Archive for the ‘Return of Capital’ Category

AX.PR.A : No Conversion to FloatingReset

Monday, September 18th, 2017

Artis Real Estate Investment Trust has announced:

that it has determined, based upon the election of holders of Preferred Units, Series A (“Series A Units”) (AX.PR.A), that less than 500,000 Series B Units would be issued on September 30, 2017 and consequently, no holders of Series A Units are entitled to reclassify their Series A Units to Series B Units on September 30, 2017.

Accordingly, all 3,450,000 Series A Units will remain issued and outstanding following September 30, 2017 and during the subsequent five year period commencing October 1, 2017, holders will be entitled to receive distributions, if, as and when declared by the Board of Trustees of Artis, in an annual amount per Series A Unit determined by multiplying the Annual Fixed Distribution Rate of 5.662% per annum by $25.00, payable quarterly on the last business day of each of March, June, September and December in each year during such period.

It will be recalled that AX.PR.A will reset to 5.662% and that I recommended against conversion.

As a result of all this AX.PR.A is a FixedReset, 5.662%+406, that was announced 2012-7-24 with a 5.25% coupon but only added to HIMIPref™ when the issue was rated by DBRS in 2013. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It is important to note that according to the prospectus supplement (available at SEDAR dated July 25, 2012; I am not permitted to link to it directly due to the cosy little contract the soon-to-be-bank-owned CDS has signed with regulators), taxation is complicated: “Artis’ income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders.” Particulars of the tax status of Artis’ distributions are published by Artis on their website.

AX.PR.A : Convert or Hold?

Friday, September 8th, 2017

It will be recalled that AX.PR.A will reset to 5.662% (paid on par) effective September 30.

Holders of AX.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 406bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Toronto time) on September 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not been announced.

AX.PR.A is a FixedReset, 5.25%+406, that was announced 2012-7-24 but only added to HIMIPref™ when the issue was rated by DBRS in 2013. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., AX.PR.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_170908
Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.61% and +0.68%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the AX.PR.A FixedReset, we may construct the following table showing consistent prices for its maybe-soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for AX.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread +1.00% +0.50% 0.00%
AX.PR.A 22.60 406bp 22.02 21.54 21.06

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of AX.PR.A continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the new pair will reflect these conditions.

AX.PR.A To Reset At 5.662%

Friday, September 1st, 2017

Artis Real Estate Investment Trust has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Preferred Units, Series A (“Series A Units”) (AX.PR.A) on September 30, 2017.

As a result, and subject to certain conditions set forth in the certificate of preferred units terms relating to the Series A Units dated effective August 2, 2012 (the “Certificate of Series A Unit Terms”), the holders of Series A Units will have the right to elect to reclassify all or any of their Series A Units into Preferred Units, Series B (“Series B Units”) of Artis on the basis of one Series B Unit for each Series A Unit held on September 30, 2017.

With respect to any Series A Units that remain outstanding after September 30, 2017, holders thereof will be entitled to receive distributions, if, as and when declared by the Board of Trustees of Artis, in an annual amount per Series A Unit determined by multiplying the Annual Fixed Distribution Rate for such subsequent fixed rate period by $25.00, and shall be payable quarterly on the last business day of each of March, June, September and December in each year during such subsequent fixed rate period. For the initial subsequent fixed rate period commencing on October 1, 2017, the Annual Fixed Distribution Rate is 5.662% per annum.

With respect to any Series B Units that may be issued on September 30, 2017, holders thereof will be entitled to receive distributions, if, as and when declared by the Board of Trustees of Artis, in an amount period per Series B Unit determined by multiplying the Floating Quarterly Distribution Rate (calculated on the basis of the actual number of days elapsed in such quarterly floating rate period, divided by 365) by $25.00, which shall be payable quarterly on the last business day of such quarterly floating rate period. For the initial quarterly floating rate period commencing October 1, 2017, the Floating Quarterly Distribution Rate is 4.802% per annum.

