New Issue: FCS SplitShare, Interest-Bearing, 6.00%, 4.5-Year

Faircourt Asset Management has announced (although not yet on their website):

Faircourt Asset Management Inc., the manager of Faircourt Split Trust (the “Trust”) (TSX: FCS.UN; FCS.PR.B), is pleased to announce that it has filed a preliminary short form prospectus for an offering of a new series of 6.00% preferred securities (the “Preferred Securities”) in order to relever the existing trust units (the “Units”) of the Trust and additional Units and Preferred Securities on a matched basis (the “Offering”).

The Preferred Securities are to be issued at $10.00 per Preferred Security to yield 6.00% on the issue price. The Preferred Securities have been provisionally rated Pfd-3 (low) by DBRS Limited.

The Offering is expected to close on or about December 30, 2014. The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014. To the extent the net proceeds of the Offering exceed the funding requirements associated with these redemptions, the Trust may purchase additional securities to be held in the portfolio of securities of the Trust in accordance with the investment objectives and investment strategy of the Trust and subject to the investment restrictions of the Trust.

The syndicate of agents for the Offering is being co-led by National Bank Financial Inc. and CIBC World Markets Inc., and includes Canaccord Genuity Corp., GMP Securities L.P. and Raymond James Ltd.

The preliminary prospectus is available on SEDAR with the references “Dec 10 2014 10:59:07 ET Preliminary short form prospectus – English PDF 378 K”. I am not permitted to link directly to the preliminary prospectus since the Alberta Securities Commission has decided that this would make life too easy for retail scum like you. Suck it up, scumbags!

DBRS has assigned a preliminary rating of Pfd-3(low):

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (low) to the 6.00% Preferred Securities to be issued by Faircourt Split Trust (the Company). The 6.00% Preferred Securities are being issued to fund the redemption of the currently outstanding 6.25% Preferred Securities, which are scheduled to mature on December 31, 2014. Additional 6.00% Preferred Securities and Trust Units may be issued on a matched basis. The 6.00% Preferred Securities will be scheduled to mature on June 30, 2019.

The Company has advised DBRS that the initial downside protection available to holders of the 6.25% Preferred Securities is expected to be approximately 34.9% after the payment of all issuance expenses. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of November 24, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.04 times.

The Dividend Coverage Ratio referred to by DBRS is extremely low but looks accurate. According to the 2014H1 Semi-Annual Report, the fund’s income from “Distributions and dividends” was $ 475,389 and “Interest for distribution purposes” was $27,866, is a total of $503,255. I am ignoring realized and unrealized capital gains for this purpose, as well as “Income from Derivatives” which is capital gains from options trading, and ignoring the Foreign Exchange loss.

Expenses include Management Fees, Service Fees, Audit Fees, Legal Fees, Security Holder Reporting Costs, Custodial Fees, Independent Review Committee Fees and Withholding Taxes, total $456,188 (I’m leaving out Commissions and Other Portfolio Transaction Costs) leaves a net $47,067 to cover $903,204 in Preferred Security interest payments, is an income coverage of 5%. So it looks like the DBRS estimate of 4% is entirely realistic.

This is likely to be a very small issue, but since HIMIPref™ has been tracking FCS.PR.B (which will be refunded from the proceeds of this issue), I’ll track this one too.

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