Canoe EIT Income Fund has announced:
that it has closed the previously announced offering of 4.80% Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”). The Series 1 Preferred Units were offered to the public through a syndicate of underwriters led by Scotiabank and RBC Capital Markets which also included BMO Capital Markets, CIBC Capital Markets, National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., Industrial Alliance Securities Inc. and Manulife Securities Incorporated.
The Fund issued 4,900,000 Series 1 Preferred Units at a price of $25.00 per Series 1 Preferred Unit for gross proceeds of $122,500,000. The Fund has also granted the underwriters an option, exercisable at the offering price for a period of 30 days from today’s date, to purchase up to an additional 735,000 Series 1 Preferred Units to cover over-allotments, if any. Holders of the Series 1 Preferred Units will be entitled to fixed cumulative preferential cash distributions of $1.20 per Series 1 Preferred Unit per annum, as and when declared, which will accrue from the date of issue and will be payable quarterly on the 15th day of March, June, September and December in each year with the initial distribution, if declared, payable on June 15, 2017. The Series 1 Preferred Units are listed for trading on the Toronto Stock Exchange under the symbol EIT.PR.A.
The proceeds from the Offering will be invested by the Fund in accordance with its investment objectives and strategies. The Offering is expected to ensure the sustainability of the Fund by increasing the earning capacity of the units. The Series 1 Preferred Units are rated Pfd – 2 (high) by Dominion Bond Rating Service Limited.
The Fund’s regular monthly distribution of $0.10 per unit for unitholders of EIT.UN units remains unchanged. The Fund has maintained the $0.10 per unit monthly distribution since August 2009, through varying market conditions.
The Fund’s annual voluntary redemption feature for unitholders of EIT.UN units remains unchanged. Once a date has been set for the 2017 annual redemption, the Fund will issue a news release with the details.
EIT.PR.A is a 4.80% Seven Year Retractible that was announced 2017-3-8 after marketting began 2017-2-22. It will be tracked by HIMIPref™ and has been assigned to the Split Share subindex.
Note that according to the prospectus, to which I am not permitted to link because Canadian Securities Administrators take the view that you are all stupid, filthy, ignorant investor scum and do not deserve the slightest consideration whatsoever. You will have to go to SEDAR and look for “Canoe EIT Income Fund Mar 8 2017 14:21:01 ET Final short form prospectus – English PDF 266 K”.
Distributions in any given period may consist of net income, net capital gains and/or returns of capital.
The issue traded 213,320 shares today in a range of 24.90-25 before closing at 25.25-30, 5×10. Vital statistics are:
| EIT.PR.A | SplitShare | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2024-03-14 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 4.66 % |
EIT.PR.A is rated Pfd-2(high) by DBRS:
DBRS Limited (DBRS) has today finalized its provisional rating of Pfd-2 (high) on the Cumulative Redeemable Series 1 Preferred Units (the Series 1 Preferred Units) issued by Canoe EIT Income Fund (the Fund).
The Fund is a closed-end investment trust focused on a broad range of income-producing investments in various industries and geographic regions. The Fund can issue an unlimited number of capital units (the Units) and can also issue in-series Preferred Units up to a maximum aggregate amount equal to 25% of the Fund’s total assets after giving effect to the proposed offering of the Preferred Units. The Series 1 Preferred Units were issued at a price of $25.00 per Series 1 Preferred Unit. The Series 1 Preferred Units are retractable for cash at the option of the holder on or after March 15, 2024.
The Fund has a credit facility (the Credit Facility) with a Tier 1 Canadian bank, but is restricted by its Declaration of Trust from borrowing in excess of 20% of the Fund’s total assets at the time of borrowing, after giving effect to the borrowing. The Credit Facility is secured by all of the Fund’s present and after-acquired personal property, undertaking and assets as well as all proceeds thereof. Distributions on the Series 1 Preferred Units are restricted if a default or event of default occurs under the Credit Facility or if the outstanding amount borrowed exceeds the available credit at any time.
Net proceeds from the offering of the Series 1 Preferred Units, after deducting the fees and expenses incurred as a result of the offering, are expected to be invested by the Fund to grow its portfolio in accordance with its investment objectives and investment strategies.
The Series 1 Preferred Unit holders will be entitled to receive quarterly cumulative preferential cash distributions of $0.30 (or $1.20 annually), representing a 4.80% per annum return on the issue price of $25.00. The holders of the Units currently receive targeted monthly cash distributions amounting to $1.20 per annum. In addition, up to 10% of the aggregate outstanding Units may be redeemed at the option of the Unit holders each calendar year on a date determined by the Fund.
The risks relating to the Unit distributions and redemptions are partially mitigated by restrictions on distributions, purchases and redemptions in the Fund’s Declaration of Trust as the Fund cannot pay or declare payable any distribution amount to the Unitholders (other than amounts that are paid solely through the issuance of additional Units, which would not affect the downside protection, or annual redemption amounts at the option of the holders of Units as described above), purchase for cancellation or otherwise redeem the Units, unless and until the distribution entitlements of the Series 1 Preferred Units have been paid in full or moneys are set aside for such payment.
