Archive for the ‘New Issues’ Category

New Issue: Sagen MI Canada Inc. Straight Perpetual 5.40%

Monday, February 8th, 2021

Sagen MI Canada Inc. has announced:

that it has agreed to issue 4,000,000 non-cumulative Class A Preferred Shares, Series 1 (the “Series 1 Shares”) on a bought deal basis, for gross proceeds of C$100 million (the “Offering”). The Series 1 Shares will be priced at C$25.00 per share and will entitle holders thereof to fixed, non-cumulative dividends if, as and when declared by the board of directors of the Company with an annual dividend yield of 5.40%. Closing is expected to occur on or about February 18, 2021. The issue will be underwritten by a syndicate of underwriters led by BMO Capital Markets, CIBC World Markets, National Bank Financial, RBC Capital Markets, Scotia Capital and TD Securities.

The Company intends to use the net proceeds of the Offering to strengthen the Company’s capital base, for distributions to shareholders (subject to the completion of the previously announced plan of arrangement pursuant to which Brookfield Business Partners L.P., together with certain of its affiliates and institutional partners (“Brookfield”), will acquire all of the outstanding common shares of the Company not already owned by Brookfield), and/or for general corporate purposes.

So on the one hand, it’s great to see a new issuer. On the other hand, it’s yet another member of the Brookfield empire.

And it’s great to see a new Straight Perpetual. On the other hand, it’s small.

DBRS rates the issue Pfd-2(high) Trend-Negative without discussion.

S&P rates the issue P-2(low):

S&P Global Ratings said today it assigned its ‘P-2(Low)’ Canada scale and ‘BBB-‘ global scale preferred stock ratings to Sagen MI Canada Inc.’s (BBB+/Negative/–) C$100 million 5.40% fixed-rate non-cumulative Series 1 Class A preferred shares.

The rating on the preferred shares is two notches below our long-term issuer credit rating on Sagen, reflecting subordination and the dividend deferability. The preference shares will rank in parity with all future class A preferred shares, and they will rank junior to the policyholders’ obligations, and to all existing and future indebtedness of Sagen. We assign an intermediate equity content to these preference shares.

To satisfy public float requirement under the Canadian Insurance Company Act, the preference shares will carry 35% voting rights. The voting rights will commence on the date on which Falcon Holdings L.P. becomes the holder of more than 65% of Sagen’s issued and outstanding common shares and continuing until Sagen or any of its subsidiaries are no longer subject to the public float requirement or until it is not necessary that the preference shares carry such rights in order to satisfy the public float requirement. Brookfield Business Partners L.P., together with certain of its affiliates, and institutional partners will gain full ownership of the issued and outstanding common shares of Sagen through the intermediate holding company, Falcon Holdings, once the transaction closes in the first half of 2021.

The company intends to use the net proceeds from this offering for general corporate purposes. With the new issuance, Sagen’s pro forma financial leverage as of year-end 2020 will modestly increase to 16.9% from 15.1%, while the fixed-charge coverage ratio will remain what we consider strong at more than 10x.

RS.PR.A Strong on Excellent Volume

Thursday, November 19th, 2020

Middlefield Group has announced:

Middlefield Group, on behalf of Real Estate & E-Commerce Split Corp. (the “Company”), is pleased to announce the Company has completed its initial public offering of 1,613,887 class A shares and 1,613,887 preferred shares for total gross proceeds of $40 million. The class A and preferred shares are listed on the Toronto Stock Exchange under the symbols RS and RS.PR.A, respectively.

The Company will invest in a diversified, actively managed portfolio of dividend-paying securities of issuers operating in the real estate or related sectors, including real estate investment trusts, that the Advisor (as defined below) believes are well-positioned to benefit from low interest rates, the rapid adoption of e-commerce, the growth of data infrastructure as well as attractive valuations in various areas of the real estate sector.

