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Capital Power Corporation has announced:

that it will issue 6,000,000 Cumulative Rate Reset Preference Shares, Series 3 (the “Series 3 Shares”) at a price of $25 per Series 3 Share (the “Offering”) for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc. and BMO Capital Markets. In addition, Capital Power has granted the underwriters an option, exercisable in whole or in part anytime up to two business days prior to closing, to purchase up to an additional 2,000,000 Series 3 Shares on the same terms, for additional gross proceeds of up to $50 million. Any additional Series 3 Shares will also be issued on the closing date.

The Series 3 Shares will pay fixed cumulative dividends of $1.15 per share per annum, yielding 4.60% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the board of directors of Capital Power, for the initial period ending December 31, 2018. The first quarterly dividend of $0.3151 per share is expected to be paid on March 28, 2013. The dividend rate will be reset on December 31, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 3.23%. The Series 3 Shares are redeemable by Capital Power, at its option, on December 31, 2018 and on December 31 of every fifth year thereafter.

Holders of Series 3 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 4 (the “Series 4 Shares”), subject to certain conditions, on December 31, 2018 and on December 31 of every fifth year thereafter. Holders of Series 4 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 3.23%, as and when declared by the board of directors of Capital Power.

The Offering is expected to close on or about December 18, 2012. Net proceeds will be lent to Capital Power L.P. pursuant to a subordinated debt agreement. Capital Power L.P. will use the funds to repay the outstanding balance under its credit facilities which were used to fund the development of the Quality Wind and Halkirk Wind projects, to finance development projects including the Port Dover and Nanticoke and Shepard Energy Centre projects, and for general corporate purposes.

Standard & Poor’s, a division of the McGraw Hill Companies, Inc. has assigned a rating of P-3 for the Series 3 Shares and DBRS Limited has assigned a preliminary rating of Pfd-3 (low) for the Series 3 Shares.

The Series 3 Shares will be issued pursuant to a prospectus supplement to Capital Power’s short form base shelf prospectus dated February 16, 2012. This prospectus supplement will be filed with securities regulatory authorities in Canada. An application will be made when the prospectus supplement is filed to list the Series 3 Shares and the Series 4 Shares on the Toronto Stock Exchange as of the closing date. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Update: DBRS says Shepard Centre project credit neutral, but sounds a warning:

In its review, DBRS’s analysis will focus on (1) the business risk profile of Capital Power and (2) the financial impact of the proposed transaction on the Company’s credit profile. Overall, DBRS views this transaction as credit neutral.
…
(2) Financial Risk Profile – Neutral to Negative
Based on its preliminary review of the proposed partnership and Capital Power’s funding strategy, DBRS views the impact on Capital Power’s financial risk profile as neutral to negative. DBRS expects the Company to fund the partnership with a mix of equity (including preferred shares and dividend re-investment proceeds), debt and asset divestitures. If Capital Power funds the capital costs as planned, the impact on its key credit ratios is expected to be neutral. However, if equity issuances or asset divestitures are delayed, this could add pressure on Capital Power’s current rating. In addition, the rating assumes that significant unforeseen costs or cash shortfalls will be funded by equity (including preferred shares and dividend re-investment proceeds) in a timely manner to maintain its current leverage level. Any significant increase in leverage could cause Capital Power’s credit risk profile to deteriorate to a level that is no longer commensurate with the current BBB rating.

This entry was posted on Thursday, December 6th, 2012 at 3:34 pm and is filed under New Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.