New Issue: BSC 4% Five-Year Split-Share

There was no formal announcement, but the final short form prospectus for the new BSC refunding issue has been released on SEDAR and may be found by searching for }BNS Split Corp. II Sep 15 2015 16:59:32 ET Final short form prospectus – English PDF 276 K”. I am not permitted to link directly to this document because the regulators feel that access to public documents by investor scum should be inconvenient.

The issue has a monthly retraction, but it’s pretty lousy:

A holder who surrenders a Series 2 Preferred Share for retraction will receive on the Retraction Payment Date the amount, if any, by which 95% of the Unit Value exceeds the aggregate of (i) the average cost to the Company, including commissions, of purchasing two Capital Shares in the market; and (ii) $1.00.

Additionally, there is the potential for annual redemptions at par and redemption any time at a small premium:

In addition, the Company may also redeem Series 2 Preferred Shares on any Annual Retraction Payment Date (defined herein) at a price per share equal to the issue price of a Series 2 Preferred Share. The Company will only redeem Series 2 Preferred Shares in these circumstances to the extent that unmatched Capital Shares have been tendered for retraction under the Special Annual Retraction (defined herein). Where less than all the Series 2 Preferred Shares are to be so redeemed, Series 2 Preferred Shares shall be redeemed on a pro rata basis or in such other manner as is approved by the Board of Directors of the Company. The Company may also redeem Series 2 Preferred Shares in the circumstances described under “Changes Affecting Portfolio Securities.”

In addition to the annual redemption right as described above, Series 2 Preferred Shares may be redeemed by the Company at any time prior to the Redemption Date at a price (the “Premium Redemption Price”) which, until September 2016, will equal the issue price of the Series 2 Preferred Shares multiplied by a premium which will initially be 4% and which will decline by 1% each year to nil after September 22, 2019.

The dividend is, as noted, 4%:

Holders of Series 2 Preferred Shares will be entitled to receive quarterly fixed cumulative preferential distributions equal to $0.1971 per Series 2 Preferred Share. Quarterly distributions on the Series 2 Preferred Shares are expected to be paid by the Company on or before the 22nd day of December, March, June and September in each year. On an annualized basis, this would represent a yield on the offering price of the Series 2 Preferred Shares of 4.0%. Based on the expected closing date of September 22, 2015, the initial dividend will be $0.1971 per Series 2 Preferred Share and is expected to be payable on or about December 22, 2015.

There is no NAV test for Capital Unit distributions, but according to the July Information Circular:

Holders of Class A Capital Shares are entitled to receive dividends as declared by the Board of Directors.

The policy of the Board of Directors is to only pay a dividend on the Class A Capital Shares provided that the Unit Value ras herein described) at the time of declaration of such dividend is, after giving effect to the dividend, greater than or equal to the original issue price of the Series 1 Preferred Shares. The current running yield on the Class A Capital Shares is 2.97% based on the closing price of the Class A Capital Shares of $19.85 on June 26, 2015.

Policies are nice things to have. Contractual obligations are better.

The issue is rated Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has today finalized the provisional rating of Pfd-2 (low) of the Class B Preferred Shares, Series 2 (the Preferred Shares) to be issued by BNS Split Corp. II (the Company).

Dividends received from the BNS Shares will be used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares in the amount of $0.1971 per quarter, which represents an annual yield of 4.0% on the offering price. Excess dividends net of all expenses of the Company and after the preferred cumulative dividends have been paid to the holders of the Preferred Shares may be paid as dividends on the Capital Shares or re-invested by the Company in additional BNS Shares as determined by the Board of Directors of the Company.

The initial downside protection available to the holders of the Preferred Shares is expected to be approximately 62% (after offering expenses). Based on the current dividend yield on the Portfolio and the initial offering size, the Preferred Share Dividend coverage ratio is expected to be approximately 2.6 times.

The issue was previously discussed in the post BSC.PR.B Refunding Issue Moves Closer.

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