The Company’s investment objectives for the:

  • Class A shares are to provide holders with:
    • non-cumulative monthly cash distributions; and
    • the opportunity for capital appreciation through exposure to the portfolio
  • Preferred shares are to:
    • provide holders with fixed cumulative preferential quarterly cash distributions; and
    • return the original issue price of $10.00 to holders upon maturity

The initial target distribution yield for the class A shares is 8% per annum based on the original subscription price (or $0.10 per month or $1.20 per annum).

The initial target distribution yield for the preferred shares is 5.25% per annum based on the original subscription price (or $0.13125 per quarter or $0.525 per annum).

Middlefield Capital Corporation (the “Advisor”) will provide investment management advice to the Company.

The syndicate of agents was co-led by CIBC Capital Markets and RBC Capital Markets, and includes BMO Capital Markets, Scotiabank, TD Securities Inc., Canaccord Genuity Corp., National Bank Financial Inc., Industrial Alliance Securities, Manulife Securities Incorporated, Raymond James Ltd., Richardson GMP, Middlefield Capital Corporation, Echelon Wealth Partners Inc. and Mackie Research Capital Corporation.

For further information, please visit our website at www.middlefield.com or contact Nancy Tham or Michael Bury in our Sales and Marketing Department at 1.888.890.1868.

Highlights from the prospectus are:

Real Estate & E-Commerce Split Corp. (the “Company”) is a mutual fund established as a corporation under the laws of the Province of Ontario. The Company proposes to offer preferred shares (“Preferred Shares”) and class A shares (“Class A Shares”) at a price of $10.00 per Preferred Share and $15.00 per Class A Share (the “Offering”). Preferred Shares and Class A Shares are issued only on the basis that an equal number of Preferred Shares and Class A Shares will be outstanding at all material times.

The Company will invest in a diversified, actively managed portfolio (the “Portfolio”) of dividend-paying securities of issuers operating in the real estate or related sectors, including real estate investment trusts, that the Advisor (as defined below) believes are well-positioned to benefit from low interest rates, the rapid adoption of e-commerce, the growth of data infrastructure as well as attractive valuations in various areas of the real estate sector (“Real Estate & E-Commerce Issuers”). See “Investment Strategy.”

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders on December 31, 2025 (the “Maturity Date”), subject to extension for successive terms of up to five years as determined by the Company’s board of directors. See “Investment Objectives”. The quarterly cash distribution will be $0.13125 per Preferred Share ($0.525 per annum), representing a yield of 5.25% per annum on the issue price of $10.00 per Preferred Share until December 31, 2025. See “Distribution Policy”

The first distribution will be pro-rated to reflect the period from the Closing Date to December 31, 2020.

No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution by the Company, the net asset value (“NAV” or “Net Asset Value”) per “Unit”, comprised of one Preferred Share and one Class A Share, would be less than $15.00 following the payment of such distributions.

The Preferred Shares have been provisionally rated Pfd-2 (low) by DBRS Limited.

The Preferred Shares will be redeemed by the Company on the Maturity Date, subject to extension for successive terms of up to five years as determined by the Board of Directors. The redemption price payable by the Company for a Preferred Share on that date will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions thereon and (ii) the NAV of the Company on that date divided by the total number of Preferred Shares then outstanding.

Monthly: Preferred Shares may be surrendered at any time for retraction to Middlefield Capital Corporation (in such capacity, the “Registrar and Transfer Agent”), the Company’s registrar and transfer agent, but will be retracted only on the second last business day of a month (the “Retraction Date”). Preferred Shares surrendered for retraction by 5:00 p.m. (Toronto time) on or before the twentieth business day prior to the Retraction Date will be retracted on such Retraction Date and the holder will be paid on or before the last business day of the following month (the “Retraction Payment Date”).

Holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share.

On the Maturity Date and upon any subsequent maturity date as determined by the Board of Directors, a holder of Preferred Shares may retract such Preferred Shares. The Company will provide at least 60 days’ notice to holders of Preferred Shares of such right. The retraction price payable by the Company for a Preferred Share pursuant to the non-concurrent retraction right will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions thereon and (ii) the NAV of the Company on that date divided by the total number of Preferred Shares then outstanding.

