PrefBlog

Well, TD responded to my plea for TD Perps, but I suppose I should have specified that I want a decent coupon! Come on, guys! 5.25% was a great coupon, back in the old days of late September when comparables were trading to yield 5%, but it doesn’t cut the mustard today. This issue, which joins the 5.25% BNS Perps and the 5.25% BMO Perps is expensive compared to comparables and cannot be recommended at the issue price, given the recent increase in market yields.

Description: Toronto Dominion Bank Non-cumulative Class A First Preferred Shares, Series P

Size: 10-million shares (=$250-million); underwriters option (hah!) for another 2-million shares (=$50-million)

Ratings: DBRS Pfd-1; S&P P-1(low); Moodys Aa2. Another Moodys rating! I remarked on this when posting about the BMO new issue. This is an interesting development … is Moody’s making a big push into the Canadian preferred market? Are the underwriters hearing whispers that retail doesn’t like DBRS any more? Is there rating-shopping going on? A less exciting possibility is that both BMO and TD have relationships with Moody’s due to their US operations and therefore the marginal cost of having another rating for the preferred is negligible. It will be fascinating to see how this unfolds.

Dividends: 5.25% = 1.3125 per annum, payable quarterly, last day of Jan., April, July, October. First dividend of $0.327226, assuming November 1 closing.

Redemption: Redeemable at $26.00 commencing November 1, 2012; redemption price declines by $0.25 annually until October 31, 2016; redeemable at $25.00 thereafter.

Seniority: Parri passu with all other Class A First Preferred Shares; senior to common; junior to everything else.

Distribution: Bought deal with “disaster out”, “regulatory out”, “rating change out” and “material adverse change out” clauses. TD Securities is underwriting

Closing: November 1, 2007.

This issue has been added to the HIMIPref™ database with a preIssue securityCode of P75006.

When priced against the HIMIPref™ universe as of the close, October 5, fair value is estimated at $24.71.

Update: There has been a query regarding the “material adverse change out” clause:

I wonder if TD might re-price these if brokers pressure and threaten to exercise (if they can) the “material adverse change out” 

The answer is – I really don’t think so. The underwriting agreement for this particular issue has not yet been released on SEDAR, but I will presume for a moment that it will be very similar to the one for the BMO New Issue (in SEDAR, the Bank of Montreal “Underwriting or Agency Agreement” is filed under “Other”, with a date of September 28). The “material adverse change out” clause” in this agreement reads:

In addition to any other remedies which may be available to the Underwriters, any Underwriter shall be entitled, at the Underwriter’s option, to terminate and cancel, without any liability on the Underwriter’s part, the Underwriter’s obligations under this Agreement:
…
(b) if, during the period from the date of this Agreement to the Closing Time, there has occurred any material adverse change, financial or otherwise, in the business, financial condition, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Bank and its subsidiaries, taken together, or there should be discovered any previously undisclosed material fact (other than a material fact related solely to any of the Underwriters) required to be disclosed in the Shelf Prospectus, and such material change, in the sole opinion of the Underwriters, acting reasonably, would be expected to have a significant adverse effect on the market price or value of the Securities;

 

In other words, it’s a material change to the company, not to the markets. If the underwriters had permission to cancel just because the markets had gone down and they didn’t want to be left holding the baby, this would be referred to as a “market out clause”.

I don’t know of any instances of a major pref issue having had any “out” clauses exercised at all. If somebody knows better – let me know!

Update, 2007-10-10: As of the close today, fair value is estimated at 24.45.

Update, 2007-10-11: As of the close today, fair value is estimated at 24.36.

Update, 2007-10-22: As of the close today, fair value is estimated at 24.05.

Update, 2007-10-26: As of the close today, fair value is estimated at 23.77.

Update, 2007-10-31: As of the close today, fair value is estimated at 23.77. It starts trading tomorrow with the symbol TD.PR.P.

This entry was posted on Tuesday, October 9th, 2007 at 11:26 am and is filed under Data Changes, 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.