Partners Value Split Corp. has announced (on March 2, although not yet on their website):
the completion of its previously announced issue of 6,000,000 Class AA Preferred Shares, Series 10 (the “Series 10 Preferred Shares”) at an offering price of $25.00 per Series 10 Preferred Share, raising gross proceeds of $150,000,000. The Series 10 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 4.70% annualized yield on the offering price and have a final maturity of February 28, 2027. The Series 10 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol PVS.PR.H. The net proceeds of the offering will be used to pay a special dividend on the Company’s capital 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. Brookfield Asset Management Inc. (“BAM”) is a leading global alternative asset manager with over US$540 billion of assets under management across real estate, infrastructure, renewable power, private equity and credit. BAM owns and operates long-life assets and businesses, many of which form the backbone of the global economy. Utilizing its global reach, access to large-scale capital and operational expertise, BAM offers a range of alternative investment products to investors around the world—including public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies and private wealth investors. BAM is listed on the New York Stock Exchange and Toronto Stock Exchange under the symbol BAM and BAM.A respectively.
PVS.PR.H is a SplitShare, 4.70%, 7-Year, that was announced February 20. It will be tracked by HIMIPref™ and has been assigned to the SplitShares subindex.
DBRS rates it Pfd-2(low):
DBRS Limited (DBRS Morningstar) finalized its provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 10 (the Series 10 Preferred Shares) issued by Partners Value Split Corp. (the Company) that will rank pari passu with the existing Class AA Preferred Shares, Series 6; the Class AA Preferred Shares, Series 7; the Class AA Preferred Shares, Series 8; and the Class AA Preferred Shares, Series 9 (collectively, the Class AA Preferred Shares).
he Series 10 Preferred Shareholders will be entitled to receive a quarterly, fixed, cumulative dividend of $0.29375 per share to yield 4.70% per annum on the issue price of $25.00. The maturity date for the new series is February 28, 2027. Proceeds from the Series 10 Preferred Share offering will be used to pay a special dividend on Capital Shares (the Capital Shares).
The Company owns a portfolio (the Portfolio) of Brookfield Asset Management Inc. (BAM; rated A (low) with a Stable trend by DBRS Morningstar) Class A Limited Voting Shares (the BAM Shares). Dividends from the Portfolio are used to fund the payment of interest on the debentures to the extent that any have been issued and to fund the payment of dividends on the Class AA Preferred Shares. There are 700 Series 6 Debentures outstanding (as a result of the retraction of 700 Class AA Preferred Shares, Series 8) and 3,200 Series 7 Debentures (as a result of the retraction of 3,200 Class AA Preferred Shares, Series 9).
All series of Class AA Preferred Shares rank senior to the Capital Shares, the Class AAA Preferred Shares, and the Junior Preferred Shares, Series 1 and the Junior Preferred Shares, Series 2 (collectively, the Junior Preferred Shares) and rank pari passu with all other Class AA Preferred Shares with respect to the payment of dividends and repayment of principal.
he Junior Preferred Shareholders are entitled to receive quarterly noncumulative cash distributions at an annual rate of 5% when declared by the board of directors. There is $245 million worth of Junior Preferred Shares currently outstanding. The Company’s Capital Shareholders will only receive excess dividend income after interest on the debentures, Class AA Preferred Share distributions, Junior Preferred Share Distributions, and other Company expenses have been paid. Any capital appreciation of the BAM Shares will benefit the Capital Shareholders.
The Company has issued a limited number of Class A Voting Shares that rank senior to the Class AA Preferred Shares in respect of capital upon the Company’s dissolution, winding up, or insolvency. As of June 30, 2019, there was $100 worth of such shares outstanding.
Following the issuance of the Series 10 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 88.9% and the dividend coverage ratio is expected to be approximately 2.1 times (x; based on the Canadian dollar and U.S. dollar exchange rate as of February 26, 2020). BAM declares its dividends in U.S. dollars; consequently, there is risk that an appreciating Canadian dollar will cause the dividend coverage ratio to fall below 1.0x times. In the event of a shortfall, the Company may sell some BAM Shares, engage in security lending, or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends. If the Company chooses to lend its holdings, the Portfolio would be exposed to the potential losses if the borrower defaults on its obligations to return the borrowed securities.
The main constraints to the ratings are the following:
(1) The downside protection available to Class AA Preferred Shareholders depends solely on the market value of 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 BAM’s dividend policy 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.
Opening day volume was 492,801. Vital statistics on 2020-3-2 are:
| PVS.PR.H | SplitShare | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2027-02-28 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 4.89 % |
James,
Any thoughts as to why they would want to raise funds to pay a special dividend to capital unit shareholders ?
My guess is that the capital unit shareholders wanted to withdraw some of the massive capital gains derived from the BAM shares when they were at near record highs. Little did they know the market would crash just after this. I did reach out to PVS IR and they said special dividend still went through in spite of the market downturn.