CF.PR.C Closing a Disaster for Underwriters

Canaccord Financial has announced:

the completion of its previously announced offering of 4,000,000 Cumulative 5-Year Rate Reset First Preferred Shares, Series C ( the “Series C Preferred Shares”) at a purchase price of CAD$25.00 per Series C Preferred Share, for aggregate gross proceeds of CAD$100 million. The Series C Preferred Shares are expected to commence trading on the Toronto Stock Exchange on April 10, 2012 under the trading symbol “CF.PR.C”.

The offering was underwritten on a bought deal basis by a syndicate of underwriters led by CIBC, Canaccord Genuity Corp. and RBC Capital Markets, and included BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., GMP Securities L.P., Macquarie Capital Markets Canada Ltd., Raymond James Ltd., Cormark Securities Inc., Desjardins Securities Inc., Dundee Securities Ltd., Mackie Research Capital Corporation and Manulife Securities Incorporated.

Canaccord has granted the underwriters an over-allotment option, exercisable, in whole or in part, for a period of 30 days following today’s closing, to purchase up to an additional 600,000 Series C Preferred Shares which, if exercised in full, would increase the gross proceeds of the offering to CAD$115 million.
The net proceeds of the offering will be used to reduce outstanding borrowings under the CAD$150 million senior secured credit facility (the “Acquisition Credit Facility”) entered into by the Company, as borrower, and provided by Canadian Imperial Bank of Commerce, as lender.

The Acquisition Credit Facility was entered in order to fund a portion of the cash consideration for the Company’s previously announced acquisition of Collins Stewart Hawkpoint plc, which closed on March 21, 2012.

CF.PR.C is a FixedReset, 5.75%+403, announced March 22. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

CF.PR.C traded a derisory 33,890 shares in a range of 23.50-48, before closing at 23.40-55, 2×4. Vital statistics are:

Maturity Type : Limit Maturity
Maturity Date : 2042-04-10
Maturity Price : 22.48
Evaluated at bid price : 23.40
Bid-YTW : 6.04 %

2 Responses to “CF.PR.C Closing a Disaster for Underwriters”

  1. watford8 says:

    Could you please clarify for me. Does the comment suggest that of the 4 million shares available for issue only 33890 shares were in actual fact taken up on the first day?
    I understood that this issue was fully sold out and if so, why is it considered a disaster for the underwriters?

  2. jiHymas says:

    Appalled at my poor service (I just cleaned out my moderation queue for the first time in two weeks), watford8 sent me an eMail … I replied as follows:

    The initial sale of a new issue to the original subscribers is not booked on the exchange. As you may see from the first trading day of CU.PR.D ( a very healthy trading level of 518,880 shares were traded in a tight range – but this was out of an issue size of 6-million shares.

    The number of shares that actually trade on the first day is simply an indication of the success of the issue – those who subscribed to the new issue in the expectation that it would increase in price (if only by a little) sell to those who wanted to subscribe, but were unable to get an allocation.

    While this is indicative of the success or lack thereof of an underwriting, it is not the actual data. It is possible that CF.PR.C that the underwriters were able to sell all the shares to investors – but the likelihood of this is vanishingly small. The very low volume and price well below issue indicates a very high probability that the underwriters were able to sell only a small portion of the issue at the issue price. It also indicates that there was so little interest in the issue that the underwriters did not even attempt any meaningful price suppport in the
    days immediately following issue.

    According to the data I have, only about 268,000 shares of CF.PR.C have traded on the Toronto Stock Exchange since issue date; but more will have
    traded on the Alpha, Pure and other exchanges – I do not have these data. Given that two months have elapsed since the closing of the issue, it
    would be normal for the underwriters to have sold their inventory and taken their loss, but details of this process are proprietary to the

    > My broker says that the total 4 million shares were distributed and the issue was sold out.

    It is unclear as to where your broker is getting this information and the statement does not address the price at which the underwriters were able to sell these shares to arms length third parties. All you can do is ask your broker for substantiation of his statement and ask him about the price realized on these sales. I strongly doubt that he will be able to answer these questions in a satisfactory manner, because all these data will normally be proprietary to the underwriters.

    It is my belief – based on the Toronto Stock Exchange trading data – that the underwriters took a substantial loss on the underwriting, which may be unrealized (if they still hold them) or realized (if they have been sold).

    >He tells me that the significant price drop is because of the very low volume of shares traded.

    This is merely an opinion and, in my own opinion, one highly unlikely to be correct. Unfortunately, it is next to impossible in the financial world to make any pronouncements of cause and effect with 100% certainty – and it is equally impossible to state with 100% certainty that such-and-such a statement is nonsense.

    It is my opinion that the issue is trading where it is due to concerns regarding the credit quality of the issuer, which have been exacerbated by low volume and fear that there is a big chunk of shares out there which may be sold at the drop of a hat (i.e., which are not in the hands of long-term investors, regardless of whether they are held by the underwriters or by speculators).

    All that an advice-seeking investor can do is remember that any given forecast may be wrong and make judgements about advisors based on the totality of their advice.

    For your interest, I may say that I find new issues in general to be overpriced – the ones I have actually liked over the past twelve years can be counted on the fingers of one hand. In my monthly newsletter, available for subscription at, I recommend issues of all types for long-term buy-and-hold investors.

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