PrefBlog

BCE Inc. has announced:

• Transaction enterprise value of approximately $3.9 billion: BCE to acquire all issued and outstanding common shares of MTS for approximately $3.1 billion and assume outstanding net debt of approximately $0.8 billion
• $40 per common share value represents a significant premium for MTS shareholders; transaction unanimously recommended by the MTS Board of Directors
• Bell MTS team will serve customers across Manitoba, Winnipeg head office will become Bell’s Western Canada headquarters
• $1-billion, 5-year capital investment commitment to expand broadband wireless and wireline networks in urban and rural locations throughout Manitoba
• Free cash flow accretion supports Bell’s broadband leadership strategy, dividend growth objective

MONTRÉAL and WINNIPEG, May 2, 2016 /CNW Telbec/ – BCE Inc. (Bell) (TSX: BCE) (NYSE: BCE) today announced that it will acquire all of the issued and outstanding common shares of Manitoba Telecom Services Inc. (MTS) (TSX: MBT) in a transaction valued at approximately $3.9 billion.
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Bell plans to invest $1 billion in capital over 5 years after the transaction closes to expand its broadband networks and services throughout Manitoba, including:

• Gigabit Fibe Internet availability, delivering Internet speeds on average up to 20 times faster than those currently offered to MTS customers, within 12 months after the transaction closes.
• the rollout of Fibe TV, Bell’s innovative broadband television service.
• accelerated expansion of the company’s award-winning LTE wireless network throughout the province, with average data speeds twice as fast as those now available to MTS customers.
• integration of MTS’s Winnipeg data centre with Bell’s existing national network of 27 data and cloud computing centres, Canada’s largest, and the country’s most extensive broadband fibre network footprint.

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BCE will fund the cash component of the transaction from available sources of liquidity and will issue approximately 28 million common shares for the equity portion of the transaction, which offers MTS shareholders access to BCE’s dividend growth potential. The BCE dividend has been increased 12 times, representing an aggregate increase of 87%, since Q4 2008 and currently delivers an attractive 4.6% yield. When the transaction is completed, MTS shareholders will own approximately 3% of pro forma BCE common equity.

They later announced:

that it will divest one-third of the postpaid wireless subscribers of Manitoba Telecom Services Inc. (MTS) (TSX: MBT) to TELUS Corp. (TSX: T, NYSE: TU) following the completion of Bell’s acquisition of MTS announced earlier today. As part of the transaction, Bell will also assign one-third of MTS dealer locations in Manitoba to TELUS.

“This transaction with TELUS enhances wireless competition to the benefit of Manitobans while reducing the cost of our acquisition of MTS,” said George Cope, President and CEO of BCE and Bell Canada.

The Bell-TELUS transaction is subject to regulatory approvals and customary closing conditions. The Bell-MTS transaction is not conditional on completion of the Bell-TELUS transaction.

DBRS currently has BCE’s preferred shares at Pfd-3(high) and says that it:

has today placed all ratings of Bell Canada (the Company) and its parent company BCE Inc. (BCE) Under Review with Negative Implications, following the Company’s announcement that it has entered into a definitive arrangement agreement to acquire all of the issued and outstanding shares of Manitoba Telecom Services Inc. (MTS; rated BBB with a Stable trend by DBRS).
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DBRS forecasts that pro forma debt should peak at $22.3 billion upon closing of the Transaction, compared to $20.4 billion at the end of Q1 2016. As such, gross debt-to-EBITDA is expected to increase moderately to between 2.4x and 2.5x, from 2.36x in LTM Q1 2016. While this Transaction, in and of itself, is not viewed as materially negative to the Company’s financial risk profile, DBRS believes that the Company’s prolonged period of elevated financial leverage, coupled with continually mounting risks within the communications industry, has gradually eroded flexibility in the current rating levels. DBRS notes that the Company has completed several largely debt-financed acquisitions since in recent years, including: CTVglobemedia Inc. in 2011, Maple Leafs Sports and Entertainment Ltd. in 2012, Astral Media Inc. in 2013 and the minority interest in Bell Aliant in 2014, as well as over $1 billion in spectrum acquisitions in 2014 and 2015. This contributed to Bell Canada remaining above its internal financial leverage target (net debt-to-EBITDA of 1.75x to 2.25x) and a range suitable for the A (low) rating category.

