PrefBlog

Enbridge Inc. has announced:

Highlights:

• •Creates largest energy infrastructure company in North America with C$1651 billion (US$127 billion) enterprise value
• •Anticipated 15 percent annualized dividend increase in 2017 and annual 10-12 percent dividend growth thereafter through 2024. Industry leading secured project and risked development inventory of C$74 billion (US$57 billion) with C$26 billion (US$20 billion) currently in execution
• •Complementary and diversified asset base to increase customer service offerings and optionality
• •Enhanced ability to pursue projects that will improve customer access and service
• •Strengthens investment grade balance sheet
• •96 percent of cash flow generated by cost-of-service, take-or-pay, or fee-based contracts
• •Industry-leading total return potential

Enbridge Inc. (TSX:ENB) (NYSE:ENB) (Enbridge) and Spectra Energy Corp (NYSE:SE) (Spectra Energy) today announced that they have entered into a definitive merger agreement under which Enbridge and Spectra Energy will combine in a stock-for-stock merger transaction (the “Transaction”), which values Spectra Energy common stock at approximately C$37 billion (US$28 billion), based on the closing price of Enbridge’s common shares on September 2, 2016. The combination will create the largest energy infrastructure company in North America and one of the largest globally based on a pro-forma enterprise value of approximately C$165 billion (US$127 billion). The Transaction was unanimously approved by the Boards of Directors of both companies and is expected to close in the first quarter of 2017, subject to shareholder and certain regulatory approvals, and other customary conditions.

DBRS has announced that it:

has today placed all ratings of Enbridge Inc. (ENB), Enbridge Income Fund (EIF), Enbridge Pipelines Inc. (EPI), Enbridge Gas Distribution Inc. (EGD) and Enbridge Energy Partners, L.P. (EEP) Under Review with Developing Implications, as follows:
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ENB plans a 15% annualized dividend increase in 2017 and annual 10% to 12% dividend growth thereafter through 2024. This is expected to result in a common dividend payout of 50% to 60% of available cash flow from operations (ACFFO), compared with ENB’s current 50% target payout ratio. ENB also plans to divest of approximately $2 billion of non-core assets over the next 12 months to provide additional financial flexibility. Annual run-rate synergies of $540 million (USD 415 million) are expected, the majority of which is expected to be achieved in the latter part of 2018. In addition, approximately $260 million (USD 200 million) of tax savings are anticipated commencing in 2019. On a combined basis, ENB will have a secured project and risked development inventory of $74 billion (USD 56 billion) currently in execution, with a very strong contractual profile.

With respect to the financial risk profile, ENB stated that it expects to fund future growth in a manner that is consistent with maintaining a strong investment-grade credit profile with key target metrics of 15% funds from operations (FFO) to debt and five times debt-to-EBITDA. DBRS notes that both ENB and SEC have significant capex programs over the medium term, with ENB’s being back-end loaded and SEC’s being front-end loaded, with the combination smoothing out the overall pattern somewhat over the 2017 to 2019 period. DBRS expects near-term pressure on ENB’s credit metrics to continue as a result of assumption of SEC’s existing debt and the relatively high near-term capex ($12.9 billion in 2017), partly offset by issuance of substantial common equity. Execution risk with respect to generating expected proceeds from the proposed asset sales is also present.

Spectra’s subsidiary Westcoast got a passing mention from DBRS:

DBRS Limited (DBRS) has today placed the ratings of Spectra Energy Capital, LLC (Spectra Capital, or the Company) and the ratings of the Company’s DBRS-rated subsidiaries Under Review with Developing Implications. The entities covered under this rating action are:
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— Westcoast Energy Inc., First Preferred Shares – cumulative, redeemable rated Pfd-2 (low)
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DBRS will further review the potential impacts of the Transaction on Spectra Capital’s ratings and the ratings of Company’s DBRS-rated subsidiaries, with an aim to resolve the Under Review – Developing Implications status.

S&P took a more cheerful view:

• •Diversified energy companies Spectra Energy Corp. and Enbridge Inc. have announced an agreement whereby Enbridge will acquire Spectra in a stock-for-stock merger transaction totaling C$37 billion (US$28 billion). The combined company will be the largest energy company in North America and one of the top five global energy companies based on a pro forma enterprise value of about C$165 billion (US$127 billion).
• •We are placing our ratings on Spectra and its financing subsidiary Spectra Energy Capital LLC.on CreditWatch with positive implications.
• •At the same time, we placed the ratings on master limited partnership Spectra Energy Partners LP and operating subsidiary Texas Eastern Transmission L.P. on CreditWatch with positive implications.
• •We expect to resolve the CreditWatch listing when the transaction closes sometime in the first quarter of 2017, at which time we expect to raise the rating on Spectra Energy Corp. and Spectra Energy Partners and Texas Eastern one notch to ‘BBB+’, which is in line with consolidated group credit profile of Enbridge Inc.