As provided in the Certificate of Series A Unit Terms: (i) if Artis determines that there would remain outstanding on September 30, 2017 less than 500,000 Series A Units, all remaining Series A Units shall be reclassified automatically into Series B Units on a one-for-one basis, effective September 30, 2017; or (ii) if Artis determines that less than 500,000 Series B Units would be issued based upon the elections of holders, then holders of Series A Units shall not be entitled to reclassify their Series A Units into Series B Units.

As at the date hereof, there are an aggregate of 3,450,000 Series A Units issued and outstanding.
The Series A Units are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (each, a “CDS Participant”). All rights of holders of Series A Units must be exercised through CDS or the CDS Participant through which the Series A Units are held. The deadline for the registered holder of Series A Units to provide notice of exercise of the right to reclassify Series A Units into Series B Units is 5:00 p.m. (Toronto time) on September 15, 2017. Any notices received after this deadline will not be valid. As such, holders of Series A Units who wish to exercise their right to reclassify their Series A Units into Series B Units should contact their broker or intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

If Artis does not receive an election notice from a holder of Series A Units during the time fixed therefor, then the Series A Units shall be deemed not to have been reclassified (other than pursuant to an automatic reclassification). Holders of Series A Units and Series B Units will have the opportunity to reclassify their units again on September 30, 2022, and every five years thereafter as long as such units remain outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series B Units effective upon reclassification. Listing of the Series B Units is subject to Artis fulfilling all the listing requirements of the TSX.

AX.PR.A is a FixedReset, 5.25%+406, that was announced 2012-7-24 but only added to HIMIPref™ when the issue was rated by DBRS in 2013. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., AX.PR.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_170901
Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both below current market rates, at +0.44% and +0.44%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the AX.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for AX.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.00% 0.50% 0.00%
AX.PR.A 22.66 406bp 22.08 21.60 21.12

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of AX.PR.A continue to hold the issue and not to convert, but I will wait until it’s closer to the September 15 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

New Issue: EIT Retractible, ROC, 4.80%, 7-Year

Wednesday, March 8th, 2017

Canoe EIT Income Fund has announced:

that it has filed and obtained a receipt for a final short form prospectus in respect of the previously announced offering of Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”) at a price of $25.00 per Series 1 Preferred Unit (the “Offering”). The Series 1 Preferred Units were offered to the public through a syndicate of underwriters led by Scotiabank and RBC Capital Markets which also includes BMO Capital Markets, CIBC Capital Markets, National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., Industrial Alliance Securities Inc. and Manulife Securities Incorporated.

The Fund will issue and sell to the underwriters 4,900,000 Series 1 Preferred Units at a price of $25.00 per Series 1 Preferred Unit for total gross proceeds of the Offering of $122,500,000. The Fund has also granted the underwriters an option, exercisable at the offering price for a period of 30 days from the closing of the Offering, to purchase up to an additional 735,000 Series 1 Preferred Units to cover over-allotments, if any. The quarterly cumulative preferential cash distributions on the Series 1 Preferred Units will be 4.80% per annum. The Toronto Stock Exchange has conditionally approved the listing of the Series 1 Preferred Units under the symbol EIT.PR.A. The closing of the Offering is expected to occur on or about March 14, 2017.

The proceeds from the Offering will be invested by the Fund in accordance with its investment objectives and strategies. The Offering is expected to ensure the sustainability of the Fund by increasing the earning capacity of the units. The Series 1 Preferred Units are provisionally rated Pfd – 2 (high) by Dominion Bond Rating Service Limited.

Full details are available in the prospectus, to which I am not permitted to link because Canadian Securities Administrators take the view that you are all stupid, filthy, ignorant investor scum and do not deserve the slightest consideration whatsoever. You will have to go to SEDAR and look for “Canoe EIT Income Fund Mar 8 2017 14:21:01 ET Final short form prospectus – English PDF 266 K”.