DBRS rates the shares Pfd-2(low):

DBRS Limited (DBRS Morningstar) finalized its provisional rating of Pfd-2 (low) assigned to the Preferred Shares issued by Real Estate & E-Commerce Split Corp. (the Company), managed by Middlefield Limited (the Manager). Middlefield Capital Corporation (the Investment Advisor) will provide investment advice to the Company.

The initial downside protection available to holders of the Preferred Shares is approximately 58% (after offering expenses). Downside protection available to the Preferred Shares consists of the net asset value (NAV) of the Class A Shares. The fixed distributions of dividends on the Preferred Shares will be funded from the dividends received on the securities in the Portfolio, which are expected to cover approximately 1.8 times the annual Preferred Shares distributions.

It’s very nice to see another issue qualifying for the SplitShares index! Vital statistics are:

RS.PR.A SplitShare YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-12-31
Maturity Price : 10.00
Evaluated at bid price : 10.10
Bid-YTW : 5.03 %

New Issue: PVS 5-Year SplitShare, 4.75%

Saturday, September 26th, 2020

Partners Value Split Corp. has announced:

that it has entered into an agreement to sell 4,000,000 Class AA Preferred Shares, Series 11 (the “Series 11 Preferred Shares”) to a syndicate of underwriters led by Scotiabank, BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc. on a bought deal basis.

The Series 11 Preferred Shares will be issued at a price of $25.00 per share, for gross proceeds of $100,000,000. The Series 11 Preferred Shares will carry a fixed coupon of 4.75% and will have a final maturity of October 31, 2025. The Series 11 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS Limited. The net proceeds of the offering will be used to partially fund the redemption of the Company’s Class AA Preferred Shares, Series 6.

The Company has granted the underwriters an option, exercisable in whole or part prior to closing, to purchase up to an additional 2,000,000 Series 11 Preferred Shares at the same offering price, which, if exercised, would increase the gross offering size to $150,000,000. Closing of the offering is expected to occur on or about October 6, 2020.

The Company owns a portfolio consisting of 119,611,449 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares. Brookfield Asset Management Inc. (“BAM”) is a leading global alternative asset manager with approximately US$550 billion of assets under management across real estate, infrastructure, renewable power, private equity and credit. BAM owns and operates long-life assets and businesses, many of which form the backbone of the global economy. Utilizing its global reach, access to large-scale capital and operational expertise, BAM offers a range of alternative investment products to investors around the world — including public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies and private wealth investors. BAM is listed on the New York Stock Exchange and Toronto Stock Exchange under the symbol BAM and BAM.A respectively.

They later announced:

that as a result of strong investor demand for its previously announced offering, the underwriters have exercised their option to increase the size of the offering to 6,000,000 Class AA Preferred Shares, Series 11 (the “Series 11 Preferred Shares”). The Series 11 Preferred Shares will be issued at a price of $25.00 per share, for gross proceeds of $150,000,000. The Series 11 Preferred Shares are being issued on a bought deal basis to a syndicate of underwriters led by Scotiabank, BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc.

The Series 11 Preferred Shares will carry a fixed coupon of 4.75% and will have a final maturity of October 31, 2025. The Series 11 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS Limited. The net proceeds of the offering will be used to partially fund the redemption of the Company’s Class AA Preferred Shares, Series 6. Closing of the offering is expected to occur on or about October 6, 2020.

The new issue has been provisionally rated Pfd-2(low) by DBRS:

DBRS Limited (DBRS Morningstar) assigned a provisional rating of Pfd-2 (low) to the Class AA Preferred Shares, Series 11 (the Series 11 Preferred Shares) to be issued by Partners Value Split Corp. (the Company) that will rank pari passu with the existing Class AA Preferred Shares, Series 6; the Class AA Preferred Shares, Series 7; the Class AA Preferred Shares, Series 8; the Class AA Preferred Shares, Series 9; the Class AA Preferred Shares, Series 10 (collectively, the Class AA Preferred Shares).

