Archive for the ‘New Issues’ Category

New Issue: AX FixedReset, 6.00%+393M600, ROC

Tuesday, January 23rd, 2018

Artis Real Estate Investment Trust has announced:

that is [sic] has entered into an agreement to sell to a syndicate of underwriters led by TD Securities Inc., RBC Capital Markets and Scotiabank (collectively the “Underwriters”), on a bought deal basis, 4,000,000 Cumulative Minimum Rate Reset Preferred Trust Units, Series I (“Series I Units”) at a price of $25.00 per Series I Unit (the “Issue Price”) for gross proceeds of $100,000,000 (the “Financing”). Artis has also granted the Underwriters an option, exercisable at any time up to 48 hours prior to the closing of the Financing, to purchase a further 1,000,000 Series I Units at the Issue Price, which, if fully exercised, would result in additional gross proceeds of $25,000,000.

The Series I Units will pay fixed cumulative preferential distributions of $1.50 per Series I Unit per annum, yielding 6.00% per annum, payable on the last day of January, April, July and October of each year, as and when declared by the board of trustees of Artis, for the initial period ending on April 30, 2023. The first quarterly distribution, if declared, will be payable on April 30, 2018 and will be $0.3750 per Series I Unit, based on the anticipated closing date of the Financing on January 31, 2018. The distribution rate will be reset on April 30, 2023 and every five years thereafter at a rate equal to the greater of (i) the sum of the then five year Government of Canada bond yield and 3.93% and (ii) 6.00%. The Series I Units are redeemable by Artis, at its option, on April 30, 2023 and on April 30 of every fifth year thereafter.

Holders of Series I Units will have the right to reclassify all or any part of their Series I Units as Cumulative Floating Rate Preferred Trust Units, Series J (the “Series J Units”), subject to certain conditions, on April 30, 2023 and on April 30 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement for the Financing). Holders of Series J Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of January, April, July and October of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread of 3.93%.

DBRS Limited has assigned a provisional rating of Pfd-3 (low) to the Series I Units.

The Financing is being made pursuant to the REIT’s base shelf prospectus dated August 8, 2016. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Financing is expected to close on or about January 31, 2018 and is subject to regulatory approval.

Artis intends to use the net proceeds from the Financing to redeem its existing U.S. dollar denominated cumulative redeemable preferred trust units, Series C and for general trust purposes.

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 5,000,000 Cumulative Minimum Rate Reset Preferred Trust Units, Series I (“Series I Units”) to be offered on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., RBC Capital Markets and Scotiabank (collectively the “Underwriters”). The Series I Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000 (the “Financing”).

The Financing is being made pursuant to the REIT’s base shelf prospectus dated August 8, 2016. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Financing is expected to close on or about January 31, 2018 and is subject to regulatory approval.

Artis intends to use the net proceeds from the Financing to redeem its existing U.S. dollar denominated cumulative redeemable preferred trust units, Series C and for general trust purposes.

The issue they intend to redeem is AX.PR.U, a FixedReset, 5.25%+446 US PAY ROC announced 2012-09-11 which commenced trading 2012-9-18, and which is callable at par on 2018-3-31.

The new issue looks quite expensive to me, according to Implied Volatility Analysis:

impvol_ax_180122
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This perceived richness has a different source than the other issues discussed here recently, such as the BEP.PR.M issue, the CM.PR.S issue and the NA.PR.E, since the calculated level of Implied Volatility, 11%, is actually quite reasonable.

In this case, the richness is due to the extraordinarily high value that retail – fighting the last war, as always – has placed on the minimum reset guarantee. If, like me, you consider the guarantee to have little or no value, you will expect the new issue to be trading near the price of AX.PR.A, which has an Issue Reset Spread of 406bp (and a current coupon of 5.662%). However, this issue closed today at 23.61, indicating that retail considers the minimum rate guarantee to be worth somewhere around $1.50. Wow! That’s nearly double the value of the call option in this analysis!

New Issue: BIP FixedReset, 5.00%+300M500, ROC

Monday, January 15th, 2018

Brookfield Infrastructure has announced:

that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 9 (“Series 9 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, BMO Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc. The Series 9 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 9 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.00% annually for the initial period ending March 31, 2023. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 3.00%, and (ii) 5.00%. The Series 9 Preferred Units are redeemable on or after March 31, 2023.