On and after March 15, 2022, the Fund may redeem all or from time to time any part of the outstanding Series 1 Preferred Units, at the Fund’s option, at a price per Series 1 Preferred Unit equal to $25.75 if redeemed on or after March 15, 2022, but before March 15, 2023; $25.50 if redeemed on or after March 15, 2023, but before March 15, 2024; and $25.00 thereafter, together, in each case, with all accrued and unpaid distributions up to but excluding the date fixed for redemption. On or after March 15, 2024, the Series 1 Preferred Units will be retractable for cash, at the option of the holder, for $25.00 per Series 1 Preferred Unit, together with any accrued and unpaid distribution in respect of such Series 1 Preferred Units, less any tax required by law to be deducted therefrom, by notice by the holder of the Series 1 Preferred Units (“Series 1 Preferred Unitholders”) to be retracted delivered to the Manager not less than 30 days prior to the applicable retraction date. Certain other provisions relating to the Series 1 Preferred Units are summarized under “Description of the Preferred Units”

The distributions are not expected be entirely eligible dividends:

Distributions in any given period may consist of net income, net capital gains and/or returns of capital. The Fund’s income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Series 1 Preferred Units in the same proportion as the distributions received by such holders. See “Principal Canadian Federal Income Tax Considerations”.

The recent historical composition of the fund’s distributions is provided in the prospectus and was reproduced in the previous post regarding this issue. I am taking the view that expected distributions will ultimately be taxed at a rate reasonably close to eligible dividends, so for analytical purposes I have recorded the issue as paying dividends.

New Issue: EIT Retractible, ROC, Details to Follow

Wednesday, February 22nd, 2017

Canoe EIT Income Fund has announced:

that it has filed and obtained a receipt for a preliminary short form prospectus in respect of a potential offering of Cumulative Redeemable Series 1 Preferred Units (the “Series 1 Preferred Units”) at a price of $25.00 per Series 1 Preferred Unit (the “Offering”). The Series 1 Preferred Units will be offered to the public through a syndicate of underwriters led by Scotiabank and RBC Capital Markets which also includes BMO Capital Markets, CIBC Capital Markets, National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., Industrial Alliance Securities Inc. and Manulife Securities Incorporated. Canoe Financial LP, the manager of the Fund, believes that successful completion of the Offering will provide the Fund with longer-term fixed rate capital at an attractive all in cost of financing. The additional capital will be used to take advantage of attractive investment opportunities, and is also expected to ensure the sustainability of the Fund by increasing the earning capacity of the Units. The Series 1 Preferred Units are provisionally rated Pfd – 2 (high) by Dominion Bond Rating Service Limited.

The Fund’s regular monthly distribution of $0.10 per unit for unitholders of EIT.UN units remains unchanged. The Fund has maintained the $0.10 per unit monthly distribution since August 2009, through varying market conditions.

The Fund’s annual voluntary redemption feature for unitholders of EIT.UN units remains unchanged. Once a date has been set for the 2017 annual redemption, the Fund will issue a news release with the details.

A preliminary short form prospectus containing important information relating to the Series 1 Preferred Units has been filed with securities commissions or similar authorities in all provinces and territories of Canada. The preliminary short form prospectus is still subject to completion or amendment. Copies of the preliminary short form prospectus may be obtained from your registered financial advisor using the contact information for such advisor, or from representatives of the underwriters listed above. There will not be any sale or any acceptance of an offer to buy the Series 1 Preferred Units until a receipt for the final short form prospectus has been issued.

The preliminary prospectus is on SEDAR, but Canadian Regulatory Authorities have determined in their infinite wisdom that nasty investor scum may not link directly to it. Instead, one must search for “Canoe EIT Income Fund Feb 17 2017 16:18:30 ET Preliminary short form prospectus – English PDF 335 K”

The investment objectives of the Fund are to maximize monthly distributions relative to risk and maximize Net Asset Value, while maintaining and expanding a diversified investment portfolio, primarily through acquiring, investing, holding, transferring, disposing of or otherwise dealing with or in equity and debt securities of corporations, partnerships, or other issuers and such other investments as the Manager may determine in its sole discretion from time to time. The investment objectives set forth above may be achieved through direct acquisitions, investments or, at the election of the Manager, through “exchange offers” or rights offerings completed by the Fund from time to time.

