According to terms of a deal announced following the close of Monday’s trading on the Toronto Stock Exchange, Great Lakes will acquire those assets of majority owner Brookfield Asset Management’s (TSX: BAM.A, NYSE: BAM) renewable power generation business, Brookfield Renewable Power Inc, that it doesn’t already own, including 15 hydroelectric facilities and one wind power project that’s currently in development.

Upon closing of the transaction, Great Lakes Hydro will become Brookfield Renewable Power Fund. The fund will convert to a corporation “by January 2011” and maintain its CAD1.25 per unit annual distribution via estimated cash flow of CAD100 million. A lower payout ratio will also allow the fund to grow.

Great Lakes Hydro/Brookfield Renewable Power Fund will have a base of assets that includes 42 hydro facilities and two wind farms with total capacity of 1,700 megawatts.

Great Lakes Hydro will pay a total of CAD945 million to Brookfield Asset Management, CAD365 million in cash, payable out of the proceeds of a CAD185 million bought-deal offering of subscription receipts and a CAD195 million concurrent private placement of subscription receipts; a CAD200 million senior unsecured note of the fund to be issued to Brookfield Renewable Power Inc; and the issuance to Brookfield Renewable Power Inc of 25,562,500 units of the fund.

The fund has entered into an agreement with a syndicate of underwriters led by Scotia Capital Inc. and CIBC World Markets Inc. for a bought-deal offering of 12,242,500 subscription receipts at CAD15.10 each. Concurrently, certain investors, including some existing unitholders of the fund, have agreed to purchase a total of 13,320,000 subscription receipts on a private-placement basis at CAD14.65 each for proceeds of CAD195 million.

Brookfield Asset Management will indirectly purchase 50 percent of the newly issued units at closing of the transaction maintaining its 50.01 percent ownership.

In a related matter, Brookfield Renewable Power Inc has agreed to increase the price Great Lakes Hydro receives for generation output from its existing Lievre Power and Mississagi Power assets to reflect increases in power prices since the contracts were originally entered into.

Canada’s New Government

When Stephen Harper led the Conservative Party to victory in January 2006, the result was, by proportion of seats, Canada’s smallest minority government since Confederation in 1867. It became the country’s longest-serving minority government led by a party other than the Liberal Party and the third longest serving minority government overall.

When he faced off with Stephane Dion last October, the Liberals won its lowest percentage of the vote in any of Canada’s 40 general elections, and the prime minister now has twice as many seats as the main opposition Grits.

He’s now survived three years, with two election victories, the second margin building on the first. Though his poll numbers suffered as Canada slumped into official recession in early 2009 and Michael Ignatieff enjoyed a solid start to his tenure as leader of the Liberal Party, in recent surveys critical voting blocs–i.e., 45-to-65 year olds, a politically active group keenly aware of the economy and the markets–have drifted back to his camp.

Mr. Harper’s reversal on deficit spending–one that has stunned hard-core Conservatives–put him in position to do something to help Canadians through the most severe global downturn since the Great Depression. He’s now getting credit for a significant stimulus package.

The fact that Canada was in a solid position before the global financial and economic picture darkened suggests it could be among the first to recover. Mr. Harper is the top guy right now in a country that maintained active oversight of its financial system and didn’t succumb to the short-term allure of cheap and easy credit for homebuyers.

And corporate tax rates have come down under his watch. In fact, Tim Hortons (TSX: THI, NYSE: THI), which is currently based in Delaware, has filed to reorganize as a Canadian company to lower its tax rate. The coffee-and-doughnut king has 500 US stores but gets 90 percent of its revenue from its 3,000 locations in Canada. It’s coming home because, after the immediate costs of the reorganization are absorbed, its tax rate could initially be 2 or 3 percentage points lower than its current rate of 33 percent in the US. And that disparity is likely to widen.

From a long-term perspective, Harper is good for Canadian business and good for investors in Canada. Should the economy pick up pace in the second half of the year, the prime minister will be in position to further increase his electoral margin.

He’s done well with Canada’s relationship with the US (under the Bush administration as well as the Obama administration), though his handling of relations with other critical nations, China, of greatest long-term consequence, has come up short. But after a series of face-to-face meetings among high-level officials, it appears Mr. Harper will soon meet with his Chinese counterpart. This illustrates his ability to grow into the job: He’s ceased the human rights lecturing and tacked to negotiating with the Chinese, who will be absolutely crucial to Canada’s economic future

Polling since Ignatieff assumed the leadership of the party in December shows the Liberals have closed the gap on the Conservatives. But there’s no appetite right now–during a recession-marred summer–for a costly election, a reality that dawned on Mr. Ignatieff a little too late, it appears.

