AltaGas Ltd. has announced:
that it will issue 8,000,000 Cumulative 5-Year Minimum Rate Reset Redeemable Preferred Shares, Series K (the “Series K Preferred Shares”), at a price of $25.00 per Series K Preferred Share (the “Offering”) for aggregate gross proceeds of $200 million on a bought deal basis. The Series K Preferred Shares will be offered to the public through a syndicate of underwriters co-led by CIBC Capital Markets, BMO Capital Markets, National Bank Financial Inc. and Scotiabank.
Holders of the Series K Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend for the initial period ending on but excluding March 31, 2022 (the “Initial Period”) at an annual rate of 5.00%, payable on the last day of March, June, September and December, as and when declared by the Board of Directors of AltaGas. The first quarterly dividend payment is payable on June 30, 2017 and shall be $0.4384 per Series K Preferred Share. The dividend rate will reset on March 31, 2022 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.80%, provided that, in any event, such rate shall not be less than 5.00% per annum. The Series K Preferred Shares are redeemable by AltaGas, at its option, on March 31, 2022 and on March 31 of every fifth year thereafter.
Holders of Series K Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series L (the “Series L Preferred Shares”), subject to certain conditions, on March 31, 2022 and on March 31 every fifth year thereafter. Holders of Series L Preferred 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 3.80%, as and when declared by the Board of Directors of AltaGas.
The Offering is expected to close on or about February 22, 2017. Net proceeds will be used to reduce existing indebtedness and for general corporate purposes. AltaGas has granted to the underwriters an option, exercisable in whole or in part at any time up to 48 hours prior to closing of the Offering, to purchase up to an additional 2,000,000 Series K Preferred Shares at a price of $25.00 per share.
The Series K Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under AltaGas’ short form base shelf prospectus dated August 10, 2015. The Offering is only being made by way of a prospectus. The prospectus contains important detailed information about the securities being offered. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.
They later announced:
that as a result of strong investor demand for its previously announced bought deal offering of Cumulative 5-Year Minimum Rate Reset Redeemable Preferred Shares, Series K (the “Series K Preferred Shares”), the size of the offering has been increased to 12,000,000 shares at a price of $25.00 per Series K Preferred Share (the “Offering”), for aggregate gross proceeds of $300 million. In connection with the increase in the size of the Offering, the previously granted underwriters’ option has been terminated. The syndicate of underwriters is being co-led by CIBC Capital Markets, BMO Capital Markets, National Bank Financial Inc. and Scotiabank.
Andrew Willis of the Globe has some colour on the background:
Executives at capital-hungry companies such as utilities are always conscious of their credit ratings. This is especially true of CEOs and boards at U.S. pipelines: Enron’s meltdown and the near-death experience of the global financial crisis made top-notch ratings a priority. As a result, many U.S. utilities carry relatively little debt. That’s “lazy” in the sense that the company could easily borrow more money, while continuing to be judged as investment grade by the likes of S&P and Moody’s.
While utility executives might care about ratings, the credit market stopped paying much attention last year. In the spring of 2016, borrowing costs began to fall for any investment grade-rated company. At the same time, the spread or gap narrowed between the interest rates paid by a blue-chip double-A-rated borrower and a still-respectable but more leveraged triple B-rated business. And credit markets opened up – massive loans and bond sales were possible.
The most recent and most revealing of these takeovers came from AltaGas, which is buying WGL Holdings in a takeover that has an enterprise value – debt plus equity – of $8.4-billion. To pay for the acquisition, AltaGas rolled out an equity offering that was larger than the company’s market capitalization at the time. AltaGas sold $2.1-billion in stock to a team of banks led by TD Securities, RBC Capital Markets and JPMorgan, and an additional $400-million of equity to the OMERS pension plan. In addition, AltaGas took out a $4.95-billion (U.S.) bridge loan from JPMorgan, TD and RBC.
Implied Volatility analysis indicates that while the new issue is reasonably priced, cheaper alternatives for this name are available with ALA.PR.A and ALA.PR.I: