First Asset has announced:
the closing today of its initial public offering. The Company raised gross proceeds of $33 million through the issuance of 1,320,000 Preferred Shares and 1,320,000 Class A Shares. The Preferred Shares and the Class A Shares are listed on the Toronto Stock Exchange (“TSX”) under the symbols CBU.PR.A and CBU, respectively.
The Company will acquire and hold, on an approximately equally weighted basis initially, a portfolio (the “Portfolio”) of common shares of the six largest Canadian banks – Bank of Montreal; Canadian Imperial Bank of Commerce; National Bank of Canada; Royal Bank of Canada; The Bank of Nova Scotia; and The Toronto-Dominion Bank.
The Company’s investment objectives with respect to the Preferred Shares are:
(a) to provide Preferred Shareholders with fixed cumulative preferential quarterly cash distributions in the amount of $0.1625 per Preferred Share ($0.65 per annum representing an annual yield of 6.5% based on the original $10 issue price of a Preferred Share); and
(b) to return the original issue price to Preferred Shareholders at the time of redemption of such shares on or about January 15, 2016.
The Preferred Shares have been provisionally rated Pfd-2 (low) by DBRS Limited.
The Company’s investment objectives with respect to the Class A Shares are to provide Class A Shareholders with the opportunity:
(a) to participate in the performance of the Portfolio on a leveraged basis; and
(b) to benefit from any increase in the dividends from the securities in the Portfolio.
The Manager will reimburse the Company for the expenses of the offering and accordingly, it is anticipated that the initial NAV per Unit will be $25. The Manager has issued a note (“Note”) to the Company in an amount equal to the agents’ fees and expenses associated with the Offering. The Note bears interest at the prime rate and will be repaid in quarterly instalments equal to one quarter of 1.00% of NAV.
The Company has granted the agents for the offering an over-allotment option to acquire additional shares exercisable at any time during the next thirty days.
CBU.PR.A will not be tracked by HIMIPref™. It’s a shame, given the fat coupon and the 2.5:1 asset coverage, but it’s just too small to trade efficiently.
Pfd-2(low) my a**
DBRS has the distinction of rating split share prefs in such a way that the probability of a downgrade is (was) 10X (now 25X) higher than for an operating company pref.
2.5:1 asset coverage might seem like a lot now, but the credit tsunami hasn’t hit Canada yet…
This is one of the big issues in structured finance (SF) credit rating methodologies now … should the ratings of SF be on a separate scale to reflect volatility, should there be a separate dimension to the ratings attemtping to quantify volatility, or is everything just fine the way it is now?
The issue was discussed in a BIS report on the CRAs. Most practitioners prefer a volatility modifier.
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