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“The CreditWatch listing on Spectra and its operating subsidiaries reflect our expectation that we will raise the ratings in line with those of Enbridge Inc.,” S&P Global Ratings analyst Michael Grande said. “Spectra will become a wholly owned subsidiary of Enbridge, and we expect Spectra’s 2017 consolidated EBITDA of about US$3.2 billion will account for about 40% of the combined company’s pro forma cash flow.”

… and, with respect to Westcoast:

• •On Sept. 6, Enbridge Inc. announced a merger with Spectra Energy Corp. in a share exchange transaction. When the merger’s completed, Spectra subsidiary Westcoast Energy Inc. will become a wholly owned subsidiary of Enbridge Inc.
• •We are placing our ratings, including our ‘BBB’ long-term corporate credit rating, on CreditWatch with positive implications.
• •The CreditWatch placement reflects our view that once completed, Westcoast Energy could be considered core to Enbridge Inc., which would lift the rating.

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“The transaction would introduce group support from Enbridge, currently a higher rated entity than existing parent Spectra Energy,” said S&P Global
Ratings credit analyst Gerald Hannochko.

The CreditWatch placement reflects our view that if the transaction closes as expected, Westcoast would likely become core to Enbridge Inc., and the rating and outlook would be equalized with those on Enbridge Inc.

An upgrade is likely if the transaction is completed, and if we assess Westcoast’s group status as core.

Part of the apparent disagreement is that S&P rates Enbridge preferreds as P-2(low) and Westcoast as P-3(high), inverting the ranking of DBRS, which has Enbridge at Pfd-3(high) and Westcoast at Pfd-2(low). Credit ratings are not an exact science!

Affected issues are:

ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y

W.PR.H, W.PR.J, W.PR.K

Update, 2016-9-7: Moody’s affirms Ba1 Preferred rating and maintains negative outlook:

Moody’s Investors Service has affirmed the Baa2 senior unsecured ratings for Enbridge Inc. (Enbridge) and its subsidiaries Enbridge Income Fund (EIF) and Enbridge Energy Limited Partnership (EELP).
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“The transaction is credit positive for Enbridge because Spectra brings increased size and scale, and helps create the largest midstream company in North America with a more diverse asset portfolio,” said Gavin MacFarlane, Moody’s Vice President — Senior Credit Officer. “But the company’s combined leverage remains elevated. We are maintaining a negative rating outlook for Enbridge until we see the company execute the transaction, the large capital program in 2017 and deleveraging plans.”
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Moody’s maintains a negative rating outlook for Enbridge based on the company’s very high levels of leverage. As of June 2016, Enbridge’s ratio of debt-to-EBITDA was 7.2x, while Spectra’s was about 5.8x and on a combined last twelve months basis their leverage was about 6.7x. The higher combined leverage is owing to the larger size of Enbridge relative to Spectra, as Spectra accounts for roughly 40% of the combined entities’ EBITDA. Moody’s continues to expect the financial metrics of both companies to improve as they progress with their capital programs. At the same time, Enbridge has announced $2 billion of asset monetizations that Moody’s expects will incrementally reduce leverage at ENB. Moody’s views the prospect of asset monetizations as credit positive and considers this as a meaningful change from a financial strategy perspective, as this represents the first time this decade that management has sought to sell assets out of the group to fund its capital program. The combination of the two entities provides more levers for management to pull in order to manage pressure on credit quality.

The negative outlook on ENB reflects its high leverage and execution risk associated with its plan to delever in a timely fashion. ENB has a plan to do so by the end of 2017 and a number of options at its disposal to reduce leverage. However, if the company fails to execute and debt-to-EBITDA of about 5.5x is unlikely to be achieved by the end of FY2017, the company could be downgraded.

Canaccord Genuity Group Inc. has announced (although not yet on their website):

the applicable dividend rates for its Cumulative 5-Year Rate Reset First Preferred Shares, Series A (the “Series A Preferred Shares”) and its Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Preferred Shares”), further to its press release dated August 12, 2016 announcing that it does not intend to exercise its right to redeem all or any part of the currently outstanding Series A Preferred Shares and, as a result of which, subject to certain conditions, the holders of the Series A Preferred Shares have the right to convert all or any part of their Series A Preferred Shares into Series B Preferred Shares on a one-for-one basis.

With respect to any Series A Preferred Shares that remain outstanding after September 30, 2016, holders thereof will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the five-year period commencing on October 1, 2016 and ending on and including September 30, 2021 will be 3.885% per annum, being equal to the sum of the five year Government of Canada bond yield determined as of today, plus 3.21%, in accordance with the terms of the Series A Preferred Shares.