Holders of the Series 9 Preferred Units will have the right, at their option, to reclassify their Series 9 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 10 (“Series 10 Preferred Units”), subject to certain conditions, on March 31, 2023 and on March 31 every five years thereafter. Holders of Series 10 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 3.00%.

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 9 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

The Series 9 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 9 Preferred Units to fund a growing backlog of committed organic growth capital expenditure projects and an active pipeline of new investment opportunities, and for general working capital purposes. The offering of Series 9 Preferred Units is expected to close on or about January 23, 2018.

This issue looks quite expensive to me, according to Implied Volatility Analysis:

impvol_bip_180115
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Well, it’s starting to get monotonous, but we see in this chart many of the same features we saw when reviewing last week’s BEP issue, the CM issue and NA issue:

  • The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and
  • The extant issues are trading relatively near to, or well above par

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.

I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.

For the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.

All told, though, I have no hesitation in slapping an ‘Expensive’ label on this issue – according to the Implied Volatility analysis shown above, the theoretical price of the new issue is 23.50. Mind you, the Implied Volatility cap rate of 40% is arbitrary; perhaps if I allowed 50% or so the new issue would sit on the curve … but in that case, Implied Volatility has become a completely arbitrary meaningless number.

New Issue: NA FixedReset, 4.60%+258, NVCC-Compliant

Friday, January 12th, 2018

National Bank of Canada has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for the issuance on a bought deal basis of 8 million non-cumulative 5-year rate reset first preferred shares series 40 (non-viability contingent capital (NVCC)) (the “Series 40 Preferred Shares”) at a price of $25.00 per share, to raise gross proceeds of $200 million.

National Bank has granted the underwriters an option to purchase, on the same terms, up to an additional 4 million Series 40 Preferred 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 gross proceeds raised under the offering will be $300 million should this option be exercised in full.

The Series 40 Preferred Shares will yield 4.60% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending May 15, 2023. The first of such dividends, if declared, shall be payable on May 15, 2018. Thereafter, the dividend rate will reset every five years at a level of 258 basis points over the then 5-year Government of Canada bond yield. Subject to regulatory approval, National Bank may redeem the Series 40 Preferred Shares in whole or in part at par on May 15, 2023 and on May 15 every five years thereafter.

Holders of the Series 40 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 41 (non-viability contingent capital (NVCC)) (the “Series 41 Preferred Shares”), subject to certain conditions, on May 15, 2023, and on May 15 every five years thereafter. Holders of the Series 41 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 258 basis points.

The net proceeds of the offering will be used for general corporate purposes and added to National Bank’s capital base. The expected closing date is on or about January 22, 2018. National Bank intends to file in Canada a prospectus supplement to its November 21, 2016 base shelf prospectus in respect of this issue.

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 first preferred shares series 40 (non-viability contingent capital (NVCC)) (the “Series 40 Preferred Shares”), the underwriters have exercised their option to purchase an additional 4,000,000 Series 40 Preferred Shares. The size of the offering has been increased to 12 million shares for gross proceeds of $300 million. The offering will be underwritten by a syndicate led by National Bank Financial Inc. The expected closing date is on or about January 22, 2018.

The net proceeds of the offering will be used for general corporate purposes and added to National Bank’s capital base.

This issue looks quite expensive to me, according to Implied Volatility Analysis:

impvol_na_180111
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We see in this chart many of the same features we saw when reviewing the recent BPO new issue and Tuesday’s BEP issue and yesterday’s CM issue:

  • The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and
  • The extant issues are trading relatively near to, or well above par

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.

I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.

For the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.

All told, though, I have no hesitation in slapping an ‘Expensive’ label on this issue – according to the Implied Volatility analysis shown above, the theoretical price of the new issue is 24.01.

New Issue: CM FixedReset, 4.50%+245, NVCC-compliant

Wednesday, January 10th, 2018

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 16 million Basel III-compliant Non-cumulative Rate Reset Class A Preferred Shares Series 47 (Non-Viability Contingent Capital (NVCC)) (the “Series 47 Shares”) priced at $25.00 per Series 47 Share to raise gross proceeds of $400 million.

CIBC has granted the underwriters an option to purchase up to an additional two million Series 47 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 $450 million.