DBRS had chosen to see through elevated leverage associated with previous acquisitions, based on the combination of benefits to the Company’s business profile and expectations of deleveraging to levels appropriate for an A (low) category within a reasonable time frame. In its most recent confirmation and following the Bell Aliant transaction, DBRS stated that it expected the Company to reduce gross debt-to-EBITDA toward 2.0x by mid-2017, and that failure to do so could result in a negative rating action. DBRS estimates that this previously understood schedule for deleveraging could be delayed by 12 to 18 months as a result of the MTS acquisition.

DBRS is reluctant to extend the deleveraging time frame once again due to the protracted period of elevated financial leverage, combined with intensifying competition in the wireless market, and increased risks in the media business, including structural (cord shaving/cord cutting and over-the-top video streaming) and regulatory changes (pick and pay) affecting television broadcasting, coupled with weakness in advertising. Furthermore, DBRS estimates that the Company’s pro forma free cash flow (after dividends) to total debt will remain below 5% over the near to medium term, which could limit management’s ability to deleverage by an adequate degree.

Meanwhile S&P states:

that BCE Inc.’s announcement that it would acquire Manitoba Telecom Services Inc. (MTS) does not affect its rating or outlook on BCE (BBB+/Stable/–). We expect that the C$3.9 billion acquisition, which is about 45% equity funded, would preserve BCE’s debt leverage below our key 3.0x adjusted debt to EBITDA threshold for rating pressure.
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We estimate that the proposed transaction would be modestly leveraging under our base-case forecasts for BCE and MTS, holding BCE’s pro forma adjusted debt to EBITDA at about 2.8x in 2016 before improving slowly to about 2.7x in 2017. Moreover, we estimate that funds from operations to debt would remain below 30% until 2018, which is weak for the rating. That said, our adjusted leverage estimate is only 0.1x higher because of this transaction, which accounts for less than 5% of BCE’s enterprise value.

S&P Global Ratings believes that the acquisition has limited potential to improve BCE’s profitability and returns, despite MTS’ higher EBITDA margins, given the multiple paid, reflecting MTS’ unique wireline and wireless franchise in Manitoba, as well as the modest geographic or operational overlap with BCE’s assets.

S&P rates the BCE preferreds at P-2(low).

Affected issues are: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.J, BCE.PR.K, BCE.PR.M, BCE.PR.N, BCE.PR.O, BCE.PR.Q, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y and BCE.PR.Z.

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of 10,000,000 cumulative redeemable minimum rate reset class A preferred shares, Series 13 (the “Series 13 Preferred Shares”) for aggregate gross proceeds of $250 million (the “Offering”). The Offering was announced on April 18, 2016 when Pembina entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets and Scotiabank.

The Company intends to use the net proceeds from the Offering for capital expenditures and working capital requirements in connection with the Company’s 2016 capital program and to reduce indebtedness under the Company’s credit facilities.

The Series 13 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol PPL.PR.M.

Dividends on the Series 13 Preferred Shares are expected to be $1.4375 per share annually, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, for the initial fixed rate period to but excluding June 1, 2021. The first dividend, if declared, will be payable September 1, 2016, in the amount of $0.5002 per share.

All of Pembina’s dividends are designated “eligible dividends” for Canadian income tax purposes.

PPL.PR.M is a FixedReset, 5.75%+496M575, announced April 18. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 1,037,730 shares today (consolidated exchanges) in a range of 24.93-10 before closing at 24.99-04, 1×105. This should be considered “soft”, given that the TXPL total return index returned +1.45% from April 18 to April 27. Vital statistics are:

Implied Volatility analysis continues to show a high level of Implied Volatility, with the spread widening since announcement day:

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Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners, has announced:

the completion of its previously announced Preferred Shares, Series CC issue in the amount C$200 million. The offering was underwritten by a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank. On April 18, 2016, the syndicate agreed to purchase 6,000,000 Preferred Shares, Series CC at C$25.00 per share and has since exercised its option in full to purchase an additional 2,000,000 shares at the same offering price.

