PrefBlog

Brookfield Soundvest Funds has announced:

that the annual redemption rights attributable to the Capital Units and the Combined Securities (being one Capital Unit and a $10.00 principal amount of Preferred Securities) of the Brookfield Soundvest Split Trust (TSX:BSD.UN)(TSX:BSD.PR.A) (the “Trust”) are being reinstated. The Trust’s annual redemption rights were suspended in October 2008 as a result of provisions in the Declaration of Trust that are applicable where it is anticipated that, after giving effect to redemptions, the Combined Value (NAV plus the Repayment Price which is the $10.00 principal amount of a Preferred Security plus all accrued and unpaid interest on such $10.00 principal amount of a Preferred Security) determined as of the Redemption Date would fall below 1.4 times the Repayment Price determined as of the Redemption Date (“the 1.4 times coverage ratio”). The Trust has performed strongly over the past several months and it is now anticipated that redemptions may be processed without violating the 1.4 times coverage ratio.

Consequently, the Trust intends to reinstate the suspended redemption rights with a specified redemption date of February 14, 2011. This date provides for the notice period required by CDS and the provisions of the Declaration of Trust relevant to the redemption process that apply. Accordingly, each Unitholder who has requested a redemption by depositing Capital Units or Combined Securities with the Registrar and Transfer Agent at least 15 business days prior to February 14, 2011 and in accordance with their deposit requirements will be entitled to receive redemption proceeds calculated and paid in accordance with the Declaration of Trust no later than 15 business days after February 14, 2011.

When Capital Units alone are surrendered for redemption, an equal number of Preferred Securities must be acquired for cancellation, either in the market or, in limited circumstances, pursuant to the Call Right as defined in the Trust Indenture. If the average cost of acquiring Preferred Securities for cancellation exceeds their $10.00 face value plus accrued and unpaid interest thereon, the amount the Capital Unit holder will be entitled to receive will be reduced. If any Capital Unit holder chooses to tender just Capital Units, then he or she will take the risk that their redemption proceeds will be reduced by an uncertain amount. Anyone planning to surrender Capital Units alone is encouraged to read the Trust Indenture and the Amended and Restated Declaration of Trust that are available at www.SEDAR.com and to consult with their financial adviser.

Notwithstanding any other provision in the Declaration of Trust, redemption of Trust Units and Combined Securities may be suspended or payment of redemption proceeds postponed, even if units have been tendered for redemption, if, after giving effect to the redemptions, the 1.4 times coverage ratio cannot be maintained. The Trust will continue to closely monitor its NAV and will make a further announcement in the event that such a suspension or postponement is required.

Cash distributions cannot be paid on the Capital Units of the Trust if, immediately after giving effect to the proposed distribution, the Combined Value determined as of the declaration date will be less than 1.4 times the Repayment Price determined as of the declaration date. The Trust will continue to monitor its net asset value to determine when it will be able to make future distributions on its Capital Units and will issue a news release if such distributions are declared.

Brookfield Soundvest Funds give investors access to tax-advantaged distributions while focusing on capital preservation and long-term total return. The manager and investment advisor and portfolio manager for the Funds is Brookfield Soundvest Capital Management Ltd. (the “Manager”), an established investment advisor, providing investment management services to trusts, foundations, corporations and high net worth individuals.

The manager’s incompetence is such that this press release, dated 2011-1-5, is not yet available on the fund’s press release page.

It will be noted that the press release’s first paragraph contains what is basically a lie. According to the prospectus (emphasis added):

The Trust may suspend the redemption of Capital Units and the repayment of Preferred Securities or postpone repayment of redemption proceeds: (i) during any period when the Investment Advisor advises the Manager that normal trading is suspended on a market where more than 50% of the securities in the Portfolio (in terms of dollar value) trade and, if those securities are not traded on any other exchange that represents a reasonably practical alternative for the Trust; (ii) with the permission of the securities regulatory authorities (if required), for any period not exceeding 120 days during which the Manager determines that conditions exist which render impractical the sale of assets of the Trust or which impair the ability of the Trustee to determine the value of the assets of the Trust, (iii) if, after giving effect to redemptions, the Combined Value would be less than 1.4 times the Repayment Price, or (iv) if the Trust would be insolvent or otherwise unable to pay its liabilities as they become due after giving effect to such redemptions (and repayment, if applicable). The suspension shall apply to all requests for redemption or repayment received prior to the suspension date but for which payment has not been made, as well as to all requests received while the suspension is in effect. All Unitholders or Securityholders making such requests will be advised by the Manager of the suspension and that the redemption or repayment will be effected at a price determined following the resumption of redemptions and repayments. All such Unitholders and Securityholders will have, and will be advised that they have, the right to withdraw their requests for redemption or repayment if such requests were submitted prior to a suspension and payment has not been made, or if such requests were submitted during a period of suspension. Redemptions and repayments will resume in any event on the first day on which the condition giving rise to the suspension has ceased to exist, provided that no other circumstances under which a suspension is authorized then exists. To the extent it is not inconsistent with rules and regulations promulgated by any government body having jurisdiction over the Trust, any declaration of suspension made by the Manager will be conclusive.

See that word? “May”? The Manager has discretion.

The combined unit NAV as of December 31 is $14.41. Asset coverage has indeed recovered to within shouting distance of my usual comfort zone and the 6% coupon (as interest) is indeed nice and fat …. but I have lost confidence in this manager and my comfort zone for Asset Coverage is now more than usual. Suspending the retraction right was abusive to shareholders, and underperformance against the benchmark since inception has been egregious.

Therefore, I recommend retraction.

BSD.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-4(low) by DBRS. BSD.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Thanks to Assiduous Reader cal for bringing this to my attention.

Update, 2011-1-11: The Material Change Report filed on SEDAR dated 2011-1-5 is a little more honest in its wording (emphasis added):

The Amended and Restated Declaration of Trust dated April 30, 2010 (the “Declaration of Trust”) for Brascan Soundvest Split Trust permits the temporary suspension of the redemption of Capital Units and Combined Securities (being one Capital Unit and a $10.00 principal amount of Preferred Securities) if, after giving effect to the redemptions, the Combined Value would be less than 1.4 times the Repayment Price….As a result, the Declaration of Trust permits the suspension of redemptions when the net asset value per Capital Unit is less than approximately $4.00

This entry was posted on Thursday, January 6th, 2011 at 3:53 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.