The Series 47 Shares will yield 4.5% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending January 31, 2023. On January 31, 2023, and on January 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 2.45%.

Subject to regulatory approval and certain provisions of the Series 47 Shares, on January 31, 2023 and on January 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 47 Shares at par.

Subject to the right of redemption, holders of the Series 47 Shares will have the right to convert their shares into Non-cumulative Floating Rate Class A Preferred Shares Series 48 (Non-Viability Contingent Capital (NVCC)) (the “Series 48 Shares”), subject to certain conditions, on January 31, 2023 and on January 31 every five years thereafter. Holders of the Series 48 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 2.45%.

Holders of the Series 48 Shares may convert their Series 48 Shares into Series 47 Shares, subject to certain conditions, on January 31, 2028 and on January 31 every five years thereafter.

The expected closing date is January 18, 2018. CIBC will make an application to list the Series 47 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.

This issue looks quite expensive to me, according to Implied Volatility Analysis:

impvol_cm_180110
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We see in this chart many of the same features we saw when reviewing the recent BPO new issue and yesterday’s BEP issue:

  • The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and
  • The extant issues ar trading near par

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.

I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.

For the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.

All told, though, I have no hesitation in slapping an ‘Expensive’ label on this issue – according to the Implied Volatility analysis shown above, the theoretical price of the new issue is 24.26.

New Issue: BEP FixedReset 5.00%+300M500

Tuesday, January 9th, 2018

Brookfield Renewable Partners L.P. has announced:

that it has agreed to issue 8,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 13 (the “Series 13 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets and Scotiabank for distribution to the public. The Series 13 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000.

Holders of the Series 13 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.00% annually for the initial period ending April 30, 2023. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of (i) the 5-year Government of Canada bond yield plus 3.00%, and (ii) 5.00%. The Series 13 Preferred Units are redeemable on April 30, 2023 and on each Series 13 Reclassification Date (as defined below) thereafter.

Holders of the Series 13 Preferred Units will have the right, at their option, to reclassify their Series 13 Preferred Units into Cumulative Floating Rate Reset Class A Preferred Limited Partnership Units, Series 14 (“Series 14 Preferred Units”), subject to certain conditions, on April 30, 2023 and on April 30 every 5 years thereafter (each a “Series 13 Reclassification Date”). Holders of Series 14 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 3.00%.

Brookfield Renewable has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 13 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

The Series 13 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Renewable’s existing Canadian short form base shelf prospectus. The Series 13 Preferred Units may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

Brookfield Renewable intends to use the net proceeds of the issue of Series 13 Preferred Units to repay indebtedness. The offering of Series 13 Preferred Units is expected to close on or about January 16, 2018.

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 10,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 13 (the “Series 13 Preferred Units”) to be offered on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., BMO Capital Markets, CIBC Capital Markets, RBC Capital Markets and Scotiabank. The Series 13 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $250,000,000.

This issue looks quite expensive to me, but quantifying the degree of richness is difficult. According to Implied Volatility Analysis:

impvol_bep_180109
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We see in this chart many of the same features we saw when reviewing the recent BPO new issue:

  • The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and
  • Each of the extant issues is trading at a premium

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; in turn, I suggest that this reflects a rather touching faith that the existence of a minimum rate guarantee on reset also indicates that the issues will never, ever trade below par. There will be a lot of long faces when this test gets failed in the future!

However, for the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.

Complicating the above analysis is a high probability that the three extant issues will each be called at the first opportunity. I will certainly agree that this is likely to happen, but I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.

All told, though, I have no hesitation in slapping a ‘Very Expensive’ label on this issue.

New Issue: KML FixedReset, 5.20%+351M520

Wednesday, December 6th, 2017

Kinder Morgan Canada Limited has announced (although not yet on their website):

that it has entered into an agreement with a syndicate of underwriters led by CIBC Capital Markets, Scotiabank, RBC Capital Markets and TD Securities (together, the “Underwriters”) pursuant to which the Underwriters have agreed to purchase from the Company, 8,000,000 cumulative redeemable minimum rate reset preferred shares, Series 3 (the “Series 3 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The Company has granted to the Underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series 3 Preferred Shares at a price of $25.00 per share.

