{"id":1365,"date":"2007-10-24T19:10:36","date_gmt":"2007-10-24T23:10:36","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1365"},"modified":"2007-10-24T19:10:36","modified_gmt":"2007-10-24T23:10:36","slug":"hpfpra-hpfprb-downgraded-by-dbrs-finally","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1365","title":{"rendered":"HPF.PR.A & HPF.PR.B Downgraded by DBRS (finally!)"},"content":{"rendered":"

DBRS<\/a>:<\/p>\n

has today downgraded two series of Preferred Shares issued by High Income Preferred Shares Corporation (the Company). The Series 1 Shares have been downgraded from Pfd-1 (low) to Pfd-2 with a Negative trend, and the Series 2 Shares have been downgraded from Pfd-2 (low) to Pfd-3 with a Negative trend.
\n…<\/strong>
\nThe termination date for each series of shares is June 29, 2012 (the Redemption Date).<\/p>\n

Approximately 33% of the gross proceeds from the initial offering were used to enter into a forward agreement with the Canadian Imperial Bank of Commerce (the Counterparty) to provide for the full repayment of the Series 1 Shares principal on the Redemption Date. The remaining net proceeds from the initial offering were invested in a portfolio of common shares (the Managed Portfolio), which initially provided asset coverage to the Series 2 Shares of about 1.8 (downside protection of 44%). In addition to providing coverage to the Series 2 Shares principal, the Managed Portfolio is used to pay annual fees and expenses, as well as monthly distributions to the Series 1 and Series 2 Shares (5.85% and 7.25% per annum, respectively).<\/p>\n

Since inception, the Managed Portfolio\u2019s net asset value (NAV) has declined 28% from about $27 to $19.38 per share (as of October 19, 2007), providing downside protection of 24% to the Series 2 Shareholders. It is the Company\u2019s intention to suspend both Series 1 and Series 2 dividend payments if the Managed Portfolio\u2019s NAV drops below $14.70 per share. On the Redemption Date, the holders of the Series 1 and Series 2 Shares will be entitled to receive all cumulative dividends in arrears before the principal repayment to the Series 2 Shareholders. As a result, the ultimate payment of cumulative dividends to the Series 1 and 2 Shareholders is likely, but the timing of those payments is uncertain.<\/p>\n

The downgrade of the Series 1 Shares is based on the risk that not all Series 1 dividends will be paid in a timely manner. The downgrade of the Series 2 Shares is based on the risk that dividends will not all be paid in a timely manner, as well as the eroding asset coverage available to cover the repayment of the Series 2 principal.<\/p><\/blockquote>\n

What can I say? I’ve complained about these issues’ ratings in the past<\/a>. The vehicle has performed extremely well over the past year, with the Managed Portfolio providing returns of over 10% (which is not really such a wonderful accomplishment, given that the\u00a0S&P\/TSX 60 Index benchmark returned 22.5%) … so … one has to wonder … if it’s being downgraded now, after a year of great (absolute) performance, why wasn’t it downgraded earlier?<\/p>\n

I haven’t pulled the numbers apart yet, but the rating on HPF.PR.B still looks pretty high to me. Yes, asset coverage is about 1.32:1, which in and of itself isn’t the worst ratio in the world. But, as DBRS points out: In addition to providing coverage to the Series 2 Shares principal, the Managed Portfolio is used to pay annual fees and expenses, as well as monthly distributions to the Series 1 and Series 2 Shares (5.85% and 7.25% per annum, respectively).<\/em><\/p>\n

Distributions & Expenses come to a little over $4.4-million annually, including a doubtlessly richly deserved management fee of over half a million. This is $3.33 per Series 2 share. So the $19.38 per share assets are being eroded by $3.33 fees\/expenses\/distributions (FED). Five years until termination. Total FED $16.65, after which you’ve got to pay $14.70 principal on the Series 2 shares. So … that $19.38 has to grow to $14.70 + $16.65 = $31.35 in five years if default is to be avoided. That’s a total return of 61% over the five years; that’s 10% p.a. portfolio return\u00a0just to avoid default by a penny<\/em>.<\/p>\n

Pfd-3 is way too high for these turkeys.<\/p>\n

HPF.PR.A & HPF.PR.B are both tracked by HIMIPref\u2122 with the security codes<\/a> A46300 and A46301, respectively. Entries have been made to the creditRatings<\/a> table to reflect today’s change.<\/p>\n","protected":false},"excerpt":{"rendered":"

DBRS: has today downgraded two series of Preferred Shares issued by High Income Preferred Shares Corporation (the Company). The Series 1 Shares have been downgraded from Pfd-1 (low) to Pfd-2 with a Negative trend, and …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-1365","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1365","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1365"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1365\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}