PrefBlog

Canadian Life Companies Split Corp. has announced:

a Class A share consolidation for all Class A shareholders of record on June 25, 2012 (the “Consolidation”) that will decrease the number of Class A shares held by each Class A shareholder. The purpose of the share Consolidation is to maintain an equal number of Class A shares and Preferred shares outstanding. The intrinsic value of each investor’s holdings in Class A shares will remain the same after the Consolidation. The decrease in the number of Class A shares would be proportionate to the increase in the net assets attributable to the Class A shares.

As a result of the successful vote to reorganize the Preferred shares of the Company at the recent Special Meeting of Shareholders held on April 16, 2012, both Class A shareholders and Preferred shareholders were given a special retraction right. This special retraction right allowed both classes of shareholders to tender one or both classes of shares. In aggregate, there were more Preferred shares tendered for retraction than Class A shares. Since the Company is required to maintain an equal number of shares outstanding for each class as per the prospectus, the Company must decrease the Class A shares to match the number of Preferred shares.

Immediately after payments for the May and June monthly retraction and the special retraction right on June 19, 2012, there will be 7,776,613 Preferred shares and 10,693,243 Class A shares outstanding. In order to restore an equal amount of shares outstanding for each class, Class A shareholders of record as at June 25, 2012 will receive approximately 0.7272455138 Class A shares for each Class A share outstanding. The decrease in shares (Consolidation) is a non taxable event.

The impact of the Class A share Consolidation will be reflected in the next reported net asset value per unit as at the June 22, 2012 Consolidation date. Net assets of the Company after the retraction payments will be approximately $91.7 million.

The pre-consolidation 2012-6-15 NAVPU of 11.13 may therefore be translated pro-forma into about 11.55 post-consolidation.

The pre-consolidation Capital Units outstanding was 10,712,753, which implies that about 20,000 Capital Units were retracted and uncirculated. I am a bit surprised at that, given that the closing price of LFE has been significantly higher than the retraction price on all dates following the retraction date.

In the last post on this issue, LFE.PR.A: Recirculating?, I noted that the May 31 (pre-consolidation) NAVPU was 11.32; thus the fund lost approximately 1.68% for the two weeks. This may be compared with the performance of the constituents of the underlying portfolio:

It looks like the company was prudent and raised the required cash on or about the redemption valuation date!

LFE.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

This entry was posted on Tuesday, June 19th, 2012 at 6:58 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.