Nice to see a new issue of an investment-grade SplitShare! The Series 6 Preferreds that are going to be redeemed are PVS.PR.D, currently redeemable at 25.50, redeemable commencing 2020-10-8 at 25.25 and maturing 2021-10-8 at 25.00. It only pays 4.50%, so it’s a bit surprising that they’re going to call it at a premium – although that is not yet 100% certain. PVS.PR.D was originally issued as BNA.PR.F, which commenced trading 2014-7-4 after being announced 2014-6-16.

New Issue : Big Banc Split Corp., 6%, 3-Year

Friday, June 19th, 2020

Assiduous Reader PD writes in and informs me of a new issue SplitShare, Big Banc Split Corp., 6%, 3-Year:

Big Banc Split Corp. (the “Company”) is a mutual fund corporation incorporated under the laws of the Province of Ontario. The Company proposes to offer preferred shares (“Preferred Shares”) and class A shares (“Class A Shares”) at a price of $10.00 per Preferred Share and $10.00 per Class A Share (the “Offering”). Preferred Shares and Class A Shares will be issued only on the basis that an equal number of Preferred Shares and Class A Shares will be outstanding at all material times.

The investment objectives for the Preferred Shares are to provide their holders with fixed cumulative preferential monthly cash distributions in the amount of $0.05 per Preferred Share ($0.60 per annum or 6.0% per annum on the issue price of $10.00 per Preferred Share) until November 30, 2023 (the “Maturity Date”) and to return the original issue price of $10.00 to holders on the Maturity Date. See “Investment Objectives”.

The Company will invest on an approximately equally-weighted basis in a portfolio (the “Portfolio”) of equity securities (the “Portfolio Shares”) of the following publicly traded Canadian banks: Bank of Montreal; Canadian Imperial Bank of Commerce; National Bank of Canada; Royal Bank of Canada; The Bank of Nova Scotia; and The Toronto-Dominion Bank. In order to seek to generate additional returns and enhance the Portfolio’s income, the Manager may write covered call options and cash covered put options in respect of some or all of the Portfolio Shares held in the Portfolio. See “Investment Objectives” and “Investment Strategies”.

The Preferred Shares will not be rated by any rating organization. See “Description of the Securities”. Based on the initial expected net asset value per unit (consisting of one Preferred Share and one Class A Share (each, a “Unit”)), after taking into account offering expenses, the asset coverage ratio based on the Preferred Share original issue price of $10.00 is 190% and the Downside Protection is 47.5%. “Downside Protection” refers to the percentage that the Portfolio would have to decline in value before holders of the Preferred Shares would be in a first-dollar loss position.

“Maturity Date” means November 30, 2023, subject to extension for successive terms of up to 3 years as determined by the Company’s Board of Directors.

The policy of the Board of Directors of the Company will initially be to pay monthly noncumulative distributions to the holders of Class A Shares in the amount of $0.067 per Class A Share. Such distributions will be paid on or before the 15th day of the month following the month in respect of which the distribution is declared payable. No distributions will be paid on the Class A Shares (i) if the distributions payable on the Preferred Shares are in arrears, or (ii) if after paying a cash distribution, the NAV per Unit would be less than $15.00.

Holders of Preferred Shares whose Preferred Shares are surrendered for [monthly] retraction will be entitled to receive a retraction price per Preferred Share equal to the lesser of (i) 95% of the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00 (the “Preferred Share Retraction Price”).

On a Maturity Date, a holder of Preferred Shares may retract such Preferred Shares. The Company will provide at least 60 days’ notice by way of a press release to holders of Preferred Shares of such right. The Preferred Shares must be surrendered for retraction by 5:00 p.m. (Toronto time) on the last Business Day of the month prior to the Maturity Date or subsequent maturity date, as applicable. The redemption price payable by the Company for a Preferred Share pursuant to the non-concurrent retraction right will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions thereon, and (ii) the Net Asset Value of the Company on the Maturity Date divided by the total number of Preferred Shares then outstanding.

