New Issue: BNS Fixed-Reset 6.25%+414

BNS has announced:

a domestic public offering of 8 million non-cumulative 6.25% 5-year rate reset preferred shares Series 26 (the “Preferred Shares Series 26”) at a price of $25.00 per share, for gross proceeds of $200 million.

Holders of Preferred Shares Series 26 will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2014 yielding 6.25% per annum, as and when declared by the Board of Directors of Scotiabank. Thereafter, the dividend rate will reset every five years at a rate equal to 4.14% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 26 will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series 27 (the “Preferred Shares Series 27”) of Scotiabank on April 26, 2014 and on April 26 every five years thereafter.

Holders of the Preferred Shares Series 27 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.14%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 27 will, subject to certain conditions, have the right to convert all or any part
of their shares to Preferred Shares Series 26 on April 26, 2019 and on April 26 every five years thereafter.

The Bank has agreed to sell the Preferred Shares Series 26 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The Bank has granted to the underwriters an option to purchase up to an additional 3 million Preferred Shares Series 26 at closing, which option is exercisable by the underwriters any time up to 48 hours before closing.

Closing is expected to occur on or after January 21, 2009. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure.

The initial dividend is planned to be paid on 2009-4-28 for $0.41524, based on a January 21 closing.

It’s odd … SunLife still hasn’t done anything with its $250-million of Series 24 FixedReset 6.25%+384 acquired in partial settlement for its stake in CI. I don’t know what’s happening with those things.

3 Responses to “New Issue: BNS Fixed-Reset 6.25%+414”

  1. joe clarke says:

    Is it accurate to say that the recent offerings (like the Scotia here) can be used to mark-to-market the existing Cdn bank perpetuals – give or take? In other words, is it reasonable to “value” say, CM.PR.D at ~$23 which would drive a yield of 6.25%?

  2. jiHymas says:

    See the comments to the RY 625+419 issue.

    There has been substantial credit stratification recently, which highly complicates comparisons between names.

    Additionally, there are two major analytical differences between the two issue types at this point:

    • Fixed Resets have a certain amount of inflation protection. Based on the steepness of the Canada curve, I estimate this feature to be worth 65bp at the current time
    • PerpetualDiscounts currently have potential for capital gains, given that they are trading far below their call price. I estimate this feature to be worth about 15bp.

    Thus, speaking very, very roughly (this analysis is not used by HIMIPref™) I suggest that a BNS Fixed-Reset Rate of 6.25% means that the BNS PerpetualDiscounts should yield about 6.75% (note that this assumes the new issue will trade at par once settled).

    The markets continue to be very very sloppy and the BNS PerpetualDiscounts are quoted at the close last night in a range of 6.29% (BNS.PR.L) to 6.84% (BNS.PR.O). I suggest that in the absence of a view on future changes in interest rates, they should all yield in the neighborhood of 6.75%. Note however, that BNS.PR.O should trade to yield more than BNS.PR.L due to its smaller capital gain potential. Just not 55bp more, according to me.

  3. […] previously announced Scotia Fixed Resets 6.25%+414 settled today with such success that both Royal and Scotia were […]

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