The Company intends to use the proceeds from the offering to indirectly subscribe for preferred units in Kinder Morgan Canada Limited Partnership, which intends to subsequently use such proceeds to, directly or indirectly, finance the development, construction and completion of the Trans Mountain Expansion Project and Base Line Terminal project as well as potential future growth opportunities, to repay indebtedness and for general corporate purposes.

The holders of Series 3 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.3000 per share, payable quarterly on the 15th day of February, May, August and November as and when declared by the Board of Directors of the Company, yielding 5.20 percent per annum at the issue price, for the initial fixed rate period to but excluding February 15, 2023 (the “Initial Fixed Rate Period”). The first quarterly dividend payment date is scheduled for February 15, 2018 and is anticipated to be in the amount of $0.22082 per share (assuming closing of the offering on December 15, 2017). The dividend rate will reset on February 15, 2023 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.51 percent, provided that, in any event, such rate shall not be less than 5.20 percent per annum. The Series 3 Preferred Shares are redeemable by the Company, at its option, on February 15, 2023 and on February 15 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 3 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate preferred shares, Series 4 (the “Series 4 Preferred Shares”), subject to certain conditions, on February 15, 2023 and on February 15 of every fifth year thereafter. The holders of Series 4 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of the Company, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.51 percent.

Closing of the offering is expected to occur on December 15, 2017, subject to customary closing conditions.

The offering is being made under a prospectus supplement to the base shelf prospectus of the Company dated July 28, 2017 (together, the “Prospectus”). Copies of the Prospectus may be obtained from Canadian Imperial Bank of Commerce, Commerce Court, Toronto, Ontario M5L 1A2, Telephone (416) 980-3096, The Bank of Nova Scotia, Scotia Plaza, 44 King Street West, Toronto, Ontario M5H 1H1, Telephone: (416) 866-3672, Royal Bank of Canada, 200 Bay Street, 4th Floor, North Tower, Toronto, Ontario, M5J 2W7, Telephone (416) 955-7803 and The Toronto-Dominion Bank, Toronto-Dominion Centre, Toronto, Ontario M5K 1A2, Telephone: (416) 308-6963. Investors should read the Prospectus, and the documents incorporated therein by reference, in their entirety, before making an investment decision.

The issue even made the Globe & Mail, presumably because of controversy about the Trans Mountain Pipeline:

Kinder Morgan Canada Ltd. is selling $200-million in shares even as the company dials back spending and warns of additional delays to its marquee Trans Mountain pipeline expansion.

The unit of Houston-based Kinder Morgan Inc. said Wednesday that it is selling eight million preferred units at $25 each in a bought deal to major banks, with proceeds earmarked to help finance the $7.4-billion pipeline expansion to Canada’s West Coast.

The offering comes despite warnings the 590,000-barrel-a-day expansion project could see oil shipments commence nine months later than originally planned. This week, the company said delays could extend beyond September, 2020, further driving up costs.

New Issue: ENB FixedReset 4.90%+317M490

Monday, December 4th, 2017

Enbridge Inc. has announced:

that it has entered into an agreement with a group of underwriters to sell $400 million Cumulative Redeemable Minimum Rate Reset Preference Shares, Series 19 (the “Series 19 Preferred Shares”) at a price of $25.00 per share for distribution to the public. Closing of the offering is expected on or about December 11, 2017.

The holders of Series 19 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.225 per share, payable quarterly on the first day of March, June, September and December, as and when declared by the Board of Directors of Enbridge. The Series 19 Preferred Shares are expected to yield 4.90 percent per annum for the initial fixed rate period to, but excluding, March 1, 2023. The first quarterly dividend payment date is scheduled for March 1, 2018. The dividend rate will reset on March 1, 2023 and every five years thereafter at a rate equal to the sum of the then five-year Canadian Government bond yield plus 3.17 percent, provided that, in any event, such rate shall not be less than 4.90 percent per annum. The Series 19 Preferred Shares are redeemable by Enbridge, at its option, on March 1, 2023 and on March 1 of every fifth year thereafter.

The holders of Series 19 Preferred Shares will have the right to convert their shares into Cumulative Redeemable Preference Shares, Series 20 (the “Series 20 Preferred Shares”) on March 1, 2023 and on March 1 of every fifth year thereafter, subject to certain conditions. The holders of Series 20 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Enbridge, at a rate equal to the sum of the 90-day Government of Canada Treasury bill rate plus 3.17 percent.

