In February, the preferred share market had a relatively good month but lagged both Canadian bond
and equity markets. It was an eventful month, and not just for sports fans watching the Super Bowl and
the Olympics. In mid-February, the U.S. Supreme Court ruled that the “emergency” Liberation Day tariffs
that President Trump had applied to most countries were illegal. Other tariffs, such as the sectoral tariffs
on aluminum, steel, and autos, were not considered by the court and remain in effect. Oil prices rose as
the U.S. threatened Iran with a massive military attack. Canadian bonds participated in a global rally led
by U.S. Treasuries, as volatility in U.S. equities and cryptocurrencies spurred investors to look for safer
havens, and Canadian equity markets were supported by strong commodity prices and bank earnings.
Meanwhile, preferred share performance was helped with two announced redemptions. All types of
preferred shares had positive average returns in the month, with rate reset issues having returns of
1.4%, while perpetual and floating rate issues lagged at 0.5% and 0.4% respectively. The S&P/TSX
Preferred Share Index ended the month with a return of 0.89%.
Also, in February, three main areas of concern about private credit contributed to market volatility. First,
investor worries mounted that Artificial Intelligence (AI) would increase the efficiency and accuracy of
software coding to levels that challenge the business model of many software companies. The software
sector represents approximately 30% of the leveraged lending market, therefore, it is overrepresented
in many private credit direct lending portfolios. Second, fears grew over liquidity as a major U.S. asset
manager, Blue Owl, was forced to restrict withdrawals from its retail-oriented private credit funds.
Third, concerns about corporate credit quality increased with the unexpected failure of a large British
non-bank lender, Market Financial Solutions, which follows two other large bankruptcies, US subprime
lender Tricolor Holdings and auto parts supplier First Brands Group late last year. This increased
anxieties about the lending standards and risk controls of bank and life insurance companies, in
particular captive life insurance subsidiaries of private equity firms.

Canadian economic data received in February was mixed and did not provide the Bank of Canada with
compelling evidence that it needed to adjust interest rates. On the positive side, the unemployment rate
dropped to 6.5% from 6.8% the previous month, but the improvement was driven by a sharp decline in
the number of people looking for work which may have been caused by severe winter weather in
Ontario during January. Growth in the Canadian economy was better than expected in December, butthe GDP estimate for the fourth quarter showed an unexpected decline of 0.6%. The decline in the
quarter, though, was driven by a drop in inventories which may be reversed in the next quarter as
inventories are rebuilt. For 2025, Canadian GDP grew by 1.0% and consumer spending rose by 2.4%,
suggesting some resilience in our economy. Inflation was slightly lower at 2.3%, compared with 2.4% the
previous month.

As noted above, during the month, there were two announced redemptions. First National Financial
announced its intention to redeem the FN.PR.A and related FN.PR.B preferred share series totaling $100
million, which have a reset spread of 207 basis points, on March 31 st . Prior to this announcement, these
series had traded up more than 40% since the issuer’s July announcement that it was being acquired by
Birch Hill Equity Partners and Brookfield Asset Management, and on the redemption news they traded
up another approximately 5% to par value. These preferred share series are the issuer’s last remaining
public equity securities; therefore, despite the low reset spread, the redemption appears to be
motivated by the company’s desire to reduce its public reporting requirements.

In addition, Cenovus Energy announced its intention to redeem its CVE.PR.A and related CVE.PR.B
preferred share series totaling $300 million, which have a reset spread of 173 basis points, on March
31 st . The market had been anticipating these redemptions and there was not a significant move in their
prices on the news. After redeeming three preferred share series in the last two years, this was the
issuer’s last outstanding series. Despite the low reset spread, Cenovus appears to be simplifying its
capital structure.

In other corporate news, Artis Real Estate Investment Trust and RFA Capital Holdings Inc. completed the
combination of their respective businesses. The AX.PR.E and AX.PR.I preferred units were exchanged
into RFA.PR.E and RFA.PR.I preferred share series. The RFA Financial preferred shares have the same
terms and conditions, including a dividend rate equivalent to the distribution rate of the preferred units.
Both series will trade on the Toronto Stock Exchange.

