Well, it didn’t take long for Quadravest to take advantage of the post-consolidation price of FTN.PR.A. A new overnight deal is being marketted:
Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC World Markets Inc., Scotia Capital Inc. and RBC Capital Markets, and will also include BMO Capital Markets, Canaccord Genuity Corp., Industrial Alliance Securities Inc., Richardson Wealth Limited, Raymond James Ltd., Desjardins Securities Inc., Hampton Securities, Mackie Research Capital Corporation, and Manulife Securities Incorporated.
The Preferred Shares will be offered at a price of $10.15 per Preferred Share to yield 6.7% and the Class A Shares will be offered at a price of $9.80 per Class A Share to yield 15.4%.
The closing price on the TSX of each of the Preferred Shares and the Class A Shares on January 5, 2021 was $10.45 and $9.66, respectively.
Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $9.08 per share and the aggregate dividends declared on the Class A Shares have been $20.53 per share, for a combined total of $29.61. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.
The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:
Bank of Montreal National Bank of Canada Bank of America Corp. The Bank of Nova Scotia Manulife Financial Corporation Citigroup Inc. Canadian Imperial Bank of Commerce Sun Life Financial Services of Canada Inc. Goldman Sachs Group Inc. Royal Bank of Canada Great-West Lifeco Inc. JP Morgan Chase & Co. The Toronto-Dominion Bank CI Financial Corp. Wells Fargo & Co. The Company’s investment objectives are:
Preferred Shares:
- to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 6.75% annually, to be set by the Board of Directors annually subject to a minimum of 5.50% until 2025; and
- on or about the termination date, currently December 1, 2025 (subject to further 5-year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.
Class A Shares:
- to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
- to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2025 (subject to further 5-year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.
The sales period of this overnight offering will end at 9:00 a.m. EST on January 7, 2021. The offering is expected to close on or about January 14, 2021 and is subject to certain closing conditions including approval by the TSX.
So the Whole Units are being offered at 19.95, while the December 31, 2020, NAVPU was 18.60, a premium of 7.26%. What a great business this is!
I wish to report that as of August 31, 2023, Quadravest has been able to increase the units of FTN (FTN + FTN.PR.A) above the number existing pre-consolidation.
Units NAV
Nov. 30/20 43,211,804 $571,597,101
Dec. 31/20 18,041,642 $335,634,075
Aug. 31/23 44,398,058 $732,519,119
Change +26,356,416 units +$396,885,044 NAV.
In that same time period (Dec. 31/20 to Aug. 31/23) Quadravest has also been able to increase these other 3 Split Share corporations that I track:
DFN change +61,818,240 units and +$860,096,734 in NAV.
FFN change +38 million units and +$500 million in NAV.
DF change +17 million units and +$245 million in NAV.
I work that out to over $2 billion increase in NAV for these 4 split share corporation. The management fee for FTN from the 2015 prospectus was .65%. Quadravest is also entitled to other fees for expenses. I conclude Quadravest is receiving increased fees from this increase in NAV of between $15 million to $20 million per year.
DFN is the largest of these 4 split share corporations with 119.98 million units and a NAV of $1.756 billion as of August 31, 2023.
Interesting
I wonder how these numbers will fluctuate in 15 months.
Currently the prefs are trading well below 10$, offering a strong incentive to redeem unless pref payments are jacked up to much higher levels, but then does the structure still make sense for the capital owners?