Scotia Managed Companies has announced that BNS Split Corp II:
has called 192,141 Preferred Shares for cash redemption on September 21, 2007 (in accordance with the Company’s Articles) as a result of the special annual retraction of 1,296,280 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on September 20, 2007 will have approximately 6.863% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $20.83 per share.
The underlying security for BSC.PR.A is shares in the Bank of Nova Scotia. Asset coverage is 2.5:1.
The issue is rated Pfd-2(low) by DBRS, which looks very low to me. Their initial and as yet unchanged rating report for the company dated October 11, 2005, states:
The rating of the Preferred Shares is based on:
(1) The available downside protection, which is approximately 50% to the principal amount of the outstanding Preferred Shares at closing;
(2) The credit quality and consistency of BNS’s dividend distributions; and
(3) Portfolio shares that could be sold to provide liquidity and certainty of dividends to Preferred Shares.The main constraint to the rating is the dependence of the entire portfolio on the shares of BNS for downside protection and dividend income.
The redemption date for both classes of shares will be September 22, 2010.
ScotiaBank preferreds are rated Pfd-1, this represents the upper limit for a split share corporation based on the common. As of last year’s Tier 1 analysis, Scotiabank had … call it $4,000-million of non-equity tier 1 capital covered by $16,000-million-odd equity. So call it 4:1 on the Scotiabank preferreds that are issued directly.
I don’t think Pfd-1 is appropriate until coverage exceeds 3:1 in any event … but I would be comfortable with a Pfd-2(high) rating on BSC.PR.A, given the 2.5:1 coverage.
BSC.PR.A is not tracked by HIMIPref™
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