In an EKOS poll conducted for CBC News from June 17 to June 23, asked which party they would support if a federal election was held tomorrow, 34.8 percent of respondents said they would cast their ballots for Harper’s Tories, while 32.6 percent opted for Ignatieff’s Liberals. Liberal support drooped from the 33.5 percent support reported in a similar EKOS poll conducted the week prior, before the election threat.

The polling window ended six days after Ignatieff and Harper announced they had reached a deal to form a study panel to examine Canada’s Employment Insurance program over the summer in exchange for the Liberals’ support of the minority Conservative government in a House vote.

In the battleground province of Ontario, the Tories and Liberals are even-up at 38.2 percent, but previous polls suggested the Liberals were widening their lead in the province.

Ignatieff’s job approval rating also took a hit, with 37 percent of respondents disapproving of his performance, compared to 32 percent of respondents who approved. Meanwhile, Harper’s numbers improved slightly from last week, with 34 percent of respondents approving and 46 percent disapproving.

We’ll see whether Mr. Harper’s problem is that he lacks the type of mandate that would allow him to lead “the way he really wants to.” It may be that heading a minority government may prove a virtuous dilemma. Mr. Harper has to be an effective leader; to be effective he must compromise with a left-leaning party almost constantly.

Any national leader, of any partisan stripe, would, assuming (quite safely, it seems obvious) the normal amount of personal ambition like to channel this forced discipline into consolidating power. It looks as though the prime minister may pack the gear to accomplish the mission.

Perhaps it’s this grip that squeezed Mr. Harper into a non-ideological diagnosis of the situation facing his new US counterpart, but in recent days he’s re-recruiting those voters in Ontario and Quebec that fueled the first victory for Mr. Harper as the Tories’ leader. Once he gets a majority, it will be difficult to pull back from the political arrangements that allowed it to be.

Mr. Harper, who in two recent appearances on Fox Business with Neil Cavuto and CNBC with Larry Kudlow sounded simply Keynesian in defending the Obama administration’s efforts to revitalize the American economy, put together a fiscal stimulus package that even progressive Liberals could support.

Once a deficit hawk, Mr. Harper has engineered a federal spending orgy necessitated by deteriorating economic conditions that will take Canada into its first budget shortfall in more than a decade. Much of this money will go to preserving some sort of automobile industry in Ontario. They’ve been making cars in Canada as long as they’ve been making them in the US; in fact, the sector is more important to the Canadian economy than it is to the American.

Mr. Ignatieff’s recent bout of Dionitis made Mr. Harper look like the adult. The new Liberal leader had been enjoying a nice honeymoon; his personal numbers bested Mr. Harper’s, his party caught and passed the Conservatives in the national horse race, and the Liberals picked up the fund-raising pace.

During his mid-June fever, Ignatieff made four demands of the prime minister. He wanted to know how and where stimulus funds were being spent, and he wanted to know what the minority government was doing about Canada’s diminishing store of medical isotopes. And with as much conviction at first as contradiction, he also demanded that Harper describe how and when he’ll balance the budget and that the government change EI to let newly unemployed workers who put in 45 days on the job collect full insurance benefits. The Liberals were before stimulus before they were against it before they were for it. Again.

For five days, the possibility of a snap summer election gobbled up space in newsprint and on the web. And then, as Paul Wells of Maclean’s put it, “Ignatieff made the first bold move of his charmed tenure as Liberal leader–and flinched.” The two leaders met and reached an agreement: A blue-ribbon commission would be formed to study the EI issue. Ignatieff went 1-for-4, the one hit a Texas leaguer.

Mr. Ignatieff will have a chance to score when the panel reports its findings in September, when Parliament reconvenes. By then Mr. Harper will have spent a lot of time doing stuff like opening new museums celebrating Canada’s heritage (read: pumping federal stimulus dollars into local economies), making high-profile speeches on Canada Day, and drawing excited coverage of possible preparations to finally meet with his Chinese counterpart.

At this point, Canadians are content to let Mr. Harper remain in the saddle.

In his recent US financial television appearances, Harper has explained, in a manner that belies attempts to cast him as an ideologue, why circumstances dictate certain federal efforts and how Canada was able to cut tax rates–intimating that the US did so irresponsibly. He’s also made clear that Canada’s financial system works because it’s subject to “a strong system of regulation, and activist regulators, who go and meet with the sector.”

As for restrictions on oil sands importation in the US, he’s forcefully acknowledged the fact of and the need to address carbon emissions; and he makes the defining point that the US basically has to use the stuff.

The economic strength of the country is no longer Ontario or the east, as even his top challenger acknowledges. “It’s a fact that a political party that doesn’t shift west where the center of gravity is going does not have a future,” said Ignatieff in a recent interview.