Also, in February, Laurentian Bank announced that its shareholders voted in favour of its acquisition
by Fairstone Bank that was announced in December. In addition, as part of this acquisition
agreement, Laurentian completed the sale of its retail plus small and medium-sized business assets
to National Bank of Canada. The transaction is expected to close in late 2026 subject to the receipt of
required regulatory approvals. Laurentian Bank’s preferred shares, LB.PR.H series, continue to trade
close to par value and will remain outstanding after the transaction closes.

During the month, there were no new issues of preferred shares, and no series of preferred shares reset
their dividends. However, as this is being written, TransAlta Corp announced that it will not be
redeeming its TA.PR.D fixed rate and related TA.PR.E floating rate series. The new fixed dividend rate
and initial floating dividend rate will be 4.782% and 4.221%, respectively. In addition, BCE Inc.
announced that it will not be redeeming its BCE.PR.M fixed rate and related BCE.PR.N floating rate
series. The new fixed dividend rate and initial floating dividend rate will be 4.837% and 4.281%,
respectively. Investors in these four series will have until March 16 th to make their decision to remain in
their current series or switch to the related series.

In February, the seven largest preferred share ETFs had an aggregate inflow totaling $43 million. This follows an inflow in January and contrasts to the start of 2025 which experienced large outflows.

J. Zechner Associates Preferred Share Pooled Fund

In February, the fund had a return of 0.84%, in line with the performance of the S&P/TSX Preferred
Share index, though performance across securities was mixed. The fund’s 3% position in the FN.PR.A
series had an outsized 19 basis points contribution to performance. However, this was offset with
several life insurance companies’ preferred shares underperforming the market on apparent generalized
concerns about AI and investment exposure to private credit.

Early in the month, we consolidated the CU perpetual series by selling the CU.PR.H position and adding
to the CU.PR.K position to pickup approximately 20 basis points in yield. Later in the month, we made
two related switches which kept issuer exposure the same but increased yield. We switched CU.PR.C
into additional IFC.PR.G shares to pickup approximately 60 basis points in yield. Then, we switched two
perpetual issues, IFC.PR.K into additional CU.PR.K, to increase yield by approximately 10 basis points.
Other portfolio activity during the month included selling the BCE.PR.F position and adding to the
BCE.PR.Q position to improve yield by approximately 50 basis points. Also, given its price appreciation
and our belief that further appreciation was limited, we switched the TD Bank 5.75% institutional
preferred share position into the TD Bank 5.909% Limited Recourse Capital Note (LRCN).

Outlook and Strategy

As this is being written, the United States and Israel have begun a war with Iran. The initial market
reaction has been volatile and negative, with concern over its duration and it not remaining contained to
the Middle East. Oil prices have been volatile and shot up more than 30% in the first week of March,
having already risen 3% in February as tensions between the U.S. and Iran increased. The sharp rise in oil prices have raised concern about its potential impact on inflation and that has led bond prices to fall and yields to increase.

During February, the 5-year Canada bond yield continued to be well above the extremely low levels of
five years ago and any resetting issue this month would have reset its dividend rate approximately 200
basis points higher. Even without the increase in the 5-year Canada bond yield in the first week of
March, we continue to anticipate large increases in resetting dividend rates in the near term.
The redemption trend continues to have a positive effect on preferred share performance. While
neither of this month’s redemption announcements were the result of issuers using the proceeds from
LRCN or hybrid bond issuances, three preferred share issuers did issue hybrid bonds during the month at coupons and reset spreads that continue to make it economically advantageous to redeem high reset
spread preferred series. There are no resetting issues in April, therefore, it is unlikely there will be any
redemption announcements in March. However, on the last day of March, investors will receive a total
of $400 million from the CVE.PR.A, CVE.PR.B, FN.PR.A and FN.PR.B redemptions. We expect most of the
redemption proceeds will be reinvested in other outstanding preferred share series.