BAM Split Corp. has announced:
the completion of its previously announced issue of 5,000,000 Class AA Preferred Shares, Series 5 (the “Series 5 Preferred Shares”) at an offering price of $25.00 per Series 5 Preferred Share, raising gross proceeds of $125,000,000. The Series 5 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 4.85% annualized yield on the offering price and have a final maturity of December 10, 2017. The Series 5 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol BNA.PR.E. The net proceeds of the offering will be used to pay a special cash dividend to holders of the Company’s Capital Shares.
Prior to the closing of the offering, the Company subdivided the existing Capital Shares held by BAM Investments so that there are an equal number of Preferred Shares and Capital Shares outstanding.
BNA.PR.E is a SplitShare issue with a 4.85% coupon and a seven year term, announced November 22. It traded 190,750 shares today in a tight range of 24.85-93, closing at 24.90-92, 2×10.
Vital statistics are:
| BNA.PR.E | SplitShare | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 4.93 % |
The shares are rated Pfd-2(low) by DBRS:
The Pfd-2 (low) ratings of the Class AA Preferred Shares are primarily based on the downside protection and dividend coverage available to the Class AA Preferred Shares.
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 Shares dividend coverage.
(4) The BAM Shares pay dividends in U.S. dollars, so the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate, which may have a negative impact on the Class AA Preferred Shares dividend coverage ratio.
This issue is ridiculously expensive. BNA.PR.C, which is the same credit with a mere one year of extra term, closed today at 22.01-06 to yield 6.30-27%.
An Interesting Case.
BNA.PR.E yield is about the same as BNA.PR.C IF one assumes the PR.E (Div $1.21) is called 4 years early at $26 but PR.C (Div $1.09) matures normally. BAM Split has some record of calling prefs a little early at a premium….
So we could say the market pricing ASSUMES pref yields will continue to fall, so the PR.E will be called early at a premium, but yields won’t fall enough to prompt an early call of the PR.C.
Naturally, this is not a YTW scenario, but rather a way to try to make sense of the market.
The earliest BNA.PR.E can be called is 2 years early at $25.50.
Still almost a 1% lower yield for this early PR.E call vs PR.C’s YTW.
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