be $150,000 monthly, according to Paragraph 53 of the report. Oh, it’s a great business!

Manulife is exiting the fixed annuities business:

Toronto-based Manulife Financial Corp.‘s decision to discontinue external sales of individual fixed annuities will mean there are fewer options in an already limited annuities marketplace for clients who are seeking a guaranteed income stream during retirement.
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Manulife became one of the largest providers of annuities in Canada following its acquisition of Montreal-based Standard Life Assurance Co. of Canada in 2015, the latter of which offered a “full spectrum of products,” according to Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont.

Manulife’s exit from the annuities business leaves a big gap. In fact, Geller says, there are “fewer and fewer” insurers offering annuities.
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In 2011, Manulife’s U.S. subsidiary, Boston-based John Hancock Financial, discontinued several annuities lines because of low interest rates and volatile equities markets. That year, Manulife’s income statement took a hit of $900 million triggered by John Hancock’s annuities-related losses.

Then, in 2013, Toronto-based Sun Life Financial Inc. sold its U.S. annuities business following earlier losses for reasons similar to those suffered by John Hancock, which forced Sun Life to beef up its reserves.
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Although Manulife is exiting this space, other big insurers, such as Toronto-based Canada Life Assurance Co., Winnipeg-based Great-West Life Assurance Co. and Sun Life, continue to offer fixed annuities in Canada.

The Canada Five-Year yield dropped below 2% today (1.97%, to be precise), the first time it’s been there in a while. But the preferred share market had a good day anyway. So go figure …