ABK.PR.B Issue Closes

Assiduous Readers will recall that the redemption of ABK.PR.C was to be funded by a new issue.

Scotia Managed Companies has announced:

that it has completed its public offering of 1,329,368 Class B Preferred Shares, raising approximately $35.6 million. The Class B Preferred Shares were offered to the public by a syndicate of agents led by Scotia Capital Inc. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 66,684 of its Class A Capital Shares.

Holders of 332,342 Class A Capital Shares (before giving effect to the four-for-one share subdivision) did not retract their Class A Capital Shares pursuant to the special retraction right created in accordance with the capital reorganization approved by holders of the Class A Capital Shares on January 25, 2008 and, accordingly, 1,329,368 Class A Capital Shares remain outstanding after giving effect to the four-for-one share subdivision, which became effective as of March 10, 2008. The Class B Preferred Shares were offered in order to fund in part, the redemption of 66,684 Class A Capital Shares and all of the Class A Preferred Shares and to maintain the leveraged “split share” structure of the Company.

The prospectus for ABK.PR.B states:

Holders of Class B Preferred Shares will be entitled to receive quarterly fixed cumulative preferential distributions equal to $0.3344 per Class B Preferred Share. On an annualized basis, this would represent a yield on the offering price of the Class B Preferred Shares of approximately 5.00%. Based on the expected closing date of March 10, 2008, the initial dividend will be approximately $0.3344 per Class B Preferred Share and is expected to be payable on or about June 10, 2008. See ‘‘Details of the Offering — Certain Provisions of the Class B Preferred Shares’’.

The Class B Preferred Shares may be surrendered for retraction at any time and will be redeemed by the Company on March 8, 2013 (the ‘‘Redemption Date’’). In addition, the Class B Preferred Shares are redeemable at the option of the Company, at any time, in whole or in part, at a premium which declines to $26.75 in year five and may otherwise be redeemed by the Company prior to the Redemption Date in certain limited circumstances including on March 10 in each year or, where such day is not a business day, on the preceding business day, if there are any unmatched retractions of Class A Capital Shares. See ‘‘Description of Share Capital — Certain Provisions of the Class A Capital Shares’’.

It should be noted that these shares have the nasty provision of being callable at par annually, if there are unmatched capital unit retractions:

The Company may also redeem Class B Preferred Shares on March 10 of any year commencing in 2009 at a price per share equal to $26.75 to the extent that unmatched Class A Capital Shares have been tendered for retraction under a Special Annual Retraction. See ‘‘Details of the Offering — Certain Provisions of the Class B Preferred Shares — Redemption’’.

This issue will not be tracked by HIMIPref™. It’s too small and the annual redemption at par makes the risk/reward profile too asymmetric for my taste.

Update, 2008-3-11: DBRS has rated this issue Pfd-2(low):

the split share structure provides downside protection of 50% to the Class B Preferred Shares (after expenses). The redemption date for the Class B Preferred Shares and the Class A Capital Shares is March 8, 2013.

The Pfd-2 (low) rating of the Class B Preferred Shares is based on the downside protection available to the Preferred Shareholders, as well as the initial dividend coverage.

The primary constraints to the rating are the following:

(1) The downside protection available to holders of the Class B Preferred Shares depends completely on the value of the common shares of the Portfolio.

(2) The concentration of the entire portfolio in the financial services industry and the general exposure of the Canadian banks to the current credit cycle.

(3) Volatility of price and changes in dividend policies of the Portfolio’s underlying banks may result in reductions in downside protection from time to time.

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