transcanada

NOVA CHEMICALS CORP., $1.99, Toronto symbol NCX, fell sharply after it renegotiated the conditions of its lending agreements. To avoid breaching certain covenants, which would require Nova to repay all of its loans immediately, the company must now raise $100 million U.S. in new financing by February 28, 2009, plus an additional $100 million U.S. by June 1, 2009. To meet these conditions, the plastic and chemical maker may have to issue new shares at depressed prices. (Demand for plastics is highly cyclical, and the slowing economy has hurt Nova’s sales and earnings.) This could substantially dilute the current value of its shares. As well, if Nova needs to borrow more money, it would likely have to pay much higher rates, which would drive its interest costs up. Nova has significant operations in Alberta, so it may receive temporary assistance from the Alberta government. As part of any refinancing plan, Nova would probably have to suspend its quarterly dividend payments of $0.10 (Canadian) a share. The dividend now yields a high 20.1%, and cost Nova $31 million U.S. in 2008....

TRANSCANADA CORP. $34 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 615.1 million; Market cap: $20.9 billion; Price-to-sales ratio: 3.0; SI Rating: Above average) plans to build a new pipeline called Pathfinder that would transport natural gas from Colorado to North Dakota. The company planned to offset the $2 billion cost of building the new line by selling a minority stake in it to two local gas producers. However, these producers had to withdraw from the project as the credit crisis has hurt their borrowing ability. TransCanada now hopes to find new partners. But even if it has to cancel the Pathfinder project, it’s only a small part of its overall operations. TransCanada is a buy....

ISHARES CANADIAN BOND INDEX FUND $28.83 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a diversified range of investment grade Canadian government and corporate bonds, with a term to maturity of more than one year. The index holds 71.8% government bonds and 26.9% corporate bonds. The fund sticks with high quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines and Bank of Nova Scotia....

We generally advise against investing in bond funds because we doubt that bond fund managers can add enough value to offset their fees. However, if you need steady income and want to hold bond funds, here are two funds that have low fees and top-quality holdings, and that stay out of speculative trading. Bond yields on corporate bonds have widened against government bonds, but corporate bonds are riskier. These two funds cut risk by emphasising government bonds. ISHARES CANADIAN SHORT BOND INDEX FUND $28.85 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short Term Bond Index....

BMO DIVIDEND FUND $34.97 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) currently holds about 35.1% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 21.1%. The $3.7 billion BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank, Shoppers Drug Mart, TD Bank, TransCanada Corp., EnCana, Enbridge and Shaw Communications. The fund’s MER is 1.71%. Over the five years to November 30, 2008, the fund posted a 4.6% annual rate of return. The S&P/TSX gained 5.7% annually, but that was largely due to the big run up in resources prices that lasted until early in 2008. The S&P/TSX index holds a high 40% or so of its holdings in Resources stocks....

MAPLE LEAF FOODS INC. $10.75, Toronto symbol MFI, has agreed to settle several class action lawsuits stemming from this summer’s listeria outbreak at its Toronto meat-processing plant. The settlement will cost the company between $25 million and $27 million. To put that in perspective, Maple Leaf lost $12.9 million or $0.10 a share in the three months ended September 30, 2008, mainly due to the costs to recall the contaminated products and improve food safety at all of its plants. If you disregard these costs, Maple Leaf would have earned $0.13 a share in the third quarter. Maple Leaf’s stock is up nearly 65% since it fell to $6.54 in October, 2008, thanks to its quick response to this crisis. The settlement of these class-action lawsuits will now let Maple Leaf focus on rebuilding consumer confidence in its products....

TRANSCANADA CORP. $33.05 (Toronto symbol TRP; Shares outstanding: 611.7 million; Market cap: $20.2 billion; SI Rating: Above average) has completed the sale of 35.1 million new common shares at $33.00 each, for proceeds of $1 billion. The extra shares will increase the total outstanding by about 6%. The company will use most of the proceeds to fund capital projects such as the proposed Keystone oil pipeline, which will transport crude oil from Alberta’s oil sands to refineries in the United States. TransCanada owns 79.99% of Keystone, and its share of the construction costs is roughly $9.8 billion U.S. TransCanada is a safety-conscious buy.

BANK OF NOVA SCOTIA $31.25, Toronto symbol BNS, expects to record charges totaling $595 million (after taxes) for its fourth fiscal quarter ended October 31, 2008. These charges include $370 million in writedowns of illiquid securities, $115 million of losses related to the bankruptcy of U.S. brokerage firm Lehman Brothers, and $110 million in writedowns of interest rate hedging contracts. The bank also still holds $348 million U.S. worth of securities that it may have to write down if conditions worsen. These charges are manageable considering that Bank of Nova Scotia earned $1.0 billion or $0.98 a share in the third quarter of fiscal 2008. Its main businesses are still profitable, and the bank is taking advantage of the turmoil in the financial markets to strengthen its domestic and international operations with acquisitions. Bank of Nova Scotia is a buy....

TRANSCANADA CORP. $36 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 578.0 million; Market cap: $20.8 billion; SI Rating: Above average) operates over 59,000 km of pipelines that transport natural gas, mainly from Alberta to markets in central and eastern Canada. The company also operates gas pipelines in the United States and Mexico. This business supplies 55% of TransCanada’s total revenue. The remaining 45% comes from its electrical power operations. TransCanada owns or holds interests in over 20 power plants in Canada and the United States. TransCanada continues to expand its power business. This includes its investment in the partnership that runs Ontario’s Bruce nuclear power plant. TransCanada owns 31.6% of the Bruce B complex, which consists of four working reactors....

TransCanada Corp. has aggressively expanded its operations over the past few years to reduce its reliance on its regulated gas pipeline business. Regulation gives these businesses steady, predictable cash flows, but limits TransCanada’s overall growth. The company is now working on several new projects. These new operations could spur big gains in its earnings and cash flow for years to come. TRANSCANADA CORP. $36 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 578.0 million; Market cap: $20.8 billion; SI Rating: Above average) operates over 59,000 km of pipelines that transport natural gas, mainly from Alberta to markets in central and eastern Canada. The company also operates gas pipelines in the United States and Mexico. This business supplies 55% of TransCanada’s total revenue....