The Preferred Shares, Series CC will yield 6.00% annually for the initial period ending June 30, 2021. Net proceeds from the issue will be added to the general funds of Brookfield Office Properties and be used for general corporate purposes, including, but not limited to, redemption of existing preferred shares, repayment of revolving debt, acquisitions, capital expenditures and working capital needs.

The Preferred Shares, Series CC will commence trading on the Toronto Stock Exchange on April 27, 2016 under the ticker symbol BPO.PR.C.

BPO.PR.C is a FixedReset, 6.00%+518M600, announced April 18. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 898,337 shares today (consolidated exchanges) in a range of 25.10-25 before closing at 25.18-21, 26×25. This is reasonably close to the expected value, given that the TXPL total return index returned +1.45% from April 18 to April 27. Vital statistics are:

Implied Volatility analysis shows the same peculiar behaviour as was noted on the announcement date, with BPO.PR.N (resetting at +307 on 2016-6-30) and BPO.PR.R (+348 on 2016-9-30) both showing a far higher Expected Future Current Yield than the new issue, despite the new issue’s far higher Issue Reset Spread.

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Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners, has announced:

that it intends to redeem all 8,000,000 of its outstanding Class AAA Preference Shares, Series H (TSX: BPO.PR.H), all of which are beneficially held by CDS & Co., as nominee of CDS Clearing and Depositary Services Inc., for cash on May 23, 2016. The redemption price for each such share will be C$25.00 plus accrued and unpaid dividends thereon.

Notice of Redemption has been sent to CDS & Co. Payment of the redemption price will be made to all beneficial holders of the Series H Shares on or after May 23, 2016 through the facilities of CDS & Co.

BPO.PR.H is an interesting issue since, pursuant to a Plan of Arrangement announced in May, 2014, some holders exchanged their shares for preferred shares of Brookfield Property Split Corp. (symbol BPS):

56.8% of the BPO preference shares series H that holders elected (or are deemed to have elected) to exchange for BOP Split preferred shares were exchanged … In aggregate, $25 million of each of the four series of BOP Split preferred shares were issued.

BOP Split still does not have its own website; shareholders are serviced via the Brookfield Office Properties site and SEDAR.

Brompton Funds has announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form base shelf prospectus, and is undertaking a treasury offering of class A and preferred shares. The final class A and preferred share offering prices will be determined so as to be non-dilutive to the net asset value per unit of the Company as of the pricing date, as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.
The Company invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Currently, the portfolio consists of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	CI Financial Corporation	Shaw Communications Inc.
Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce	IGM Financial Inc.	TELUS Corporation
Manulife Financial Corporation	National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	BCE Inc.	Enbridge Inc.
Bank of Montreal	The Toronto-Dominion Bank	Rogers Communications Inc.	TransCanada Corporation

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share and to provide the opportunity for growth in the net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.13125 per preferred share, representing a yield on the original issue price of 5.25% per annum, and to return the original issue price to holders of preferred shares on the Company’s maturity date (November 28, 2019).

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC and Scotiabank.

DGS.PR.A was last mentioned on PrefBlog in connection with its 15H1 Semi-Annual Report.

Update, 2016-4-28: Pricing and sizing announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce that the Company’s treasury offering of class A and preferred shares has been priced at $6.95 per class A share and $10.00 per preferred share. The final class A and preferred share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company, as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering, and voluntary payment of certain costs of the offering by the Manager. Gross proceeds of the offering are expected to be approximately $23 million.
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The Company intends to file a final short form base shelf prospectus along with a prospectus supplement to such final short form base shelf prospectus in each of the provinces and territories of Canada in connection with the offering. The offering is expected to close on or about May 6, 2016 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the Toronto Stock Exchange.

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

Update, 2016-5-6: They raised $23-million:

Dividend Growth Split Corp. (the “Company”) is pleased to announce that it has completed a treasury offering of 1,357,000 class A shares and 1,357,000 preferred shares for aggregate gross proceeds of $23 million. The class A shares and preferred shares will continue to trade on the Toronto Stock Exchange under the existing symbols DGS (class A shares) and DGS.PR.A (preferred shares).