When writing about the recent Quebecor World downgrade I noted:
At Pfd-5, there’s not much further IQW.PR.C / IQW.PR.D can go!
Well, now they’re taking that last step:
Quebecor World Inc. (TSX: IQW, NYSE: IQW) (the “Company”) announced today that it is suspending dividend payments on its Series 3 and Series 5 Preferred Shares. While the Company has the funds available to pay such dividends, it has been advised by counsel that as a result of recent developments, the Company may be prevented from paying dividends to holders of its preferred shares because it may not satisfy the applicable capital adequacy test contained in the Canada Business Corporations Act («CBCA»). In order to rectify this situation, the Company intends to propose to its shareholders at its next annual shareholders meeting scheduled for May 2008 a reduction of stated capital as permitted under the CBCA to allow the Company to resume paying dividends, including accrued, unpaid dividends. The Company notes that the dividends on the Series 3 and Series 5 preferred shares (including dividends that were to be paid on December 1, 2007) are cumulative and holders will be entitled to receive unpaid dividends, when declared by the Board of Directors, at such time as the Company is permitted to resume the payment of dividends.
It is not clear to me what effect, if any, this will have on the softMaturity of the IQW.PR.C which will occur prior to the meeting; and I’m not sure why they would choose to default on the IQW.PR.C rather than convert to common.
Sure, they don’t want to dilute the common, but why is this so much worse than defaulting?
Update: For those who are interested, here is the DBRS rating history of Quebecor World (and its predecessor corporation):
| Quebecor World DBRS Rating History | |
| Date | Rating |
| April 17, 1998 | Pfd-2 |
| October 1, 1998 | Pfd-2(low) “high” & “low” appendages had not previously been used. |
| September 20, 1999 | Pfd-3(high) |
| June 3, 2003 | Pfd-3 |
| October 24, 2003 | Pfd-3(low) |
| December 23, 2005 | Pfd-4(high) |
| August 9, 2006 | Pfd-4 |
| August 30, 2007 | Pfd-5(high) |
| October 4, 2007 | Pfd-5 |
| November 26, 2007 | D |
Update #2, 2007-11-26: DBRS has downgraded the preferreds to “D” (surprise!):
While the cumulative nature of the Series 3 and Series 5 preferred shares affords Quebecor World the flexibility to suspend dividends, provided dividends are paid in arrears, DBRS notes preferred shareholders maintain a level of expectation that these dividends will be paid in a timely manner, and this expectation is reflected in the preferred share ratings. Having not met the expectation of preferred shareholders, DBRS notes the preferred shares are more reflective of a “D” rating.
…
DBRS expects the conversion feature on the Series 5 preferred shares, which become convertible at the option of the Company on December 1, 2007, and at the holder’s option on March 1, 2008, will not be affected by the dividend suspension, and the conversion calculation will adjust to include accrued and unpaid dividends in the numerator of the equation, as per the Series 5 prospectus document dated August 3, 2001.
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