Set out below are the tax classifications of the historical distributions of the Fund (which were $0.10 per Unit per month for the entire period presented) for the past five years and the Manager expects the Series 1 Preferred Units to have a similar distribution breakdown:
% 2015 2014 2013 2012 2011
Capital gain 60.92% 59.89% 32.73% 32.82%
Actual amount of eligible dividends 9.29% 5.33% 18.18% 32.25% 16.73%
Actual amount of ineligible dividends
Foreign income, net of tax 17.28%
Other income 1.49%
Return of Capital(1) 29.79% 34.78% 49.09% 66.26% 33.17%
Total 100.00% 100.00% 100.00% 100.00% 100.00%

(1) Includes warrants from 2012-2016


Certain Provisions of the Series 1 Preferred Units

Distributions

Series 1 Preferred Unitholders will be entitled to receive quarterly cumulative preferential cash distributions on the 15th day of March, June, September and December of each year at a rate of ●% per annum of the issue price of a Series 1 Preferred Unit ($● per Series 1 Preferred Unit per annum or $● per Series 1 Preferred Unit per quarter), less any tax required by law to be deducted therefrom. The initial distribution, if declared, will be payable on June 15, 2017 and will be $● per Series 1 Preferred Unit, assuming a closing date of ●, 2017. Distributions in any given period may consist of net income, net capital gains and/or returns of capital. The Fund’s income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Series 1 Preferred Units in the same proportion as the distributions received by such holders. See “Principal Canadian Federal Income Tax Considerations”.

Redemption at the Option of the Fund

Prior to March 15, 2022, the Fund may not redeem any Series 1 Preferred Units. On or after March 15, 2022, the Fund may give notice in writing not less than 30 days nor more than 60 days prior to the applicable redemption date of its intention to redeem for cash the Series 1 Preferred Units in whole or in part, at the Fund’s option, at a price per Series 1 Preferred Unit equal to $25.75 if redeemed on or after March 15, 2022, but before March 15, 2023; $25.50 if redeemed on or after March 15, 2023, but before March 15, 2024; and $25.00 thereafter, together, in each case, with all accrued and unpaid distributions up to but excluding the date fixed for redemption and less any tax required by law to be deducted therefrom.

If less than all outstanding Series 1 Preferred Units are at any time to be redeemed, the particular Series 1 Preferred Units to be redeemed will be selected on a pro rata basis (disregarding fractions) or in such other manner as the Trustee in its discretion may, by resolution, determine.

Retraction by Series 1 Preferred Unitholders

Prior to March 15, 2024, a Series 1 Preferred Unitholder may not require the Fund to retract any Series 1 Preferred Units. Subject to the provisions of any equity securities of the Fund ranking prior to or pari passu with the Series 1 Preferred Units, and to the provisions described under “− Restrictions on Distributions and Retirement and Issue of Series 1 Preferred Units”, a Series 1 Preferred Unitholder may require the Fund to retract such Series 1 Preferred Units (by delivering notice to the Manager of the intention to have Series 1 Preferred Units retracted not less than 30 days prior to the applicable retraction date) on or after March 15, 2024 for a cash price of $25.00, together with any accrued and unpaid distributions up to but excluding the date of retraction and less any tax required by law to be deducted therefrom.

Purchase for Cancellation

Subject to applicable law, including the requirements in NI 81-102, the provisions of any equity securities of the Fund ranking prior to or pari passu with the Series 1 Preferred Units, and to the provisions described under “− Restrictions on Distributions and Retirement and Issue of Series 1 Preferred Units”, the Fund may at any time purchase for cancellation the whole or any part of the Series 1 Preferred Units outstanding from time to time, in the open market through or from an investment dealer or any firm holding membership on a recognized stock exchange, or by private agreement or otherwise, at the lowest price or prices at which, in the opinion of the Manager of the Fund, such Series 1 Preferred Units are obtainable.

Rating

The Series 1 Preferred Units are provisionally rated Pfd-2(high) by Dominion Bond Rating Service Limited (“DBRS”).

BEP.PR.K Firm On Good Volume

Wednesday, February 15th, 2017

Brookfield Renewable Partners L.P. has announced that it has:

completed its previously announced issue of Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 11 (the “Series 11 Preferred Units”). The offering was underwritten by a syndicate led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank.

Brookfield Renewable issued 10,000,000 Series 11 Preferred Units at a price of $25.00 per unit, for total gross proceeds of CDN$250,000,000.