As these securities will not be rated, they will not be tracked by HIMIPref™. As I am always quick to explain, this is not because I worship the Credit Rating Agencies or because I can’t do it myself, but because nobody really cares what Hymas Investment Management Inc. thinks of an issue’s credit quality. Something from the agencies, though, gets the attention of management, directors and thousands of salesmen pretty quickly.

It’s nice to see some competition for Brompton Split Banc Corp., SBC and Canadian Banc Corp, BK.

New Issue : PVS SplitShare, 4.70%, 7-Year

Friday, February 21st, 2020

Partners Value Split Corp. has announced:

that it has entered into an agreement to sell 6,000,000 Class AA Preferred Shares, Series 10 (the “Series 10 Preferred Shares”) to a syndicate of underwriters led by Scotiabank, BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc. on a bought deal basis.

The Series 10 Preferred Shares will be issued at a price of $25.00 per share, for gross proceeds of $150,000,000. The Series 10 Preferred Shares will carry a fixed coupon of 4.70% and will have a final maturity of February 28, 2027. The Series 10 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS Limited. The net proceeds of the offering will be used to pay a special dividend on the Company’s capital shares.

The Company has granted the underwriters an option, exercisable in whole or part prior to closing, to purchase up to an additional 2,000,000 Series 10 Preferred Shares at the same offering price, which, if exercised, would increase the gross offering size to $200,000,000. Closing of the offering is expected to occur on or about March 2, 2020.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares. Brookfield Asset Management Inc. (“BAM”) is a leading global alternative asset manager with over US$540 billion of assets under management across real estate, infrastructure, renewable power, private equity and credit. BAM owns and operates long-life assets and businesses, many of which form the backbone of the global economy. Utilizing its global reach, access to large-scale capital and operational expertise, BAM offers a range of alternative investment products to investors around the world—including public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies and private wealth investors. BAM is listed on the New York Stock Exchange and Toronto Stock Exchange under the symbol BAM and BAM.A respectively.

DBRS has assigned a provisional rating of Pfd-2(low) to the issue:

DBRS Limited (DBRS Morningstar) assigned a provisional rating of Pfd-2 (low) to the Class AA Preferred Shares, Series 10 (the Series 10 Preferred Shares) to be issued by Partners Value Split Corp. (the Company) that will rank pari passu with the existing Class AA Preferred Shares, Series 6; the Class AA Preferred Shares, Series 7; the Class AA Preferred Shares, Series 8; and the Class AA Preferred Shares, Series 9 (collectively, the Class AA Preferred Shares).

Following the issuance of the Series 10 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 89% and the dividend coverage ratio is expected to be approximately 2.1 times (x; based on the Canadian-dollar and U.S.-dollar exchange rate as of February 12, 2020)

The main constraints to the rating are the following:

(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.

(2) There is a lack of diversification, as the Portfolio is entirely made up of BAM Shares.

(3) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Share dividend coverage.

(4) As BAM declares dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to the Canadian–U.S. exchange rate, specifically the appreciation of the Canadian dollar versus the U.S. dollar. This may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares, as these dividends are paid in Canadian dollars.

(5) Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Junior Preferred Shares.

The issue looks well-priced!

Ticker Coupon Quote Yield-to-worst at Bid Modified Duration
PVS.PR.D 1.125 25.33-40 3.55% 1.57
PVS.PR.E 1.375 25.85-92 3.03% 0.68
PVS.PR.F 1.20 25.45-55 4.34% 4.13
PVS.PR.G 1.225 25.45-50 4.54% 5.21
PVS.PR.?
New Issue
1.175 25.00
Issue Price
4.69% 5.97

New Issue: IFC Straight Preferred, 5.40%

Thursday, February 6th, 2020

Intact Financial Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters led by TD Securities Inc. together with BMO Capital Markets, CIBC Capital Markets, National Bank Financial, RBC Capital Markets and Scotiabank pursuant to which the underwriters have agreed to purchase, on a bought deal basis, 5,000,000 Non-Cumulative Class A Shares, Series 9 (the “Series 9 Shares”) from Intact for sale to the public at a price of $25.00 per Series 9 Share, representing aggregate gross proceeds of $125 million.

