New Issue: FTS FixedReset, 4.00%+205

Fortis Inc. has announced:

that it has entered into an agreement with a syndicate of underwriters led by TD Securities Inc., CIBC and Scotiabank, (collectively, the “Underwriters”), pursuant to which the Underwriters have agreed to purchase, on a bought deal basis, from Fortis and sell to the public 10,000,000 Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series K of the Corporation (the “Series K First Preference Shares”). The purchase price of $25.00 per Series K First Preference Share will result in gross proceeds for Fortis of $250 million.

Fortis has granted the Underwriters the option to purchase up to an additional 2,000,000 Series K First Preference Shares at the same offering price (the “Underwriters’ Option”). Should the Underwriters’ Option be fully exercised, the total gross proceeds of the offering will be $300 million.

The net proceeds of the offering will be used to repay a portion of borrowings under the Corporation’s $1 billion committed corporate credit facility, including amounts borrowed in connection with the redemption of the Corporation’s First Preference Shares, Series C, the construction of the Waneta Expansion and equity injections into certain of the Corporation’s subsidiaries, and for general corporate purposes.

The holders of Series K First Preference Shares will be entitled to receive fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Corporation (the “Board of Directors”), for the initial period commencing on the date of issue and ending on but excluding March 1, 2019 (the “Initial Period”) at a rate of 4.0%, in an amount equal to $1.00 per share per annum paid in equal quarterly instalments. The first of such dividends, if declared, will be payable on September 1, 2013 for the period commencing on the date of issue in the amount of $0.1233 per Series K First Preference Share, based on the anticipated closing of the offering on July 18, 2013. The dividend rate will be reset on March 1, 2019 and thereafter every five years at a level of 2.05% above the five-year Government of Canada Bond yield.

At the end of the Initial Period and every five years thereafter, the holders of Series K First Preference Shares will, subject to certain conditions and the right of the Corporation to redeem those shares, have the option to convert any or all of their Series K First Preference Shares into an equal number of Cumulative Redeemable Floating Rate First Preference Shares, Series L of the Corporation (the “Series L First Preference Shares”). The holders of Series L First Preference Shares will be entitled to receive floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors, at the rate of the three-month Government of Canada Treasury Bill average yield plus 2.05%, reset on a quarterly basis.

The offering is subject to the receipt of all necessary regulatory and stock exchange approvals.

The Break Even Rate Shock for this issue is 147bp – somewhat on the high side – given a Current Yield of 5.03% for the FTS PerpetualDiscounts (FTS.PR.J and FTS.PR.F), a yield spread of -1.03% and a term of 5.625 years.

2 Responses to “New Issue: FTS FixedReset, 4.00%+205”

  1. […] FTS.PR.K is a FixedReset, 4.00%+205, announced July 9. […]

  2. […] was issued as a FixedReset, 4.00%+205, that commenced trading 2013-7-13 after being announced 2013-7-9. It reset to 3.929% effective 2019-3-1, after some confusion. I recommended against conversion and […]

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