PrefBlog

DBRS has announced:

BRS Limited (DBRS Morningstar) downgraded its rating on the Preferred Shares issued by Brompton Split Banc Corp. (the Company) to Pfd-3 from Pfd-3 (high). The Preferred Shares have experienced a drop in downside protection (to 46.8% in July 2023 from 50.2% in July 2022) as a result of the decline in the portfolio’s net asset value (NAV) in response to the volatility in the stock market, which was triggered by the mix of the global high inflationary environment, tighter monetary policies, and various geopolitical events, such as the Russia-Ukraine war.

The Company invests in a portfolio of common shares (the Portfolio) issued by the six major banks in Canada—Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and The Toronto-Dominion Bank—and one exchange-traded fund (ETF), Brompton North American Financials Dividend ETF. Up to 10% of the Portfolio may be invested in global financial companies from time to time. The Portfolio portion allocated to the major banks remains approximately equally weighted.

Distributions on the Preferred Shares are made quarterly in the amount of $0.15625, yielding 6.25% annually on the original $10.00 issue price. Distributions on the Class A Shares are made monthly in the amount of $0.10 per share. No monthly distributions to the Class A Shares will be made if distributions to the Preferred Shares are in arrears or the NAV of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares.

As of July 27, 2023, the downside protection stood at 46.8% compared with 50.2% as on July 31, 2022. Dividend coverage based on the current dividend yield on the portfolio was 1.3x. Without giving consideration to the capital appreciation potential or any source of income other than the dividends earned by the portfolio, the targeted monthly distributions to the Class A Shares are likely to create a grind on the portfolio’s NAV equivalent to 5.7% over the remaining term to maturity. The Company can write covered call options for some or all of the portfolio’s common shares to generate additional income to supplement the dividends received on the portfolio. In addition, the Company may enter into Securities Lending Agreements in order to generate an alternative source of income.
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The main constraints to the rating are the following:

(1) The downside protection available to holders of the Preferred Shares depends on the value and dividend policies of the securities in the portfolio. In current times, valuation is exposed to market fluctuations resulting from sticky inflation, economic slowdown, and the Russia-Ukraine war.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.

(3) The Company relies on the portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.

(4) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

Fortis Inc. has given notice:

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, 2023 to, but excluding, September 1, 2028 (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 6.123% per annum, being equal to the 3.993% 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, 2023 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.

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 was issued as a FixedReset, 5.25%+213 that commenced trading 2008-5-23 after being announced 2008-5-6. It reset to 3.883% in 2013 and to 4.393% in 2018.

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.

Enbridge Inc. has announced:

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, 2023. 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, 2023. 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, 2023, then all remaining Series H Shares will automatically be converted into Series I Shares on a one-for-one basis on September 1, 2023; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series I Shares outstanding after September 1, 2023, 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, 2023, 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, 2023 to, but excluding, September 1, 2028 will be 6.112 percent, being equal to the five-year Government of Canada bond yield of 3.992 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, 2023, 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, 2023 to, but excluding, December 1, 2023 will be 1.79258 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 5.07 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, 2023 until 5:00 p.m. (EST) on August 17, 2023, 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 was issued as a FixedReset, 4.00%+212, that commenced trading 2012-3-29 after being announced 2012-3-20. It will reset to 4.376% effective 2018-9-1. The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.