With respect to any Series B Preferred Shares that may be issued on September 30, 2016, holders thereof will be entitled to receive quarterly floating rate, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the three-month period commencing on October 1, 2016 and ending on and including December 31, 2016 will be 3.722% per annum, being equal to the sum of the three-month Government of Canada Treasury Bill yield determined as of today, plus 3.21% (calculated on the basis of the actual number of days elapsed during such quarterly period divided by 365), in accordance with the terms of the Series B Preferred Shares. The quarterly floating dividend rate will be reset every quarter.

Beneficial owners of Series A Preferred Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to ensure their instructions are followed for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Toronto time) on September 15, 2016.

The previous notice of extension was reported on PrefBlog.

CF.PR.A is a 5.50%+321 FixedReset that commenced trading 2011-6-23 after being announced 2011-6-6. The reset therefore represents a 29% dividend cut.

As noted, the deadline for notifying the company of a desire to convert is 5:00 p.m. (Toronto time) on September 15, 2016, but note that custodians of your shares will have internal deadlines a day or two earlier. Hence, I will make a recommendation on whether or not to convert on September 12, 2016.

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners has announced:

that it has determined the fixed dividend rate on its Class AAA Preference Shares, Series R (“Series R Shares”) (TSX: BPO.PR.R) for the five years commencing October 1, 2016 and ending September 30, 2021. If declared, the fixed quarterly dividends on the Series R Shares during that period will be paid at an annual rate of 4.155% ($0.259688 per share per quarter).

Holders of Series R Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on September 15, 2016, to convert all or part of their Series R Shares, on a one-for-one basis, into Class AAA Preference Shares, Series S (the “Series S Shares”), effective September 30, 2016.

The quarterly floating rate dividends on the Series S Shares have an annual rate, calculated for each quarter, of 3.48% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the October 1, 2016 to December 31, 2016 dividend period for the Series S Shares will be 1.0057% (3.99% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.251425 per share, payable on December 30, 2016.

Holders of Series R Shares are not required to elect to convert all or any part of their Series R Shares into Series S Shares.

As provided in the share conditions of the Series R Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series R Shares outstanding after September 30, 2016, all remaining Series R Shares will be automatically converted into Series S Shares on a one-for-one basis effective September 30, 2016; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series S Shares outstanding after September 30, 2016, no Series R Shares will be permitted to be converted into Series S Shares. There are currently 10,000,000 Series R Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series S Shares effective upon conversion. Listing of the Series S Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series S Shares will be listed on the TSX under the trading symbol “BPO.PR.S”.

BPO.PR.R is a 5.10%+348 FixedReset that commenced trading 2011-9-2 after being announced 2011-8-25. The reset therefore represents a 19% cut in dividends.

As noted, the deadline for notifying the company of a desire to convert is 5:00 p.m. (ET) on September 15, 2016, but note that custodians of your shares will have internal deadlines a day or two earlier. Hence, I will make a recommendation on whether or not to convert on September 12, 2016.

Sun Life Financial Inc. has announced:

the dividend rates for its Class A Non-Cumulative Rate Reset Preferred Shares Series 10R (the “Series 10R Shares”) and Class A Non-Cumulative Floating Rate Preferred Shares Series 11QR (the “Series 11QR Shares”).

With respect to any Series 10R Shares that remain outstanding after September 30, 2016, commencing as of that date, holders thereof will be entitled to receive non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on September 30, 2016 to but excluding September 30, 2021 will be 2.842% per annum or $0.177625 per share per quarter, being equal to the sum of the Government of Canada Yield, as defined in the terms of the Series 10R Shares, on Wednesday, August 31, 2016 plus 2.17%, as determined in accordance with the terms of the Series 10R Shares.

With respect to any Series 11QR Shares that are issued on September 30, 2016, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life Financial and subject to the Insurance Companies Act (Canada), based on a dividend rate equal to the sum of the T-Bill Rate, as defined in the terms of the Series 11QR Shares, plus 2.17% (calculated on the basis of the actual number of days elapsed in such Quarterly Floating Rate Period divided by 365 days), subject to certain adjustments in accordance with the terms of the Series 11QR Shares. The dividend rate for the period commencing on September 30, 2016 to but excluding December 31, 2016 will be equal to 2.682% per annum or $0.169003 per share, as determined in accordance with the terms of the Series 11QR Shares.

Beneficial owners of Series 10R Shares who wish to exercise the right of conversion should communicate as soon as possible with their broker or other nominee and should ensure that their instructions are followed in order to meet the deadline to exercise such right of conversion, which is 5:00 p.m. (ET) on Thursday, September 15, 2016.

An application will be made to list the Series 11QR Shares on the Toronto Stock Exchange.

