New Issue: CM FixedReset, 3.90%+232

Canadian Imperial Bank of Commerce has announced:

that it had entered into an agreement with a group of underwriters led by CIBC World Markets Inc. for an issue of 10 million Basel III-compliant non-cumulative Rate Reset Class A Preferred Shares, Series 39 (the “Series 39 Shares”) priced at $25.00 per Series 39 Share to raise gross proceeds of $250 million.

CIBC has granted the underwriters an option to purchase up to an additional 2 million Series 39 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.

The Series 39 Shares will yield 3.90% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending July 31, 2019. On July 31, 2019, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.32%.

Subject to regulatory approval and certain provisions of the Series 39 Shares, on July 31, 2019, and on July 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 39 Shares at par.

Subject to the right of redemption, holders of the Series 39 Shares will have the right to convert their shares into non-cumulative Floating Rate Class A Preferred Shares, Series 40 (the “Series 40 Shares”), subject to certain conditions, on July 31, 2019 and on July 31 every five years thereafter. Holders of the Series 40 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 2.32%.

Holders of the Series 40 Shares may convert their Series 40 Shares into Series 39 Shares, subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter.

The expected closing date is June 11, 2014. CIBC will make an application to list the Series 39 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.

They later announced:

that as a result of strong investor demand for its previously announced domestic public offering of non-cumulative Rate Reset Class A Preferred Shares, Series 39, the size of the offering has been increased to 16 million shares. The gross proceeds of the offering will now be $400 million. The offering will be underwritten by a syndicate led by CIBC World Markets Inc. The expected closing date is June 11, 2014.

The net proceeds from this transaction will be used for general purposes of CIBC.

Since CM.PR.K and CM.PR.M are being redeemed and the only other extant CM issues CM.PR.D, CM.PR.E and CM.PR.G are NVCC-Compliant through the back door, this means that CM will be the first bank to have all its preferred issues NVCC compliant.

Update: Provisionally rated Pfd-2 [Stable] by DBRS.

Rated P-2(low) by S&P:

The ‘BBB-‘ issue rating stands three notches below the ‘a-‘ stand-alone credit profile (SACP) assigned to CIBC, 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 outstanding preferred share 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.

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