Little is wholly immune from a bear market. But when a company significantly underperforms—or its management makes statements that create uncertainty in the market—you can get real crackup.

The good news is virtually all the Canadian Edge recommendations to report fourth quarter earnings have come in with good numbers. Since the Feb. 20 Flash Alert, we’ve heard especially strong results from AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF), Enerplus Resources (NYSE: ERF, TSX: ERF-U), Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF), Penn West Energy Trust (NYSE: PWE, TSX: PWT-U) and Vermilion Energy Trust (TSX: VET-U, OTC: VETMF). We also saw strong results for GMP Capital Trust (TSX: GMP-U, OTC: GMCPF), which covered its recently raised distribution comfortably despite very difficult market conditions.

We’re still waiting on several trusts to report this week, and a handful of others will only be available at the end of the month. But based on what we’ve seen thus far for similar trusts, the overall prognosis for most, if not all, of our holdings is positive. I’ll have more on all of these trusts’ earnings in the March Canadian Edge, which will be e-mailed Friday. Details have also been reported in the weekly Maple Leaf Memo, back issues of which can be accessed from the Canadian Edge Web site.

We have, however, hit two noticeable bumps in the road. I expected the first: another weak quarter at Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF), which was largely due to weak water flows. In response to that, as well as the prospect of higher wood waste prices in 2008, management reduced the distribution by 22 percent beginning with this month’s payment. The new rate is covered by cash flow, even at the current low level of hydroelectric production.

That limits downside risk from here, and the shares have stabilized in recent days. The trust—which sells for less than book value—also remains a candidate for a buyout, possibly by parent Boralex itself at what’s certain to be a higher price. Still yielding more than 12 percent after the cut, Boralex Power Income Fund remains a worthy, high-stakes bet, but I don’t recommend anyone double down on it or any other fallen trust.

The other bump in the road is a little more worrisome: trucking trust TransForce Income Fund (TSX: TIF-U, OTC: TIFUF). I originally recommended this trust some years ago on the basis that it was successfully using its trust structure to build a solid transportation business franchise throughout Canada. During the past few years, it’s dramatically advanced its cause.

Management has made some 75 acquisitions of competitors in the last five years. The deals have dramatically consolidated the transport industry in Ontario and Quebec in TransForce’s hands, and it’s recently expanded its reach into the still-dispersed markets of western and Atlantic Canada.

Today, TransForce is one of the largest transportation concerns in Canada. That’s proven to be a boon in this very challenging climate; cross-border (US) traffic has slowed, and the gas patch in Canada has slumped. And the trust continues to make strategic acquisitions.

On a full-year basis, the trust once again covered its distribution in 2007. The payout ratio, however, surged to 97 percent from 81.9 percent a year earlier. The fourth quarter payout ratio, meanwhile, soared to 155.9 percent, up from 90.3 percent a year earlier and the 80 to 90 percent range the trust had been maintaining in prior quarters.

Management blamed impact of high fuel costs and the strong Canadian dollar on traffic for the fourth quarter weakness. That sounds plausible. The trust has no direct exposure to fuel costs, which are assessed as “surcharges.”

But rising fuel prices have no doubt held down business, which boosted revenues only a bit more than 7 percent versus a 10.8 percent increase in operating costs and a 14.6 percent jump in fixed costs mostly because of financing acquisitions. The unhappy result: an 18 percent drop in distributable cash flow from operating activities, essentially the account from which dividends are paid.

Clearly, that’s not a sustainable number, and neither is a 150 percent-plus payout ratio. Either TransForce’s cash flow will have to surge commensurate with its recent acquisitions, meaning a rebound in business conditions, or it will have to reduce its distribution—possibly dramatically.

Management has further muddied the waters here by making two statements in its earnings release. First, it asserted that it didn’t “expect a return to a more buoyant North American economy in the near term,” though it did note that clients’ need to cut costs could result in more “outsourcing” with the trust as a key beneficiary. Second, it stated “there continues to be a significant opportunity” to “play a leading role in the consolidation of the Canadian transportation industry, particularly in light of current business and economic conditions.”

As of this writing, there’s been no dividend cut yet. But putting two and two together, management has raised the possibility that a rather severe reduction may be in the offing. Management also cited its trust structure as possibly limiting its “ability to raise funds,” raising fears that the payout could be scrapped altogether in a conversion to a corporation.

Conversion is quite possible, but ending distributions is highly unlikely. First of all, the generally favorable market reaction to the recently announced conversion of Trinidad Drilling (TSX: TDG-U, OTC: TDGNF) is a strong argument on the ability to keep paying a healthy dividend as a corporation.

Trinidad did cut its payout basically in half to save cash to finance expansion, but the level remained competitive in the 6 to 7 percent range. The shares are currently up around 20 percent since the Jan. 10 announcement.

In contrast, trusts such as Peak Energy (TSX: PES-U, OTC: PKGFF) that have eliminated distributions entirely have been taken out and shot, severely limiting their ability to raise capital for the kind of growth TransForce wants to accomplish.

Should TransForce elect to make a Trinidad-like reduction in its current yield of 23.6 percent, it would still be paying out more than 10 percent. Moreover, a cut of that amount would bring the payout ratio to less than 70 percent even in this tough environment, freeing up cash for growth and debt reduction. And conversion now would eliminate any concerns about 2011 taxation for TransForce.

In any case, TransForce is almost certainly pricing in at least that much of a reduction and possibly one as much as two-thirds. That leaves two principal worries. First, business conditions could deteriorate dramatically from here and further compress cash flows. Second, the trust’s banks could call in their loans, and the trust would be unable to continue operating.

At this point, the second is extremely unlikely. Canada’s banking system is much more solid than the US. (See the February Canadian Edge Feature Article.) Moreover, the trust just inked a new credit agreement on Oct. 12, 2007, which expanded its authorized borrowing capacity to CAD800 million from CAD600 million.

Term loans due in 2010 and 2013, respectively, are CAD384.1 million and CAD160 million. The trust paid off CAD9.5 million in scheduled debt repayment in 2007. In sum, no one seems to have a problem loaning the trust money to make acquisitions.

That leaves the macroeconomic picture, which admittedly has taken a greater toll on the trust than I expected. In fact, TransForce underperformed other transport trusts in the fourth quarter, which have generally been far less aggressive in expanding over the past year. Economic vulnerability seems to be the primary reason cited by Bay Street analysts who have cut their ratings on the trust, though no one is yet recommending an outright sell.

Unfortunately, TransForce’s ultimate risk here is a great unknown, just as it is for so many companies perceived to be in economically sensitive businesses. The realistic risk is now more than reflected in the share price, and for that reason, I’m not recommending a sell at this point.

On the other hand, I’m not recommending loading up or “averaging down” either. Rather, this is a time just to sit with our positions. I expect to see the shares stabilize by the end of the week. I’ll have more in the March CE. TransForce Income Fund is a hold for those who already own it.