I previously reported the notice of extension.

SLF.PR.H is a FixedReset, 3.90%+217, that commenced trading 2011-8-12 after being announced 2011-8-4. The reset dividend therefore represents a dividend cut of 27%.

As the issue does not have a NVCC clause, I have followed my current policy and added a Deemed Maturity entry to the call schedule for 2025-1-31 in the expectation that the NVCC rules will be imposed on insurers and insurance holding companies in the reasonably near future.

As noted, the deadline for notifying the company of a desire to convert is 5:00 p.m. (ET) on September 15, 2016, but note that custodians of your shares will have internal deadlines a day or two earlier. Hence, I will make a recommendation on whether or not to convert on September 12, 2016.

Intact Financial Corporation has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-cumulative Rate Reset Class A Shares Series 3 of IFC (the “Series 3 Preferred Shares”) (TSX: IFC.PR.C) on September 30, 2016. As a result, subject to certain conditions set out in the prospectus supplement dated August 11, 2011 relating to the issuance of the Series 3 Preferred Shares (the “Prospectus”), the holders thereof will have the right, at their option, to elect to convert all or any of their Series 3 Preferred Shares into Non-cumulative Floating Rate Class A Shares Series 4 of IFC (the “Series 4 Preferred Shares”) on a one-for-one basis on September 30, 2016. Holders who do not exercise their right to convert their Series 3 Preferred Shares into Series 4 Preferred Shares on such date will retain their Series 3 Preferred Shares, unless automatically converted in accordance with the conditions below.

With respect to any Series 3 Preferred Shares that remain outstanding after September 30, 2016, commencing as of such date, holders thereof will be entitled to receive fixed non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The annual dividend rate for the Series 3 Preferred Shares for the five-year period from and including September 30, 2016 to but excluding September 30, 2021 will be 3.332%, as determined in accordance with the terms of the Series 3 Preferred Shares.

With respect to any Series 4 Preferred Shares that may be issued on September 30, 2016, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The dividend rate for the Series 4 Preferred Shares for the 3-month floating rate period from and including September 30, 2016 to but excluding December 31, 2016 will be 0.79733% (3.172% on an annualized basis), as determined in accordance with the terms of the Series 4 Preferred Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

The foregoing conversion right is subject to the conditions that: (i) if IFC determines that there would be less than 1,000,000 Series 3 Preferred Shares outstanding on September 30, 2016, then all remaining Series 3 Preferred Shares will automatically be converted into an equal number of Series 4 Preferred Shares on September 30, 2016, and (ii) alternatively, if IFC determines that there would be less than 1,000,000 Series 4 Preferred Shares outstanding on September 30, 2016, then no Series 3 Preferred Shares will be converted into Series 4 Preferred Shares. In either case, IFC will give written notice to that effect to any registered holders of Series 3 Preferred Shares on or before September 23, 2016.

The Series 3 Preferred Shares are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (“CDS Participant”). All rights of holders of Series 3 Preferred Shares must be exercised through CDS or the CDS Participant through which the Series 3 Preferred Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 3 Preferred Shares into Series 4 Preferred Shares is 5:00 p.m. (ET) on September 15, 2016. Any notices received after this deadline will not be valid. As such, holders of Series 3 Preferred Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

Holders of the Series 3 Preferred Shares and the Series 4 Preferred Shares will have the opportunity to convert their shares again on September 30, 2021, and every five years thereafter as long as the shares remain outstanding. Subject to certain conditions described in the Prospectus, IFC may redeem the Series 3 Preferred Shares, in whole or in part, on September 30, 2021 and on September 30 every five years thereafter and may redeem the Series 4 Preferred Shares, in whole or in part, after September 30, 2016.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 4 Preferred Shares effective on conversion. Listing of the Series 4 Preferred Shares is subject to IFC fulfilling all of the listing requirements of the TSX.

For more information on the terms of, and risks associated with an investment in, the Series 3 Preferred Shares and the Series 4 Preferred Shares, please see IFC’s prospectus supplement dated August 11, 2011 which is available on www.sedar.com.

IFC.PR.C is a FixedReset, 4.20%+266, that commenced trading 2011-8-18 after being announced 2011-8-9. Hence the reset represents a dividend cut of 21%.

As the issue does not have a NVCC clause, I have followed my current policy and added a Deemed Maturity entry to the call schedule for 2025-1-31 in the expectation that the NVCC rules will be imposed on insurers and insurance holding companies in the reasonably near future.

As noted, the deadline for notifying the company of a desire to convert is 5:00 p.m. (ET) on September 15, 2016, but note that custodians of your shares will have internal deadlines a day or two earlier. Hence, I will make a recommendation on whether or not to convert on September 12, 2016.