New Issue: LB FixedReset, 4.30%+255

Laurentian Bank of Canada has announced:

that it has entered into an agreement with a syndicate of underwriters led by RBC Dominion Securities Inc., BMO Capital Markets and Laurentian Bank Securities Inc. (collectively, the “Underwriters”), under which the Underwriters have agreed to buy on a bought deal basis an aggregate of 5,000,000 Basel III-compliant Non-Cumulative Class A Preferred Shares, Series 13 (the “Preferred Shares Series 13”), at a price of $25.00 per Preferred Share Series 13 for gross proceeds of $125 million (the “Offering”). The Preferred Shares Series 13 will be offered for sale to the public in each of the provinces of Canada pursuant to a prospectus supplement to Laurentian’s short form base shelf prospectus dated October 10, 2012, which supplement will be filed with Canadian securities regulatory authorities in all Canadian provinces.

Holders of Preferred Shares Series 13 will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period ending on, but excluding, June 15, 2019, as and when declared by the board of directors of the Bank, payable in the amount of $0.26875 per Preferred Share Series 13, to yield 4.30 per cent annually.

Thereafter, the dividend rate will reset every five years to be equal to the 5-Year Government of Canada Bond Yield plus 2.55 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 13 into an equal number of Basel III-compliant Non-Cumulative Class A Preferred Shares, Series 14 (the “Preferred Shares Series 14”) on June 15, 2019 and on June 15 every five years thereafter. Holders of the Preferred Shares Series 14 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the board of directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill yield plus 2.55 per cent. The Offering is expected to close on or about April 3, 2014 and is subject to Laurentian receiving all necessary regulatory approvals.

Laurentian also announced today that it intends to redeem, on June 16, 2014, all of its 4,400,000 issued and outstanding Non-Cumulative Class A Preferred Shares, Series 10 (the “Preferred Shares Series 10”), at a price of $25.00 per share for an aggregate consideration of $110 million.

The net proceeds of the Offering will be added to Laurentian’s general funds and will be used for general corporate purposes (including, subject to the approval of the Office of the Superintendent of Financial Institutions, to fund the redemption of the Preferred Shares Series 10).

This issue is very similar to LB.PR.F, a FixedReset 4.00%+260 announced 2012-10-11 … except that the new issue is NVCC compliant and LB.PR.F ain’t.

Update: In connection with the NVCC compliance, it should be noted that DBRS has provisionally rated this paper at Pfd-3(low):

DBRS assigned the NVCC Preferred Shares Series 13 a rating equal to that Bank’s intrinsic assessment less four rating notches because the Series 13 has only an Office of the Superintendent of Financial Institutions (OSFI)-compliant non-viable contingent capital (NVCC) trigger, which is consistent with the OSFI requirements for NVCC instruments, and no additional triggers.

… which may be compared with Pfd-3 on non-compliant issues.

The new issue is rated P-3 by S&P (BB on the global scale):

The ‘BB’ rating stands three notches below the stand-alone credit profile (SACP), incorporating:
  • •A deduction of two notches, the minimum downward notching from the SACP under our criteria for a bank hybrid capital instrument; and
  • •The deduction of an additional notch to reflect that the preferred shares feature a contingent conversion trigger provision. Should a trigger event occur (as defined by The Office of the Superintendent of Financial Institutions’ [OSFI] guideline for Capital Adequacy Requirements, Chapter 2), each preferred share outstanding will automatically and immediately be converted, without the holder’s consent, into a number of fully paid and freely tradable common shares of the bank determined in accordance with a conversion formula.

… which may be compared with P-3(high) on non-compliant issues.

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