Intact has granted the underwriters an underwriters’ option to purchase up to an additional 1,000,000 Series 9 Shares at the same offering price exercisable at any time up to 48 hours before closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the Series 9 Shares offering will be $150 million.

The Series 9 Shares will yield 5.40% per annum, payable quarterly, as and when declared by the Board of Directors of the Company. The Series 9 Shares will not be redeemable prior to March 31, 2025. On and after March 31, 2025, Intact may, on not less than 30 nor more than 60 days’ notice, redeem for cash the Series 9 Shares in whole or in part, at the Company’s option, at $26.00 per share if redeemed on or after March 31, 2025 and prior to March 31, 2026; $25.75 per share if redeemed on or after March 31, 2026 and prior to March 31, 2027; $25.50 per share if redeemed on or after March 31, 2027 and prior to March 31, 2028; $25.25 per share if redeemed on or after March 31, 2028 and prior to March 31, 2029; and $25.00 per share if redeemed on or after March 31, 2029, in each case together with all declared and unpaid dividends up to but excluding the date of redemption.

The Series 9 Share offering is expected to close on February 18, 2020. The net proceeds will be used for general corporate purposes.

Stop the presses! This is the first new issue announcement since CM.PR.Y in May, 2019, and the first Straight since … since … for a long time!

This issue joins IFC.PR.E and IFC.PR.F as Intact Straight Perpetuals – sadly, no Implied Volatility analysis is possible since there are now only three of them.

New Issue : CM FixedReset, 5.15%+362, NVCC

Friday, May 24th, 2019

Canadian Imperial Bank of Commerce has announced:

that it had entered into an agreement with a group of underwriters led by CIBC Capital Markets for an issue of 10 million Basel III-compliant Non-cumulative Rate Reset Class A Preferred Shares Series 51 (Non-Viability Contingent Capital (NVCC)) (the “Series 51 Shares”) priced at $25.00 per Series 51 Share to raise gross proceeds of $250 million.

CIBC has granted the underwriters an option to purchase up to an additional 2 million Series 51 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.

The Series 51 Shares will yield 5.15% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending July 31, 2024. On July 31, 2024, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 3.62%.

Subject to regulatory approval and certain provisions of the Series 51 Shares, on July 31, 2024 and on July 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 51 Shares at par.

Subject to the right of redemption, holders of the Series 51 Shares will have the right to convert their shares into Non-cumulative Floating Rate Class A Preferred Shares Series 52 (Non-Viability Contingent Capital (NVCC)) (the “Series 52 Shares”), subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter. Holders of the Series 52 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 3.62%.

Holders of the Series 52 Shares may convert their Series 52 Shares into Series 51 Shares, subject to certain conditions, on July 31, 2029 and on July 31 every five years thereafter.

The expected closing date is June 4, 2019. CIBC will make an application to list the Series 51 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.

The new issue is somewhat expensive according to Implied Volatility Analysis:

impvol_cm_190524
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According to this analysis, the fair price of the new issue is 24.85, but alert Assiduous Readers will have noticed that the Implied Volatility plot is very peculiar, having twp expensive issues and four cheap ones, with the new issue being the sole occupant of No Man’s Land.

The two rich issues are:

The extremely perplexing issue is CM.PR.R, a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-5-25. It traded 44,632 shares today in a range of 22.66-80 before closing at 22.72-76.

I confess I don’t know quite what to make of this. It is common – normal, even – for a new issue to remain rich for quite some time, but I am at a loss to explain why CM.PR.S should remain rich after being on the market for sixteen months. CM.PR.R is just silly … but note that its current coupon is low relative to the new issue and it won’t reset until 2022-7-31 … three years, roughly, thirteen coupon payments, but that’s only a total of about $0.60 and doesn’t explain the differential with CM.PR.S anyway.

Fortunately, I don’t have to explain it! All I have to do is avoid buying the new issue and favour other, cheaper, choices for any allocation to CM that I care to make.

New Issue : TD FixedReset 5.10%+356, NVCC

Friday, May 24th, 2019

The Toronto-Dominion Bank has announced (although not yet on their website):

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 10 million Series 24 Shares at a price of $25.00 per share to raise gross proceeds of $250 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 24 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.

The Series 24 Shares will yield 5.10% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending July 31, 2024. Thereafter, the dividend rate will reset every five years at a level of 3.56% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on July 31, 2024 and on July 31 every 5 years thereafter, TD may redeem the Series 24 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 24 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares (NVCC), Series 25 (the “Series 25 Shares”), on July 31, 2024, and on July 31 every five years thereafter. Holders of the Series 25 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury Bill yield plus 3.56%.

The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

They later announced (not on their website either):

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”), the size of the offering has been increased to 18 million Series 24 Shares. The gross proceeds of the offering will now be $450 million. The offering will be underwritten by a group of underwriters led by TD Securities Inc.

The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

The new issue is somewhat expensive according to Implied Volatility Analysis:

impvol_td_190524
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According to this analysis, the fair price of the new issue is 24.27.

It is most interesting to compare this issue with TD.PF.L, a FixedReset, 5.20%+327, that commenced trading 2019-1-28 after being announced 2019-01-17. Alert Assiduous Readers will have noticed that although the initial dividends of the two issues are similar, the spreads are 29bp different, which is significant. The fair price of TD.PF.L according to the analysis above is only 23.23, yet the issue was down only $0.17 on the day to close at 25.01-24 on volume of 109,265. I am reminded of the BCE.PR.K Ridiculous Rip-off Wrinkle, in which BCE was able to reopen the issue since – presumably – the initial coupon rate was in-line with the market even though the spread to the Canada 5-year for the re-opened portion was 87bp lower than it should have been.

So I guess TD’s happy enough with the pricing of this issue – after all, given that the calculated spread for a notional perpetual non-callable annuity is 346bp and the spread on the issue is 356bp. They didn’t quite get their call options for free, but close!

New Issue: CPX FixedReset, 5.75%+415M575

Tuesday, May 7th, 2019

Capital Power Corporation has announced:

that it will issue 6,000,000 Cumulative Minimum Rate Reset Preference Shares, Series 11 (the “Series 11 Shares”) at a price of $25.00 per Series 11 Share (the “Offering”) for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, co-led by TD Securities Inc. and RBC Capital Markets. In addition, Capital Power has granted the underwriters an option, exercisable in whole or in part anytime up to two business days prior to closing, to purchase up to an additional 2,000,000 Series 11 Shares on the same terms, for additional gross proceeds of up to $50 million.

The Series 11 Shares will pay fixed cumulative dividends of $1.4375 per share per annum, yielding 5.75% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the board of directors of Capital Power, for the initial period ending June 30, 2024. Assuming an issue date of May 16, 2019, the first quarterly dividend of $0.1772 per share is expected to be paid on June 30, 2019 (with actual payment to be made on June 28, 2019, being the last business day of June 2019). The dividend rate will be reset on June 30, 2024 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.15%, provided that, in any event, such rate shall not be less than 5.75%. The Series 11 Shares are redeemable by Capital Power, at its option, on June 30, 2024 and on June 30 of every fifth year thereafter.

Holders of Series 11 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 12 (the “Series 12 Shares”), subject to certain conditions, on June 30, 2024 and every five years thereafter. Holders of Series 12 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.15%, as and when declared by the Board of Directors of Capital Power.

Net proceeds of the offering will be used to repay indebtedness under Capital Power’s credit facilities which will then be available to be redrawn to partially fund the acquisition of Goreway Power Station Holdings Inc. that was previously announced on April 29, 2019 and for general corporate purposes.

S&P Global Ratings has assigned a provisional rating of P-3 for the Series 11 Shares and DBRS Limited has assigned a preliminary rating of Pfd-3 (low) for the Series 11 Shares.