Enbridge has granted to the underwriters an option to purchase up to an additional four million Series 19 Preferred Shares at a price of $25.00 per share, exercisable at any time up to 48 hours prior to the closing of the offering.

The offering is being made only in Canada by means of a prospectus supplement to the base shelf prospectus of the Company dated September 14, 2017. Proceeds are expected to be used to partially fund capital projects, to reduce existing indebtedness and for other general corporate purposes of the Company and its affiliates.

The syndicate of underwriters is led by Scotiabank, BMO Capital Markets, CIBC Capital Markets, and National Bank Financial.

This issue looks extraordinarily expensive to me! According to Implied Volatility analysis:

impvol_enb_171204
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With the parameters shown, the theoretical value of the new issue is 23.17, roughly equivalent to the BPO new issue. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

New Issue: BPO FixedReset, 4.85%+323M485

Wednesday, November 29th, 2017

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P., has announced:

that it has agreed to issue to a syndicate of underwriters led by Scotiabank, CIBC Capital Markets, RBC Capital Markets and TD Securities Inc., for distribution to the public, ten million Cumulative Minimum Rate Reset Class AAA Preference Shares, Series II (the “Preferred Shares, Series II”). The Preferred Shares, Series II will be issued at a price of C$25.00 per share, for aggregate proceeds of C$250 million. Holders of the Preferred Shares, Series II will be entitled to receive a cumulative quarterly fixed dividend yielding 4.85% annually for the initial period ending December 31, 2022. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of (i) the five-year Government of Canada bond yield plus 3.23% and (ii) 4.85%.

Holders of Preferred Shares, Series II will have the right, at their option, to convert their shares into Cumulative Floating Rate Class AAA Preference Shares, Series JJ (the “Preferred Shares, Series JJ”), subject to certain conditions, on December 31, 2022 and on December 31 every five years thereafter. Holders of Preferred Shares, Series JJ will be entitled to receive cumulative quarterly floating dividends at a rate equal to the 90-day Government of Canada Treasury Bill yield plus 3.23%.

The Series II Shares and Series JJ Shares will be fully and unconditionally guaranteed, jointly and severally, as to: (i) the payment of dividends, as and when declared, (ii) the payment of amounts due on redemption, and (iii) the payment of amounts due on the liquidation, dissolution or winding-up of Brookfield Office Properties, by the following entities: Brookfield Property Partners L.P., Brookfield Property L.P., Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, BPY Bermuda Holdings II Limited, BPY Bermuda Holdings IV Limited and BPY Bermuda Holdings V Limited.

Brookfield Office Properties has granted the underwriters an option, exercisable in whole or in part anytime up to two business days prior to closing, to purchase an additional 2,000,000 Preferred Shares, Series II at the same offering price. Should the option be fully exercised, the total gross proceeds of the financing will be C$300 million.

The Preferred Shares, Series II will be offered in all provinces of Canada by way of a supplement to Brookfield Office Properties’ existing Canadian short form base shelf prospectus dated August 29, 2016.

The net proceeds of the issue will be used by Brookfield Office Properties for general corporate purposes. The offering is expected to close on or about December 7, 2017.

This issue looks extraordinarily expensive to me! According to Implied Volatility analysis:

impvol_bpo_171129
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With the parameters shown, the theoretical value of the new issue is 23.12. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

However, when the graph is examined more closely, it does look as if the Floor issues are on a different line with a steeper slope than the non-Floor issues. So let’s try disaggregating the data:

impvol_bpo_nofloor_171129
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impvol_bpo_floor_171129
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It’s an interesting idea that bears watching in the future. The Implied Volatility of the “Floor” series is extremely high, indicating that the Black-Scholes assumptions do not hold, which I usually take to mean implies a strong belief in the directionality of future prices, e.g., that all issues will be called and hence are all expected to gravitate towards par. Regretably, all extant ‘floor’ issues (BPO.PR.C, BPO.PR.E, BPO.PR.G) have relatively high spreads (518, 396 and 374bp, respectively) and are trading above par, which may be contaminating the data.

