Streetwise reporter Niall McGeePeter Power/The Globe and Mail
DEAL OF THE DAY: RioCan cuts $715-million deal to unwind JV with Kimco Realty Corp.
RioCan announced plans Thursday to unwind its Canadian joint venture with New York-based Kimco Realty Corp. and take full control of 22 of the partnership's 35 properties. The deal will cost RioCan $715-million, and should add $45-million to its net operating income annually.
RioCan Real Estate Investment Trust has proven its willingness to trade American assets for a bigger Canadian portfolio – despite the weaker economy on this side of the border. Full story
FINANCINGS
Aston Hill proposes refinancing on $40-million in convertible bonds
Aston Hill Financial Inc. is proposing a debt refinancing that would see current convertible debenture holders get paid a slightly higher interest rate, but leave them with the option to convert to common stock at a drastically lower/better price.
To sign on the dotted line, investors need to be willing to wait an additional two and a half years – Jan. 31, 2019, instead of July 31, 2016 – before getting paid back most of their principal. As part of the proposal, Aston says it intends to pay debenture holders $6-million out of the $40-million that is currently outstanding. Should debt holders go for the deal, it will give embattled Aston much needed balance sheet breathing room.
Under the proposal that was released on Thursday, current bond holders would see the interest rate paid on the debt rise to 6.5 per cent from 6 per cent. Debt holders would also be able to convert to common shares at a price of $0.65 a share, instead of the prior $2.55 a share. Aston shares are nowhere near that level right now, trading at around $0.27, but it's a lot easier to get to $0.65 than $2.55.
What's in it for Aston? Well, the refinancing would avoid it needing to meet a $40-million bullet payment to bondholders that will otherwise come due in July of next year. If the firm had to make that payment today, it would be unable to make bondholders whole from cash on its balance sheet.
Aston's share price has been decimated over the past year, partly because of trouble in the resources sector. The company used to have operations in Calgary but has shut down its operations there. It's been no picnic for the firm back in Toronto either. Its assets under management have plummeted his year – much of that due to the loss of a number of sub-advisory mandates, including $2.2-billion the firm used to manage for IA Clarington. The company is pinning a lot of its hopes on Ben Cheng, a former star money manager with CI Investments Inc. and the company's current chief investment officer. His most recent kick of the can did not end well – he was portfolio manager for the aforementioned IA Clarington funds. Nevertheless Aston is hoping Mr. Cheng can recapture his CI glory days and whip up investor interest in a new slate of in-house funds the firm plans to launch and Mr. Cheng will manage once his non-compete (signed after IA Clarington mandate was lost) expires in November.
"We are forecasting net sales of $400-million for Mr. Cheng in 2016. We are confident that this can be achieved based on his prior success in the Canadian retail market" said Scott Chan, analyst with Canaccord Genuity Group Inc. in a note to clients.
Debt holders will vote on the refinancing offer in a meeting scheduled for Oct. 31 and two-thirds approval is needed for the company to get the go-ahead. Aston's shareholder base is said to be made up primarily of retail investors and I'm hearing the company is expecting the vote to go its way, based on talk with brokers.
Brookfield raising $250-million in preferred share bought deal
Brookfield Asset Management Inc. is raising $250-million in a preferred share bought deal. The sale is being underwritten by Scotia Capital Inc., CIBC World Markets Inc., RBC Dominion Securities Inc. and TD Securities Inc. The offering was priced at $25 a share with an initial yield of 5 per cent. Press release
RBC raises $150-million in preferred share deal
Royal Bank of Canada is raising $150-million in a preferred share issue. The initial yield will be 5.25 per cent. Not surprisingly, the bank has tapped its own capital markets arm, RBC Dominion Securities Inc. to lead the share sale. Press release
MERGERS AND ACQUISITIONS
Korn/Ferry to buy HR consultancy Hay Group
Korn/Ferry International is set to buy human-resources consultancy Hay Group for about $452-million (U.S.) in cash and stock, in a deal announced Thursday. The purchase would split the focus of the company evenly between recruiting and human-capital management, with Korn/Ferry offering clients help with organizational design, compensation and leadership development, in addition to hiring. Story
INSIGHT & ANALYSIS
A day in the life of a sell-side trader
Sell-side traders have short hours, need to sprint to the bathroom and are psychologically traumatized. Or at least one is.
On Thursday, I wrote about how the job description of the typical sell-side trader is evolving in the U.S. to the point that more high-touch guys are also dabbling in low-touch and vice-versa. Some shops have even morphed the position into one hybrid trader who can do both.
On the subject of sell-side traders, I came across this Ask Me Anything (AMA) on Reddit that was done by a sell-side trader in August, 2014. The trader does not reveal his name, nor the firm that he works for, but there are a lot of hints that he (I'm assuming it's a man but it could be a women) is a Bay Streeter.
The post is a fascinating insight into a very hectic job. The reader comments and questions, too, are funny in places. Many people were stunned that the author was able to make a daily morning meeting at 7:15 a.m, having only woken up at 6:30 a.m. A few of his hacks were showering the night before, eating cereal for breakfast and living close to work.
Here's a few samplings of his (or her) day:
"9:00 a.m. – Start chit-chatting with a few clients on phone and IM because this job is all about relationships. Monitor changes in the market pre-open. Make sure all my client orders and algos are set up properly for the open."
"10:30 a.m. – Get asked by the co-op student what I want to eat for lunch. I pick something and give him $10. I thank him every time because I feel bad for him."
He talks about being so busy that when he needs to attend to the call of nature that he has to hightail it to the bathroom.
"You know those people who walk so fast to exercise but are not quite running. That's what i do. To the washroom and back."
Then there's the best excuse ever however for getting out of boring meetings.
"I do get dragged to a lot of useless meetings. I prefer lunch meetings because 1.5 hours is the cut off time "sorry gotta go back to the desk".
The post is also searingly honest and poignant in places. (Yes people in finance can be poignant)
"4:10 p.m. – On my calculator I do some rough calculation to get an idea of the revenue from client commissions that day. On good days I feel neutral, on bad days I feel like a worthless p.o.s. because I have been conditioned to feel like that by the culture here".
Perhaps the most surprising thing about the piece is even though the day is maddeningly busy, it's relatively brief – in at 7:15 a.m. and out by 4:15 p.m. As many of the AMAers point out, for a high-powered, enviable and lucrative job in finance, this guy has short hours. Try being an investment banker.
A quick word on preferred shares
The attraction of preferred shares is the dividend is usually higher than that of the common stock in the same company. The drawback is you don't get a vote and therefore have little say in how the business is conducted.
Many preferred shares issued (such as the one above from Brookfield) are 'reset preferreds' which means the interest rate is adjusted every five years. Peter Hodson, chief executive officer of 5i Research Inc, wrote a piece earlier in the year about the pitfalls of preferred shares that is worth a read. Peter Hodson Article:
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Niall McGee