New Issue: National Bank Fixed-Reset 6.60%+479

National Bank has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for an issue on a bought deal basis of 4 million non-cumulative 5-year rate reset first preferred shares series 26 (the “Series 26 Preferred Shares”), at a price of $25.00 per share, to raise gross proceeds of $100 million.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 3 million Series 26 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to one business day prior to closing. The maximum gross proceeds raised under the offering will be $175 million should this option be exercised in full.

The Series 26 Preferred Shares will yield 6.60% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending February 15, 2014. The first of such dividends, if declared, shall be payable on May 15, 2009. Thereafter, the dividend rate will reset every five years at a level of 479 basis points over the then 5-year Government of Canada bond yield.

Holders of the Series 26 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 27 (the “Series 27 Preferred Shares”), subject to certain conditions, on February 15, 2014, and on February 15th every five years thereafter. Holders of the Series 27 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 479 basis points.

The net proceeds of the offering will be used for general corporate purposes and are expected to qualify as Tier 1 capital for National Bank. The expected closing date is on or about January 30, 2009. National Bank intends to file in Canada a prospectus supplement to its December 5, 2008 base shelf prospectus in respect of this issue.

National Bank will make an application to list the Series 26 Preferred Shares and the Series 27 Preferred Shares as of the closing date on the Toronto Stock Exchange.

The initial dividend will be $0.47918 payable May 15 based on an anticipated closing January 30.

3 Responses to “New Issue: National Bank Fixed-Reset 6.60%+479”

  1. Louis says:

    I had a lively conversation with a contact I have in a financial institution involved on some of the legal aspects of prefs issuances. He maintained that the “+bps” of the reset formula is rather “cosmetic” in that the bank will almost invariably buy back those at the first recall opportunity since not doing so would otherwise have adverse negative consequences on its Tier one capital. I am not sure what he meant by that: some kind of “amortization”, downgrading to Tier II or something else I did not quite understand (For once, I remained silent not to disclose my ignorance). Any ideas of what he was talking about?

    With all the new resetables of the last 4-5 weeks, I would otherwise start to believe that they will only be able to recall the most expensive issues in five years if they don’t want to then again pay a huge premium by saturating the market as they are doing now.

  2. jiHymas says:

    Your contact is poorly informed.

    He is confusing these preferred shares with sub-debt, which contribute 100% of their par value to Tier 2 until five years prior to their maturity, when they commence amortizing (for regulatory capital purposes, not for investment characteric purposes) into senior debt.

    Thus the banks, not wanting to pay sub-debt prices for senior capital, intend to call five years prior to maturity. In order to avoid having to pay 10-year prices for 5-year money, a step-up is almost always part of the sub-debt terms, to convince investors that it really is 5-year money.

    They do in fact trade this way, and are usually quoted on a spread to Canadas based on their pretend-maturity, five years prior to their actual maturity.

    There is no such arrangement for these preferred shares, or any others of which I am aware.

  3. […] previously discussed, this issue is a fixed-reset 6.60%+479. It traded 172,668 shares in a range of 24.85-95 before […]

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