The Series 11 Shares will be issued pursuant to a prospectus supplement to Capital Power’s short form base shelf prospectus dated May 11, 2018. The prospectus supplement will be filed with securities regulatory authorities in all provinces and territories in Canada. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Given that CPX has six FixedReset issues, including this one, of which three have no floor (CPX.PR.A, CPX.PR.C and CPX.PR.E) and three do (CPX.PR.G, CPX.PR.I and this), it is difficult to obtain any meaning from a volatility analysis. However, I will note that CPX.PR.I, a FixedReset, 5.75%+412M575, that commenced trading 2017-8-9 after being announced 2017-7-27, has near-identical terms and closed today at 25.06-10 to yield 5.73%-5.72%, while CPX.PR.A, a FixedReset, 3.06%+217, that commenced trading 2010-12-16 with a 4.60% dividend after being announced 2010-12-1, and reset to 3.06% effective 2015-12-31, is now quoted at 13.76-00 to yield 6.80%-6.66%. I find it very difficult to believe that the dividend floor is worth a full point of yield, even before considering the additional call risk of the new issue.

New Issue: BMO FixedReset 5.10%+351, NVCC

Monday, April 8th, 2019

The Bank of Montreal has announced:

a domestic public offering of $250 million of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 46 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 46”). The offering will be underwritten on a bought-deal basis by a syndicate of underwriters led by BMO Capital Markets. The Bank has granted to the underwriters an option to purchase up to an additional $50 million of the Preferred Shares Series 46 exercisable at any time up to 48 hours before closing.

The Preferred Shares Series 46 will be issued to the public at a price of $25.00 per share. Holders will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period to May 25, 2024, as and when declared by the Board of Directors of the Bank, payable in the amount of $0.31875 per share, to yield 5.10 per cent annually.

Subject to regulatory approval, on May 25, 2024 and on May 25 of every fifth year thereafter, the Bank may redeem the Preferred Shares Series 46 in whole or in part at par. On May 25, 2024, the dividend rate will reset and will reset thereafter every five years to be equal to the 5-Year Government of Canada Bond Yield plus 3.51 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 46 into an equal number of Non-Cumulative Floating Rate Class B Preferred Shares Series 47 (Non-Viability Contingent Capital (NVCC)) (“Preferred Shares Series 47”) on May 25, 2024, and on May 25 of every fifth year thereafter. Holders of the Preferred Shares Series 47 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the Board of Directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill Yield plus 3.51 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 47 into an equal number of Preferred Shares Series 46 on May 25, 2029, and on May 25 of every fifth year thereafter.

The anticipated closing date is April 17, 2019. The net proceeds from the offering will be used by the Bank for general banking purposes.

They later announced:

that, as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-year Rate Reset Class B Preferred Shares Series 46 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 46”), the size of the offering has been increased to 14 million shares. The gross proceeds of the offering will now be $350 million. As announced earlier today, the offering will be underwritten on a bought deal basis by a syndicate led by BMO Capital Markets.

The anticipated closing date is April 17, 2019. The net proceeds from the offering will be used by the Bank for general banking purposes.

The new issue is somewhat expensive according to Implied Volatility Analysis:

impvol_bmo_190408_withbmopre
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Alert Readers will have noticed that the curve has been shifted a bit due to the issue BMO.PR.E, a FixedReset 4.85%+268, NVCC, that commenced trading 2018-09-17 after being announced 2018-09-06 – so let’s try a fitting in which it’s not included.

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According to these analyses, if BMO.PR.E is included in the fitting, the new issue is fairly valued at 24.60, while BMO.PR.E itself has a fair price of 21.14 (as opposed to an actual bid price of 23.00).

If BMO.PR.E is not used to fit the curve, the new issue may be valued at 24.42, while BMO.PR.E is assigned a fair value of 20.80.

It’s interesting to note that the theoretical spread (on a notional non-callable perpetual resettable annuity) is either 345bp or 354bp (depending on whether BMO.PR.E is included), roughly the same as the actual issue spread of 351bp – which means that BMO is basically getting the call options on the issue for free.