“I think sometimes we tried to establish our environmental bona fides by running against the oil sands,” he continued. “And I just think: This is a national industry. It’s pumping something like CAD8 billion into the federal treasury. So it’s slightly bad faith to beat the goose that lays the golden egg over the head with a stick. The goose is a little messy. The goose needs to be cleaned up. The goose needs to make better use of the yard, but let’s make this a sustainable industry that all Canadians can be proud of.”

A disadvantaged Ignatieff has to peel off some votes somewhere besides Vancouver out west. He’s had to concede oil sands are critical to the economy. And the Conservatives ran ads during this latest stupid-election-threat-stunt-that-went-nowhere raising the fact that he spent 35 years outside the country–in England and at Harvard, so he’s an effete intellectual who doesn’t get the cowboys. Ignatieff’s numbers have since gone down; dirty ad or no, the message worked.

Harper has left himself open to attack many times, but the Liberals, first Dion, now Ignatieff, have been too clumsy to strike a meaningful blow.

In the 20th century, the Grits earned the title of Canada’s “natural governing party.” Stephen Harper’s combination of ruthless politics and savvy policymaking appear to be working for Canadians, so much so that he and the Tories could wrest the mythical crown in the 21st century.

The preceding first appeared in the July 2, 2009 issue of Canadian Edge.

Speaking Engagements

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The Roundup

A week that featured Canada Day as well as Independence Day in the US didn’t hold much news for companies in the Canadian Edge coverage universe.

Here’s a wrapup of what went down, followed by a list of second quarter earnings reporting dates for Portfolio recommendations.

Natural Resources

SFK Pulp Fund (TSX: SFK-U, OTC: SKFUF) has received a two-week waiver from its lenders on a breach of its loan covenants and is negotiating a permanent change to the agreement.

The company had previously announced it would breach an interest coverage covenant on its credit agreement due to difficult market conditions and record a bad-debt provision of CAD2.8 million in its quarterly results. SFK Pulp said it would record the bad-loan provision after Fraser Papers (TSX: FPS, OTC: FRPPF) filed for bankruptcy protection. Sell SFK Pulp Fund.

Energy Infrastructure

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) completed a deal with Nova Chemicals Corp (TSX: NCX, NYSE: NCX) to process an additional 250 million cubic feet of natural gas a day at its Harmattan Complex in central Alberta, to extract ethane and natural gas liquids.

Under the 20-year deal AltaGas will deliver all liquids or co-stream gas products on a full cost-of-service basis to Nova Chemicals. AltaGas Income Trust is a buy up to USD20.

Financial Services

CI Financial (TSX: CIX, OTC: CIXUF) reported gross sales of CAD1.06 billion and net sales of CAD472 million in June. Assets under management increased by CAD1.4 billion, or 2.3 percent, to CAD60.1 billion. Total fee-earning assets were CAD87.3 billion, an increase of CAD1.5 billion, or 1.7 percent. This marked the fourth consecutive month of asset growth for CI.

Subsidiaries CI Investments and United Financial Corp had combined retail net sales of CAD500 million in long-term funds and net redemptions of CAD28 million in money market funds in June. Hold CI Financial.

Transports

Aeroplan Group (TSX: AER-U, OTC: GAPFF), which operates Air Canada’s (TSX: AD.B, OTC: AIDIF) frequent flyer program, has agreed to lend the airline up to CAD100 million. Air Canada, Canada’s biggest airline, has already drawn CAD79 million of the loan. Air Canada still might be forced into bankruptcy for the second time in six years.

The revolving loan is available until June 30, 2010; it’s secured by Air Canada’s interest in holiday packager Air Canada Vacations.

Air Canada is required to raise at least CAD600 million from lenders under the terms of agreements reached with its unions this month on a moratorium on funding its pension fund.

If it can raise this money, the carrier will terminate the loan agreement with Aeroplan. Aeroplan Group is a sell.

Here are tentative second quarter earnings announcement dates for Canadian Edge Portfolio companies.

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–August 5
• Artis REIT (TSX: AX-U, OTC: ARESF)–August 12
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF)–August 11
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–July 30
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–August 7*
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–August 11
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–August 7*
• Colabor Income Fund (TSX: CLB-U, OTC: COLAF)–July 10*
• Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF)–July 24*
• Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF)–July 29*
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–August 6*
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–August 7*
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–August 5
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–August 5
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–August 6
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–July 30*
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–July 27
• TransForce (TSX: TFI, OTC: TFIFF)–July 29*
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–August 6

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–August 12
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–August 7
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–July 29
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–August 6*
• Enerplus Resources (TSX: ERF-U, NYSE: ERF)–August 7*
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–August 6*
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–August 7*
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–August 12
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–August 6*
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–August 7*
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–August 11
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–August 10*

*Bloomberg estimate