PrefBlog

Brookfield Soundvest Capital Management Ltd. has announced:

Brookfield Soundvest Split Trust (TSX:BSD.UN)(TSX:BSD.PR.A) (referred to as the “Trust”) is pleased to announce that holders (the “Preferred Securityholders”) of preferred securities (the “Preferred Securities”) of the Trust and holders (the “Unitholders”) of trust units of the Trust (the “Units”) approved the extraordinary resolution relating to the Preferred Securities and the extraordinary resolution relating to the Units at a special meeting (the “Meeting”) of the Preferred Securityholders and the Unitholders held on March 27, 2015.

The extraordinary resolution relating to the Preferred Securities will allow the Trust to implement the following:

• •extend the term of the Preferred Securities for additional five-year renewal terms following the scheduled maturity date of March 31, 2015;
• •determine the interest rate on the Preferred Securities for each subsequent extended five-year renewal term of the Preferred Securities, and set the interest rate for the first renewal term at 6.0% per annum; and
• •provide the Preferred Securityholders with the right to retract and receive repayment of their Preferred Securities on March 31, 2015, and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Preferred Special Repayment Right”).

The extraordinary resolution relating to the Units will allow the Trust to implement the following:

• •provide the Unitholders with the right to retract, in the aggregate, a number of Units not exceeding the number of Preferred Securities tendered under the Preferred Special Repayment Right on March 31, 2015 and at the end of each subsequent renewal term of the Preferred Securities, if they so choose (the “Unit Special Retraction Right”), and receive redemption proceeds equal to the net asset value per Unit as of such dates, and to the extent that more Units are tendered for retraction under the Unit Special Retraction Right than Preferred Securities tendered for repayment under the Preferred Special Repayment Right, Units so tendered will be redeemed on a pro rata basis; and
• •in order to maintain the same number of the Units and the Preferred Securities outstanding, in the event that more Preferred Securities are tendered for repayment under the Preferred Special Repayment Right than Units tendered for retraction under the Unit Special Retraction Right, provide the Trust with the ability to consolidate the Units on or about March 31, 2015 and at the end of each subsequent renewal term of the Preferred Securities.

The Trust also announces today that holders of 1,988,024 Units have given notice to the Trust that they wish to exercise the Unit Special Retraction Right up to the number of Units not exceeding the number of Preferred Securities tendered pursuant to the right of Preferred Securityholders to retract and receive repayment of their Preferred Securities pursuant to the Preferred Special Repayment Right. As announced by the Trust on March 16, 2015, holders of 1,779,807 Preferred Securities have given notice to the Trust that they wish to exercise the Preferred Special Retraction Right.

In order to maintain an equal number of Units and Preferred Securities outstanding, 1,779,807 Units will be redeemed on March 31, 2015, on a pro rata basis, from the holdings of those Unitholders who have exercised the Unit Special Retraction Right. This means that 89.53% of the Units surrendered for redemption by Unitholders pursuant to the Unit Special Redemption Right will be retracted. As announced on March 16, 2015, the Trust is reinstituting the annual redemption right available to Unitholders and accordingly Unitholders will be able to redeem Units under the annual redemption right in November, 2015.

The manager, investment advisor and portfolio manager for the Fund is Brookfield Soundvest Capital Management Ltd. (the “Manager”), an established investment advisor, that provides investment management services to trusts, foundations, corporations and high net worth individuals.

So, in line with the manager’s general attitude towards its unitholders, the percentage voting in favour of this ridiculous plan was not disclosed. I had recommended against the proposal; but 44% of preferred shareholders voted with their feet.

So what have the remaining preferred shareholders let themselves in for? I’ve taken a look at the 14H1 Semi-Annual Report and figures of interest are:

MER: Fees and Expenses of $217,000 over six months on total assets of $40.07-million is 1.83% of the whole unit value, annualized. Note that the report states:

Fees and expenses for the six months ending June 30, 2014 totalled $217 thousand, compared to $258 thousand for the same period in 2013, representing an annualized management expense ratio (“MER”) of 2.47% as compared to 2.64% for the six months ending June 30, 2013. The MER is based on the total expenses of the Fund for the stated period (excluding brokerage commissions) and is expressed as an annualized percentage of the daily average net asset value for the period. The MER before interest expense for the six months ending June 30, 2014 and 2013 was 2.47% and 2.31%, respectively. Fees and expenses for the six months ending June 30, 2014 decreased as compared to the same period in 2013 in response to the decrease in net asset value for the six months ending June 30, 2014 relating to the September 2013 redemption of 609,675 units. The net asset value increased by 2.9% while expenses decreased by 15.9% for the six months ending June 30, 2014.

Note that the percentage figure has defined net assets as being the Capital Unitholders’ interest only and does not include preferreds. We may expect the MER to increase in the future, given the 44% cut in assets.

Average Net Assets: We need this to calculate portfolio yield. Since fees and expenses of $217,000 represented a MER of 2.74% on average net assets, we calculate Average Net Assets to be $7.92-million, but this is only the Capital Units. Add in 32,150,310 for the preferreds, and the total is $40.07-million.

Underlying Portfolio Yield: Distributions received of 400,044 divided by average net assets of 40.07-million is 2.00% annualized.

Income Coverage: Net Investment Income 400,044 gross income less expenses of 216,887 is 183,157 divided by Preferred Share Distributions of 385,804 is 47%.

These figures, together with the prospectus, the website and a guess a Capital Units dividend payout policy, allow us to estimate Split Share Credit Quality using the Split Share Credit Quality Calculator:

Note that the distributions on the preferreds are as interest, not dividends! And also note that while, in the interests of fairness, I have used 7% as the expected annual return on the underlying portfolio, the manager’s track record makes me dubious about their ability to match their benchmark.

BSD.PR.A will continue to be tracked by HIMIPref™. It is assigned to the Scraps index on credit concerns.

This entry was posted on Friday, March 27th, 2015 at 8:38 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.