XCM.PR.A Suspends Preferred Dividend

They’re playing hardball! Commerce Split Corporation has announced:

that it has suspended its regular monthly dividends effectively immediately for Priority Equity (“Preferred”) shareholders in order to preserve cash and to assist in rebuilding the net asset value in an attempt to meet longer term objectives. Since the Preferred shares are cumulative, this suspended dividend (and all subsequent dividends not paid) will be accrued to the benefit of the Preferred shareholders and recorded as a liability in the Company’s net asset value. Also, there will not be a distribution paid to Class A Shares for February 27, 2009 as per the Prospectus which states no regular monthly dividends or other distributions will be paid on the Class A Shares in any month as long as the net asset value per unit is equal to or less than $12.50. The Net Asset Value as of February 13, 2009 was $9.07 and has been adversely impacted by the significant decline in the CIBC stock held in the portfolio.

Preferred shareholders should be pretty upset with Quadra about this and demand that the company be wound up immediately. They can’t force the company to do so, but management does not appear to understand that every single penny of the company’s net assets belong to the preferred shareholders; the capital unitholders have been wiped out and are worth zip, zero, zilch.

However, Quadra has other ideas:

The Company’s total net asset value is approximately $8.91 per unit as at February 18, 2009, consisting of less than 17% common shares of CIBC. The reduced exposure to CIBC will materially limit the future impact of price movements of CIBC shares on the net asset value of the Company and lower the ability of the Company to generate income from dividends and its covered call option writing program.

The significant price decline of CIBC has made it extremely difficult to achieve the original stated objectives for both classes of shares. The Company intends to establish a normal course issuer’s bid which would allow the Company to re-purchase units in the market when trading prices are at a discount to the net asset value.

The Company will continue to review and dialogue with shareholders in order to establish potential solutions for reorganizing the Company that would be suitable for all shareholders.

… but then, what can you expect from people who use “dialogue” as a verb?

The Capital Units are currently quoted at $0.66-87, 6×2, on the Toronto Exchange. I object to the very idea of the company using the discount on the trading price of the preferreds to subsidize a free lunch for the capital unitholders; but on the other hand an issuer bid will be accretive to preferred shareholders not stupid enough to sell. So views on the topic will be mixed.

The company should be wound up. This will require consent of the capital unitholders; I suggest they be offered $0.25 on wind-up; this being $0.25 more than they’ll get if the company elects to drag the farce out to the scheduled wind-up on December 1, 2014. But, if not wound up, preferred shareholders should remember that they’ve got a perfectly good strip-bond-like investment, with minimal market exposure. They should not even dream of selling on the market at the current quote of 7.01-24, a discount of over 20% to NAV at the bid.

XCM.PR.A is not tracked by HIMIPref™. It was last mentioned on PrefBlog when the preferred-shareholder-hostile reorganization plan was defeated.

Hat tip to Assiduous Reader and Cub Reporter franceal for alerting me to this development.

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