New Issue: PPL FixedReset 4.90%+326M490

Wednesday, November 29th, 2017

Pembina Pipeline Corporation has announced (on 2017-11-28):

that it has entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets, CIBC World Markets, and Scotiabank (together, the “Underwriters”) pursuant to which the Underwriters have agreed to purchase from Pembina 12,000,000 cumulative redeemable minimum rate reset class A preferred shares, Series 21 (the “Series 21 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 21 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.225 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, yielding 4.90 percent per annum, for the initial fixed rate period to but excluding March 1, 2023. The first quarterly dividend payment date is scheduled for March 1, 2018. The dividend rate will reset on March 1, 2023 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.26 percent, provided that, in any event, such rate shall not be less than 4.90 percent per annum. The Series 21 Preferred Shares are redeemable by Pembina, at its option, on March 1, 2023 and on March 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 21 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, Series 22 (the “Series 22 Preferred Shares”), subject to certain conditions, on March 1, 2023 and on March 1 of every fifth year thereafter. The holders of Series 22 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Pembina, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.26 percent.

Pembina has granted to the Underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 4,000,000 Series 21 Preferred Shares at a price of $25.00 per share.

Closing of the offering is expected on December 7, 2017, subject to customary closing conditions.

The Company intends to use the net proceeds from the Offering to reduce indebtedness of the Company under its credit facilities. The indebtedness of the Company under the Credit Facilities was incurred in the normal course of business to fund the Company’s capital program, and to fund a portion of the cash consideration payable to former common shareholders of Veresen Inc. (“Veresen”) pursuant to the plan of arrangement with Veresen which closed on October 2, 2017.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Company on July 27, 2017 in each of the provinces of Canada.

It looks expensive to me! According to Implied Volatility analysis:

impvol_ppl_171129
Click for Big

With the parameters shown, the theoretical value of the new issue is 24.27. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

These straw-men critics I have created will also have to explain why the two other Floor-Rate FixedResets (PPL.PR.K and PPL.PR.M) are cheap according to this analysis. It can be done – just assume that spreads on those two issues are so large that the floor doesn’t matter any more – but one way or another, it’s another example of the asymmetry of returns on issues priced near par working against the investor.

New Issue: PVS SplitShare, 7-Year, 4.80%

Thursday, September 7th, 2017

Partners Value Split Corp. has announced (although not yet on their website):

that it has entered into an agreement to sell 5,000,000 Class AA Preferred Shares, Series 8 (the “Series 8 Preferred Shares”) to a syndicate of underwriters led by Scotiabank, CIBC Capital Markets, RBC Capital Markets, and TD Securities Inc. on a bought deal basis.

The Series 8 Preferred Shares will be issued at a price of $25.00 per share, for gross proceeds of $125,000,000. The Series 8 Preferred Shares will carry a fixed coupon of 4.80% and will have a final maturity of September 30, 2024. The Series 8 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS. The net proceeds of the offering will be used to redeem the Company’s outstanding Class AA Preferred Shares, Series 5 and to pay a special dividend to holders of 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 1,000,000 Series 8 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 September 18, 2017.

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. is a global alternative asset manager with over US$250 billion in assets under management. For more than 100 years Brookfield has owned and operated assets on behalf of shareholders and clients with a focus on property, renewable energy, infrastructure and private equity. Brookfield has a range of public and private investment products and services which leverage its expertise and experience. Brookfield Shares are co-listed on the New York Stock Exchange under the symbol “BAM”, the TSX under the symbol “BAM.A” and the NYSE Euronext under the symbol “BAMA”.

David Clare, Vice President, will be available at (647) 503-6516 to answer any questions regarding the offering.

The Series 5 shares which are being redeemed have the ticker PVS.PR.C, which was originally traded as BNA.PR.E, which commenced trading 2010-12-10 after being announced 2010-11-22. It has a 4.85% coupon and has 4,999,000 shares outstanding.

4.80% on the new issue looks like a very nice coupon on the new issue, compared with yields on the company’s other issues of PVS.PR.B, 4.01% to 2019-1-10; PVS.PR.D, 4.36% to 2021-10-8; and PVS.PR.E, 4.56% to maturity 2022-10-31, although the YTW scenario is a current call at 26.00 (which can be triggered if BAM is taken over). The coupon is equal to that of EIT.PR.A, quoted today at 25.00-50; 4.81-4.45%, as yesterday’s 25.45 closing bid was vaporized. Mind you, EIT.PR.A’s low on the day was 25.42 on volume of 2,713 shares.