PrefBlog

Partners Value Split Corp. has announced (although not yet on their website):

the completion of its previously announced issue of 6,000,000 Class AA Preferred Shares, Series 9 (the “Series 9 Preferred Shares”) at an offering price of $25.00 per Series 9 Preferred Share, raising gross proceeds of $150,000,000. The Series 9 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 4.90% annualized yield on the offering price and have a final maturity of February 28, 2026. The Series 9 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol PVS.PR.G. The net proceeds of the offering will be used to redeem the Company’s outstanding Class AA Preferred Shares, Series 3 (the “Series 3 Preferred Shares”) on January 10, 2019 in accordance with the terms of the Series 3 Preferred Shares.

Prior to the closing of the offering, the Company subdivided the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares.

PVS.PR.G is a Split Share, 7-year, 4.90% issue announced November 15. It will be tracked by HIMIPref™ and has been assigned to the SplitShare subindex.

DBRS rates the issue Pfd-2(low):

DBRS Limited (DBRS) finalized the provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 9 (the Series 9 Preferred Shares) issued by Partners Value Split Corp. (the Company) and confirmed the ratings of the previously issued Class AA Preferred Shares, Series 3 (the Series 3 Preferred Shares); Class AA Preferred Shares, Series 6 (the Series 6 Preferred Shares); Class AA Preferred Shares, Series 7 (the Series 7 Preferred Shares) and Class AA Preferred Shares, Series 8 (the Series 8 Preferred Shares; collectively, the Class AA Preferred Shares) at Pfd-2 (low).

Holders of the Series 9 Preferred Shares will be entitled to receive a quarterly, fixed, cumulative dividend in the amount of $0.30625 per share to yield 4.90% per annum on the issue price of $25. The Series 9 Preferred Shares rank on a pari passu basis with all other Class AA Preferred Shares. The maturity date for the new series is February 28, 2026.
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Following the redemption of the Series 3 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 85% (based on the closing price of the BAM Shares as of October 29, 2018) and the dividend coverage ratio is expected to be above 2.0 times (x; based on the Canadian dollar and U.S. dollar exchange rate as of October 29, 2018).
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The main constraints to the ratings are the following:

(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.

(2) There is a lack of diversification, as the Portfolio is entirely made up of BAM Shares.

(3) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Shares dividend coverage.

(4) As BAM declares dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate, specifically the appreciation of the Canadian dollar versus the U.S. dollar. This may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares, as these dividends are paid in Canadian dollars.

(5) Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Junior Preferred Shares.

I am surprised that they did not also list the credit quality of BAM itself as being a constraint on the rating.

The issue traded 217,100 shares today in a range of 24.50-90 before closing at 24.70-74. The performance appears horrible, but it should be noted that the close comparator PVS.PR.F closed at 25.10-20 on the November 15 announcement day and at 24.47-74 today. Vital statistics for PVS.PR.G are:

This entry was posted on Monday, November 26th, 2018 at 7:23 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.