The Fund’s portfolio initially provides downside protection of approximately 84% to holders of the Series 1 Preferred Unit and an asset coverage of approximately 10.0 times (x). The Series 1 Preferred Unit distributions are expected to be mainly funded through income received from the income-generating securities in the Portfolio. The Fund may also engage in writing covered call options to supplement the income. The Series 1 Preferred Units dividend coverage is expected to be approximately 1.7x.
The Pfd-2 (high) rating assigned by DBRS is based on the level of downside protection available to holders of the Series 1 Preferred Units, the distribution coverage ratio and the diversification of the Fund’s portfolio. In addition, DBRS has taken into account the potential grind on the portfolio arising from (1) distributions to the Units and redemption rights, (2) potential foreign-exchange risk because some investments in foreign currencies are not hedged and (3) the fact that lenders under the Credit Facility have priority over the Fund’s assets up to the amount of credit outstanding. Considering the Credit Facility amount compared with the current total assets, DBRS does not view the latter risk to be significant.
Update, 2017-3-22: Canoe Financial has announced:
Canoe EIT Income Fund (the “Fund”) (TSX – EIT.UN, EIT.PR.A) announced today that the syndicate of underwriters for the offering (the “Offering”) of 4.80% Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”) of the Fund has fully exercised its over-allotment option. As a result of the exercise of the over-allotment option, the Fund raised additional gross proceeds of $18,375,000 from the sale of 735,000 Series 1 Preferred Units. Inclusive of the over-allotment option, the Fund raised gross proceeds of $140,875,000 from the sale of 5,635,000 Series 1 Preferred Units. The Series 1 Preferred Units are listed on the Toronto Stock Exchange under the symbol EIT.PR.A.
Now that the preferreds EIT.PR.A are retractible as of March 15, 2024, how does one retract their shares? Do I call my broker quoting the prospectus and they will contact the fund manager?
Do I call my broker quoting the prospectus and they will contact the fund manager?
Yes. You probably won’t need to quote the prospectus because the broker’s reorg department will have already prepared a memo for front line staff (I used to do this, way back in the old days!).
According to the prospectus:
I suspect that the reason you’re asking is because now the shares have gone ex-dividend, the close today was $24.77, seemingly allowing the opportunity for a quick profit. I can’t help but think, though, that there will be something in the underlying trust indenture, or perhaps in the case law, that will oblige a retractor to attach a cheque for the $0.30 dividend per share that is now due.
I don’t know and I’m not a securities lawyer! I just get a little suspicious when I see something like this. But by all means, check it out!
After having slept on the issue, I’m more positive on the idea than I was.
My concern was that the effective date of the retraction would be prior to the payment date but after the ex-date. This would mean that the company would have to pay the dividend to whoever owned the shares on the record date, despite the shares not being outstanding on the payment date – in other words, they would have to pay more dividends than they should, considering the length of time the shares were outstanding.
But the prospectus informs us that the payment dates are quarterly from June 15:
… and, as noted above, there is a thirty day notice period prior to retraction:
Thus, it appears to me that if you were to provide notice today, the retraction date would be 2024-05-23 + 30 days = 2024-05-53 = 2024-06-22. This is a week following the payment date, so you would earn the $0.30 dividend paid on 2024-6-15 and on retraction you would get a week’s accrued dividend, or about $0.025.
The problems I feared would apply only if the notice period were shorter than the period between the record date and the payment date; but this is not the case.
So, go for it, if it fits your portfolio objectives. I remember one case from way back with a similar put/call at par provision for a similar type of share – the issue remained outstanding for a long time! The issuer was fine with paying X% on borrowing that could be retracted at any time; the holders were fine with receiving X% on lending that could be paid off at any time. Everybody was happy!
But I’m perplexed as to what happens if the sequence of important dates is: notification, ex-date, retraction, dividend payment.
On the surface, this would seem to be an opportunity for the holder to get paid the dividend twice: once due to having earned it by virtue of holding the issue on the ex-date; and once due to getting paid the “accrued and unpaid distributions up to but excluding the date of retraction” in accordance with the retraction rule as outlined in the prospectus.
It would seem to me that in such a case the most logical procedure is for the company to include the earned but not-yet-paid dividends in its accounting for the amount paid to the retractor; thus, the amount due to the retractor on retraction would be: par + accrued dividend to retraction date – full amount of dividend earned. So the payment on retraction would be a little less than par, but the retractor would get the full amount of the dividend earned on the (slightly later) payment date.
But the prospectus doesn’t come right out and actually say that.
Thanks James for your time – really appreciate it. The current ex-dividend date is May 22, payable June 15. If I notify the issuer on May 30 and the retraction is executed on June 30, I had assumed I would get par plus the quarterly dividend of $0.30 to June 15 plus an accrued dividend of approximately 15/90 x $0.30 = $0.05? I’m assuming the issuer executes the retraction 30 days after notification but in any case I am entitled to the pro-rata share of the quarterly dividend up to the retraction date, while I still own the security.
I will phone my broker and see what they have to say.
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