New BNS Reset Structure a Triumph for Desjardins

I’ve learnt a little bit more about the structuring of the new BNS Perp-Reset issue … it’s quite a feather in the cap for Desjardins!

As some might know, Desjardins has made a big effort over the past few years to become a bigger force in the preferred share market – and they’re punching well above their weight in terms of trading volume. To accomplish this sort of thing, you’ve got to know who the clients are, persuade them to take your calls, understand their motivations so you don’t waste their time and be willing to listen to their feedback. Being able to execute trades at a good price is a very good thing too!

It’s my understanding that Desjardins has been quite successful in applying all this good trading stuff to the secondary market, but that the BNS new issue marks the first time they’ve been intimately involved in a primary offering.

The story I hear is that a lot of clients – and I don’t mean retail clients, I mean clients more like GGOF Monthly Dividend Fund, which has 61% of its $321-million invested in prefs – a lot of clients are getting fed up with straight perpetuals.

These clients want a little bit more diversification. Ideally they’d like retractibles, but due to the Tier 1 Capital rules and the accounting rules, there’s not going to be much of those issued any more. Maybe split shares would be OK, but some of these clients have an aversion to structured product and it’s hard to take a good-sized position in an issue with a total size of $35-million anyway. So … Desjardins┬álistened and, I’m told, determined that there was a market for a good-sized liquid issue with the new structure, worked out in more detail what would sell at a price the issuer was willing to pay, got involved in discussions with OSFI about what would be acceptable as Tier 1 Capital and made the pitch to Scotia (not all steps necessarily in the order listed).

Scotia listened, everybody got on board and the deal happened.

And Desjardins has been rewarded, for the first time, with “Co-Lead Manager” status on the underwriting. A very good joint effort by the Preferred Share Department & Corporate Finance!

Another interesting thing I’ve been told is that OSFI will not accept “Ratchet Rates” as Tier 1 Capital – so the structure of all the BCE issues can’t just be ported over holus-bolus.

I haven’t changed my mind about the investment qualities of this particular issue … but if it starts an entirely new class of preferreds, that can’t be a bad thing. And I do have to correct my mistaken statement that Scotia invented the structure!

4 Responses to “New BNS Reset Structure a Triumph for Desjardins”

  1. […] 2008-3-14: Desjardins! See here for details] has invented this structure to take advantage of current extreme spreads in the […]

  2. […] So much for my disdain for this issue! It’s an ill wind, however … Desjardins will be happy at the […]

  3. […] looks like the Desjardins Fixed-Reset idea used by Scotia’s recent new issue has found another […]

  4. […] Mr. Critchley goes on to point out that Desjardins takes credit for the structure – I scooped him on that ages ago. […]

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