New Issue: BIR FixedReset 8.00%+683

On July 17, Birchcliff Energy announced:

it has entered into an agreement with a syndicate of underwriters, which have agreed to purchase, on a bought deal basis, 1.6 million preferred units (“Preferred Units”) at a price of $25.00 per Preferred Unit, for total gross proceeds of $40 million (the “Offering”).

Each Preferred Unit will consist of one Cumulative 5-Year Rate-Reset Preferred Share, Series A (the “Series A Preferred Shares”) and 3 common share purchase warrants issued by Birchcliff (the “Warrants”), with each Warrant providing the right to purchase one (1) common share in the capital of Birchcliff (“Common Shares”) at an exercise price of $8.30 per Common Share for a period of two years. The syndicate of underwriters is co-led by GMP Securities L.P., Cormark Securities Inc. and National Bank Financial Inc., and includes HSBC Securities (Canada) Inc., Raymond James Ltd., Macquarie Group Ltd. and Peters & Co. Limited.

The Series A Preferred Shares will pay cumulative dividends of $2.00 per share per annum, payable quarterly if, as and when declared by Birchcliff’s board of directors (with the first quarterly dividend to be paid on September 30, 2012 (or the next business day)), for the initial five year period ending September 30, 2017. The dividend rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the five-year Government of Canada bond yield plus 6.83 per cent. The Series A Preferred Shares will be redeemable by the issuer on or after September 30, 2017, in accordance with their terms.

Holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”) subject to certain conditions, on September 30, 2017 and on September 30 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 6.83 per cent, if, as and when declared by Birchcliff’s board of directors.

The Preferred Units will be offered for sale to the public in each of the provinces of Canada other than Quebec pursuant to a short form prospectus to be filed with Canadian securities regulatory authorities in such provinces. The Offering is scheduled to close on or about August 8, 2012, subject to certain conditions, including obtaining all necessary regulatory approvals.

The deal was quickly upsized:

Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that Birchcliff has increased the size of its previously announced bought deal preferred unit offering to $50 million, from $40 million. Birchcliff will issue a total of two (2) million preferred units (“Preferred Units”) at a price of $25.00 per Preferred Unit, for total gross proceeds of $50 million (the “Offering”).

The deal closed today:

Birchcliff Energy Ltd. (“Birchcliff” or the “Corporation”) (TSX: BIR) is pleased to announce that it has closed its previously announced bought deal preferred unit financing of two million preferred units of Birchcliff (“Preferred Units”) at a price of $25.00 per Preferred Unit, for gross proceeds of $50 million (the “Offering”). Each Preferred Unit is comprised of one cumulative redeemable 5-year rate reset preferred share, series A (a “Series A Preferred Share”) of Birchcliff, to yield initially 8.00% per annum; and three common share purchase warrants (each a “Warrant”) of Birchcliff. Each Warrant provides the right to purchase one common share (a “Common Share”) of the Corporation for a period of two years from the closing date of August 8, 2012, at a price of $8.30 per Common Share. Birchcliff now has two million Series A Preferred Shares, six million Warrants and 141,475,311 Common Shares outstanding.

The prospectus is available on SEDAR, dated July 30, 2012. I am not permitted to link to this public document due to soon-to-be-bank-owned CDS’ abusive exploitation of its cosy little contract with the regulators.

The prospectus states:

The Series A Preferred Shares, the Series B Preferred Shares, the Warrants and the Common Shares are not rated by any credit rating agency.

This means the issue will not be tracked by HIMIPref™. The presence of a credit rating serves as a public flashpoint, downgrades in which will often persuade an otherwise complacent Board and management to take decisive action to fix it. If Hymas Investment Management downgrades an issue – so what? If S&P downgrades an issue and it gets into the papers – that’s a little more serious.

BIR.PR.A had good volume but lousy results on its first day of trading, with 102,370 shares changing hands in a range of 22.25-23.25. The closing quote was 23.00-50, 14×1. The warrants did quite well, trading 349,150 in a range of 1.00-25, closing at 1.12-20, 8×1, so purchasers of the $25 units of one preferred and three warrants have done quite well so far!

3 Responses to “New Issue: BIR FixedReset 8.00%+683”

  1. hrseymour says:

    Decision time on BIR.PR.A: hold or convert?

  2. jiHymas says:

    I don’t follow BIR.PR.A, but in principle the algorithm used to choose should be the same: look at the break-even T-Bill rates for extant pairs and plug these into a similar calculation for BIR.PR.A to determine likely prices for the FloatingReset that may appear on exchange.

    On this basis, I suggest it would be rational to retain BIR.PR.A and not to convert.

  3. hrseymour says:

    “The dividend rate for the Series A Shares for the five-year period from and including September 30, 2017 to, but excluding, September 30, 2022, will be 8.374%. The dividend rate for the Series B Shares for the three-month floating rate period from and including September 30, 2017 to, but excluding, December 31, 2017, will be 7.572%. The floating quarterly dividend rate for the Series B Shares will be reset every quarter.”

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