CM Issuing $1.6-billion Innovative Tier 1 Capital

CIBC has announced:

that CIBC Capital Trust (the “Trust”), a trust wholly-owned by CIBC, and CIBC had entered into an agreement with a group of underwriters led by CIBC World Markets Inc. for an issue of $1.3 billion of CIBC Tier 1 Notes – Series A due June 30, 2108 (the “Tier 1 – Series A Notes”) and $300 million of CIBC Tier 1 Notes – Series B due June 30, 2108 (the “Tier 1 – Series B Notes”) (collectively, the “Tier 1 Notes”). The Trust intends to file a final prospectus with Canadian securities regulators today. The Tier 1 Notes are expected to qualify as Tier 1 capital of CIBC for regulatory purposes.

CIBC reported a Tier 1 capital ratio at January 31, 2009 of 9.8%. Giving effect to the $325 million Series 35 preferred share issue that closed on February 4, 2009, the $200 million Series 37 preferred share issue scheduled to close on March 6, 2009, and the $1.6 billion Tier 1 Notes issue announced today, CIBC’s pro-forma Tier 1 capital ratio at January 31, 2009, would be approximately 11.5%.

From the date of issue to, but excluding June 30, 2019, interest on the Tier 1 – Series A Notes is payable semi-annually at a rate of 9.976% per annum. Starting on June 30, 2019, and on every fifth anniversary thereafter until June 30, 2104, interest on the Tier 1 – Series A Notes will reset as described in the prospectus.

From the date of issue to, but excluding June 30, 2039, interest on the Tier 1 – Series B Notes is payable semi-annually at a rate of 10.25% per annum. Starting on June 30, 2039, and on every fifth anniversary thereafter until June 30, 2104, interest on the Tier 1 – Series B Notes will reset as described in the prospectus.

On or after June 30, 2014, the Trust may, at its option and subject to certain conditions, redeem the Tier 1 – Series A Notes or the Tier 1 – Series B Notes, in each case, in whole or in part.

In certain circumstances, the Tier 1 Notes may be automatically exchanged for, or interest thereon may be paid by, the issuance of non-cumulative Class A Preferred Shares of CIBC.

The expected closing date is March 13, 2009. The net proceeds of this offering will be used for general purposes of CIBC.

The prospectus is not yet available on SEDAR.

Cumulative Tier 1 Capital with a maturity date … sigh … this is being issued under OSFI’s ill-advised rule relaxation of December 2008.

Assiduous Readers will remember that Innovative Tier 1 Capital pays interest and may be loosely regarded as RSP-Friendly Preferred Shares for investment classification purposes.

It is noteworthy that this is – as far as I know – CIBC’s first foray into this kind of financing. Certainly they had none outstanding at 1Q09.

Update, 2009-3-11: DBRS rates A(high), trend negative.

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