The Series 11 Preferred Units will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BEP.PR.K.

BEP.PR.K is a FixedReset, 5.00%+382M500, announced 2017-2-7. Note that distributions on this security will be a mix of ordinary income and return of capital. It will be tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The issue traded 784,722 shares today in a range of 24.88-00 before closing at 24.97-99, 54×45. Vital statistics are:

BEP.PR.K FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-02-14
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 4.93 %

Update, 2017-10-11: Note that if we look at the prospectus (available on SEDAR under ““Brookfield Renewable Partners L.P. Feb 7 2017 18:36:01 ET Prospectus (non pricing) supplement – English PDF 284 K”:

The reclassification of a Series 11 Preferred Unit into a Series 12 Preferred Unit or a Series 12 Preferred Unit into a Series 11 Preferred Unit, whether pursuant to an election made by the Resident Holder or pursuant to an automatic reclassification, may be considered to be a disposition of the Series 11 Preferred Unit or Series 12 Preferred Unit by the Resident Holder. The CRA’s position is that the conversion of an interest in a partnership into another interest in the partnership may result in a disposition of the partnership interest by the holder if the conversion results in a significant change in the rights and obligations of the holder in respect of the converted interest, including a significant change in the percentage interest in the profits of the partnership. Whether or not the reclassification of Series 11 Preferred Units into Series 12 Preferred Units or Series 12 Preferred Units into Series 11 Preferred Units would result in a significant change in the percentage interest of a Resident Holder in the profits of the Partnership is a question of fact that depends upon the facts and circumstances that exist at the time of the reclassification.

New Issue: BEP FixedReset, 5.00%+382M500

Tuesday, February 7th, 2017

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 11 (the “Series 11 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank for distribution to the public. The Series 11 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000.

Holders of the Series 11 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.00% annually for the initial period ending April 30, 2022. 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 3.82%, and (ii) 5.00%. The Series 11 Preferred Units are redeemable on April 30, 2022 and on each Series 11 Reclassification Date (as defined below) thereafter.

Holders of the Series 11 Preferred Units will have the right, at their option, to reclassify their Series 11 Preferred Units into Cumulative Floating Rate Reset Class A Preferred Limited Partnership Units, Series 12 (“Series 12 Preferred Units”), subject to certain conditions, on April 30, 2022 and on April 30 every 5 years thereafter (each a “Series 11 Reclassification Date”). Holders of Series 12 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 3.82%.

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 11 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

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 11 (the “Series 11 Preferred Units”) to be offered on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank. The Series 11 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $250,000,000.

Update, 2017-2-10: Barry Critchley has written a piece about this issue titled Will that be preferred units or preferred shares — they are not quite the same:

Apart from Brookfield, real estate investment trusts have, over the years, also issued rate reset preferred units. In January 2011, Rio-Can REIT made history by becoming the first REIT to issue such a piece of paper. It raised $125 million at 5.25 per cent and redeemed it early last year.

It took at least three years for RioCan to get to the stage where it could issue such a security. Regulatory and unit holder approval as well as securing an advanced tax ruling were all required. Given the time and costs involved, the security is only an option for a few issuers. (RioCan raised $149.50 million from a similar issue in late 2011. That issue is still outstanding though RioCan can redeem next June.)

BIP.PR.D Achieves Small Premium On Excellent Volume

Friday, January 27th, 2017

Brookfield Infrastructure has announced:

the completion of its previously announced issue of Cumulative Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Preferred Units”) in the amount of $300,000,000. The offering was underwritten by a syndicate led by CIBC Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc.

Brookfield Infrastructure issued 12,000,000 Series 7 Preferred Units at a price of $25.00 per unit, for total gross proceeds of $300,000,000. Holders of the Series 7 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.00% annually for the initial period ending March 31, 2022. 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 3.78%, and (ii) 5.00%. The Series 7 Preferred Units will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BIP.PR.D.

