New Issue: NA FixedReset, 3.90%+225

National Bank of Canada has announced (although not yet on their website):

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 8 million non-cumulative 5-year rate reset first preferred shares series 32 (the “Series 32 Preferred Shares”), at a price of $25.00 per share, to raise gross proceeds of $200 million.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 32 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $250 million should this option be exercised in full.

The Series 32 Preferred Shares will yield 3.90% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending February 15, 2020. The first of such dividends, if declared, shall be payable on February 15, 2015. Thereafter, the dividend rate will reset every five years at a level of 225 basis points over the then 5-year Government of Canada bond yield. Subject to regulatory approval, National Bank may redeem the Series 32 Preferred Shares in whole or in part at par on February 15, 2020 and on February 15 every five years thereafter.

Holders of the Series 32 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 33 (the “Series 33 Preferred Shares”), subject to certain conditions, on February 15, 2020, and on February 15 every five years thereafter. Holders of the Series 33 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 225 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 October 9, 2014. National Bank intends to file in Canada a prospectus supplement to its October 5, 2012 base shelf prospectus in respect of this issue.

They later announced (again, not yet on their website):

that as a result of strong investor demand for its previously announced domestic public offering of Non-cumulative 5-Year Rate Reset First Preferred Shares Series 32, the size of the offering has been increased to 12 million shares. The gross proceeds of the offering will now be $300 million. The offering will be underwritten by a syndicate led by National Bank Financial Inc. The expected closing date is October 9, 2014.

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.

5 Responses to “New Issue: NA FixedReset, 3.90%+225”

  1. prefQC says:

    Hi James
    Would BMO.PR.T be a good proxy for the likely opening performance of this new NA issue?

  2. jiHymas says:

    Maybe! BMO.PR.T is a FixedReset, 3.90%+224 which resets on August 25, 2019, about six months prior to the new issue, so the terms are very close.

    Given that BMO.PR.T closed at 25.30-31 today, this might lead one to hope for a quick gain when the new issue settles.

    However, BMO is a better credit than NA, so one would expect that the new issue will trade somewhat lower. How much is somewhat? I don’t know, but HIMIPref™ estimates that the difference in credit rating (Pfd-2 vs. Pfd-2(low)) is worth $1.79.

    HIMIPref™ is influenced by all the Enbridge issues (Pfd-2(low)), most of which are trading in the 4.10-20% range, whereas NA.PR.? is calculated to have a yield of 3.75% based on issue price (all calculated yields will be affected by my estimate of end-value).

  3. prefQC says:

    Hi James,

    Pacific & Western Bank recently announced their first preferred share issue at 7%+543bp , due to close on Oct 31. DBRS appears to have ranked their preferred shares at P-3(high), just a notch below National Bank.

    Given that the above-mentioned NA issue (now with ticker NA.PR.W) is trading very near par (i.e. the market feels that initially-offered NA yield is appropriate), how can we explain this enormous difference in coupon yield? Of course P&W Bank is very much smaller than NA, but presumably DBRS took this into account when assigning the rating.

  4. jiHymas says:

    Thank you for bringing this to my attention – I have reported on the issue separately, but I’m not sure where you get the DBRS rating.

  5. prefQC says:

    Sorry for the erroneous reference to a DBRS rating. It turns out that in the course of my Google search I inadvertently mixed up a CWB document with a PWB document.

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