New Issue: PWF Straight Perpetual, 5.15%

Power Financial Corporation has announced:

that it has agreed to issue 8,000,000 Non-Cumulative First Preferred Shares, Series V (the “Series V Shares”) on a bought deal basis, for gross proceeds of $200 million. The Series V Shares will be priced at $25.00 per share and will carry an annual dividend yield of 5.15%. Closing is expected to occur on or about May 26, 2017. The issue will be underwritten by a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc.

Power Financial has also granted the underwriters an option to purchase an additional 2,000,000 Series V Shares at the same offering price. Should the underwriters’ option be exercised fully, the total gross proceeds of the Series V Share offering will be $250 million.

Proceeds from the issue will be used to supplement Power Financial’s financial resources and for general corporate purposes.

They later announced:

that due to strong demand, the underwriters have exercised their option to purchase an additional 2,000,000 Non-Cumulative First Preferred Shares, Series V (the “Series V Shares”), which increases the size of the previously announced bought deal public offering to 10,000,000 Series V Shares for gross proceeds of $250 million. The Series V Shares will be priced at $25.00 per share and will carry an annual dividend yield of 5.15%. Closing is expected to occur on or about May 26, 2017. The issue will be underwritten by a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc.

Implied Volatility analysis (as derived for Straight Perpetuals) suggests that the issue is fairly priced:

impvol_pwf_170516
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Note, however, that the implied volatility is very high at 31%, and therefore it might be expected that the higher-coupon, higher-yielding issues are the better bet, being expected to outperform on a flattening (lowering of implied volatility). However, the five issues with the highest coupons are all currently callable and are all trading with a negative yield to worst.

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