PrefBlog

AltaGas has announced:

that it will issue 6,000,000 Cumulative Redeemable Five-Year Fixed Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) at a price of $25 per Series A Preferred Share (“the Offering”) for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc., RBC Capital Markets and CIBC World Markets Inc.

Holders of the Series A Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend for the initial period ending on but excluding September 30, 2015 (the “Initial Period”) at an annual rate of 5.00%, payable on the last day of March, June, September and December, as and when declared by the board of directors of AltaGas. The first quarterly dividend payment is payable on December 31, 2010 and shall be $0.4589 per Series A Preferred Share. The dividend rate will reset on September 30, 2015 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.66%. The Series A Preferred Shares are redeemable by AltaGas, at its option, on September 30, 2015 and on September 30 of every fifth year thereafter.

Holders of Series A Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”), subject to certain conditions, on September 30, 2015 and on September 30 of every fifth year thereafter. Holders of Series B Preferred Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 2.66%, as and when declared by the board of directors of AltaGas.

The Offering is expected to close on or about August 19, 2010. Net proceeds will be used to reduce outstanding indebtedness under AltaGas’ credit facilities, thereby strengthening AltaGas’ balance sheet and giving it the financial flexibility to support, among other things, construction activities related to the Forrest Kerr project.

The Series A Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under AltaGas’ short form base shelf prospectus dated July 15, 2010. An application has been made to list the Series A Preferred Shares on the Toronto Stock Exchange as of the closing date. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

More junk! This is rated Pfd-3 by DBRS and P-3 by S&P

Update: According to DBRS:

DBRS has today assigned a rating of Pfd-3 with a Stable trend to AltaGas Ltd.’s (AltaGas or the Company) $200 million Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series A (Series A Preferred Shares), with a dividend rate of 5.0% per annum, payable quarterly for the initial five-year period ending September 30, 2015. The dividend rate will reset on September 30, 2015, and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.66%. The Series A Preferred Shares are redeemable by AltaGas on September 30, 2015, and on September 30 every five years thereafter.

The Series A Preferred Shares are being issued under the Prospectus Supplement dated August 10, 2010 to the Short Form Base Shelf Prospectus dated July 15, 2010, and are expected to settle on August 19, 2010. The Series A Preferred Shares will rank equally with any future preferred shares of the Company and the net proceeds from the offering will be used for repayment of outstanding bank indebtedness and for general corporate purposes.

Update: Tim Kiladze of the Globe writes in AltaGas quenches retail investors’ thirst for yield:

With a 5 per cent coupon, investors got more than double the five-year Canada bond yield.

And they ate it up. There was such strong demand that lead manager TD Securities upsized the offering to $200-million. (RBC Dominion Securities and CIBC World Markets were co-leads.)

The deal serves as another reminder that retail investors typically can’t participate in corporate debt issues, so to them preferred shares and stocks/units with sustainable yields look very attractive right now.

Retail can’t usually participate directly in corporate debt issues, no. But there are plenty of good ETFs out there with low MERs that can.

Preferred shares … with sustainable yields look very attractive right now. Quite right; they do. Trouble is, this isn’t one of them. It’s callable at par September 30, 2015. This is A SHORT-TERM ISSUE, unless they get into serious trouble, in which case it will be a long term issue. In either case, calling the yield “sustainable” is, shall we say, something of a stretch.

This entry was posted on Tuesday, August 10th, 2010 at 10:32 am 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.