BIP.PR.D is a FixedReset, 5.00%+378M500, ROC + Interest, announced January 19. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,272,999 shares today in a range of 25.05-19 before closing at 25.15-17, 10×30. Vital statistics are:

BIP.PR.D FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-26
Maturity Price : 23.20
Evaluated at bid price : 25.15
Bid-YTW : 4.88 %

Implied Volatility analysis yields the following chart:

impvol_bip_170126
Click for Big

Update, 2017-10-11: Note that according to the prospectus, available on SEDAR under “Brookfield Infrastructure Partners L.P. Jan 19 2017 19:48:49 ET Prospectus (non pricing) supplement – English PDF 525 K”:

The reclassification of a Series 7 Preferred Unit into a Series 8 Preferred Unit or a Series 8 Preferred Unit into a Series 7 Preferred Unit, whether pursuant to an election made by the Resident Holder or pursuant to an automatic reclassification, may be considered to be a disposition of the Series 7 Preferred Unit or Series 8 Preferred Unit by the Resident Holder. The CRA’s position is that the conversion of an interest in a partnership into another interest in the partnership may result in a disposition of the partnership interest by the holder if the conversion results in a significant change in the rights and obligations of the holder in respect of the converted interest, including a significant change in the
percentage interest in the profits of the partnership. Whether or not the reclassification of Series 7 Preferred Units into Series 8 Preferred Units or Series 8 Preferred Units into Series 7 Preferred Units would result in a significant change in the percentage interest of a Resident Holder in the profits of the Partnership is a question of fact that depends upon the facts and circumstances that exist at the time of the reclassification.

New Issue: BIP FixedReset, 5.00%+378M500, ROC + Interest

Friday, January 20th, 2017

Brookfield Infrastructure has announced:

that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc. The Series 7 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 7 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, 2022. 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 3.78%, and (ii) 5.00%. The Series 7 Preferred Units are redeemable on or after March 31, 2022.

Holders of the Series 7 Preferred Units will have the right, at their option, to reclassify their Series 7 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 8 (“Series 8 Preferred Units”), subject to certain conditions, on March 31, 2022 and on March 31 every five years thereafter. Holders of Series 8 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 3.78%.

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 7 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

The Series 7 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 7 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 7 Preferred Units is expected to close on or about January 26, 2017.

They later announced:

that as a result of strong investor demand for its previously announced offering it has agreed to increase the size of the offering to 12,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Preferred Units”) to be offered on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc. The Series 7 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $300,000,000.

I understand that the Return of Capital percentage of distributions is forecast – but by no means guaranteed! – to be about 50% over the next five years. See the discussion of BIP.PR.A for some sample calculations regarding the implications of this.

Implied Volatility analysis suggests that this issue is expensive:

impvol_bip_170119
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However, this conclusion rests to a large degree on the question of how much the minimum reset guarantee is worth. I’m not inclined to assign a particularly high value on it; but others might be more generous.

New Issue: BIP FixedReset 5.35%+464M535

Monday, July 25th, 2016

Brookfield Infrastructure has announced:

that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 5 (“Series 5 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets, and Scotiabank. The Series 5 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 5 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.35% annually for the initial period ending September 30, 2021. 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 4.64%, and (ii) 5.35%. The Series 5 Preferred Units are redeemable on or after September 30, 2021.

Holders of the Series 5 Preferred Units will have the right, at their option, to reclassify their Series 5 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 6 (“Series 6 Preferred Units”), subject to certain conditions, on September 30, 2021 and on September 30 every five years thereafter. Holders of Series 6 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 4.64%.

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 5 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.

The Series 5 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 5 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 5 Preferred Units is expected to close on or about August 2, 2016.

Note that this issue has an unusual tax status on its distributions: like BIP.PR.A and BIP.PR.B, the distributions will be comprised of a mixture of ordinary income and return of capital, in what are expected to be approximately equal proportions, but with no guarantees on just what the proportions will be, either for any particular year or in total!

It will be interesting to see how this issue trades relative to BIP.PR.B, which is a FixedReset, 5.50%+453M550 (Interest + ROC). Readers will note that BIP.PR.B has a lower Issue Reset Spread (453bp vs 464bp) than the new issue, but a higher Minimum Reset Rate (5.50% vs. 5.35%). BIP.PR.B closed today at 25.85-96, 2×5.