PrefBlog

Great-West Lifeco has announced that it:

has today entered into an agreement with a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets and Scotia Capital under which the underwriters have agreed to buy, on a bought deal basis, 6,000,000 Non-Cumulative First Preferred Shares, Series M (the “Series M Shares”) from Lifeco for sale to the public at a price of $25.00 per Series M Share, representing aggregate gross proceeds of $150 million.

Lifeco has granted the underwriters an underwriters’ option to purchase an additional 2,000,000 Series M Shares at the same offering price. Should the underwriters’ option be fully exercised, the total gross proceeds of the Series M Shares offering will be $200 million.

The Series M Shares will yield 5.80% per annum, payable quarterly, as and when declared by the Board of Directors of the Company. The Series M Shares will not be redeemable prior to March 31, 2015. On or after March 31, 2015, the Company may, on not less than 30 nor more than 60 days’ notice, redeem the Series M Shares in whole or in part, at the Company’s option, by the payment in cash of $26.00 per Series M Share if redeemed prior to March 31, 2016, of $25.75 per Series M Share if redeemed on or after March 31, 2016 but prior to March 31, 2017, of $25.50 per Series M Share if redeemed on or after March 31, 2017 but prior to March 31, 2018, of $25.25 per Series M Share if redeemed on or after March 31, 2018 but prior to March 31, 2019 and of $25.00 per Series M Share if redeemed on or after March 31, 2019, in each case together with all declared and unpaid dividends up to but excluding the date fixed for redemption.

The dealers are falling all over themselves in their haste to sell this one! One notification I’ve seen says it’s a Reset, while another insists that the issuer is GWL!

More, with comparables, later.

Later: Comparables are:

Assiduous Readers of PrefBlog & PrefLetter will note that not only is the yield on the new issue way below comparables, but that there is no allowance at all for Implied Volatility of the embedded short call. There are two classes of investor who will buy this issue: those desperate to invest a large sum of money with no effort and only one ticket; and morons.

The financial guys in the Power Group are well known for cutting their preferred share issue yields to the bone without worrying over-much as to the post-issue trading price of the shares. I believe – although this is wholly conjecture – that they have figured out that a 3% underwriting commission is pretty rich and demand some of that money back by way of lower issue yields when telling the underwriters on what terms they’ll sell the issue if they ever want to see any Power Group business again.

Remember! The smiley-boys will compete on lunches; they will compete on dinners; they will compete on entertainment; they will compete on number of old school buddies given jobs as relationship managers; they will compete on just about anything but price. The 3% commission is holy!

Even with that in mind, though, this issue is very expensive. If it were to trade at a price of 24.25 (representing the net cost after commission recovery to the bought-deal buyers), it would STILL be yielding less than 6%.

This entry was posted on Tuesday, February 23rd, 2010 at 5:16 pm and is filed under New Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.