TD.PF.F To Be Redeemed

The Toronto-Dominion Bank has announced:

that it will exercise its right to redeem all of its 6,000,000 outstanding Non-cumulative Class A First Preferred Shares, Series 11 (Non-Viability Contingent Capital) (the “Series 11 Shares”) on October 31, 2020 at the price of $26.00 per Series 11 Share for an aggregate total of approximately $156 million.

On August 27, 2020, TD announced that dividends of $ 0.30625 per Series 11 Share had been declared. These will be the final dividends on the Series 11 Shares, and will be paid in the usual manner on October 31, 2020 to shareholders of record on October 9, 2020, as previously announced. After October 31, 2020, the Series 11 Shares will cease to be entitled to dividends and the only remaining rights of holders of such shares will be to receive payment of the redemption amount.

Beneficial holders who are not directly the registered holder of Series 11 Shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Inquiries should be directed to our Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (or in Toronto 416-682-3860).

TD.PF.F is a 4.90% NVCC-compliant Straight Perpetual that commenced trading 2015-7-21 after being announced 2015-7-9. It is currently assigned to the PerpetualPremium sub-index.

This is a noteworthy event for two reasons: firstly, this is the first time an NVCC-compliant issue has been redeemed and secondly because as of the close 2020-9-28 it was quoted at 25.19-28, meaning that holders have captured a large capital gain overnight, given that it is quoted 2020-9-29 at 26.23-26.

It is something of a puzzle as to why it has been redeemed, but a look at the TD Annual Report for 2019 provides a clue. This report discloses Risk-Weighted Assets of 456-billion and preferred share capital of 5.8-billion. It will be remembered that the total allowance for Alternative Tier 1 Capital is 1.5% of RWA, of which up to half may be the new LRCN structure.

This implies that the AT1 Limit for TD Bank is 6.84-billion; given that preferred share capital is already 5.8-billion, they only have room for 1-billion in LRCN issuance unless they redeem something. TD may well have decided that redeeming this $150-million preferred share issue, even at a premium, was worthwhile. Note, however that TD.PF.E, a FixedReset 3.70%+287, will be extended, so there are limits to TD’s desire to expand their LRCN issuance room!

3 Responses to “TD.PF.F To Be Redeemed”

  1. stusclues says:

    This morning PPL announced that it is “considering an offering of hybrid subordinated debt securities … to redeem or repurchase its outstanding cumulative redeemable minimum rate reset Class A Preferred Shares, Series 11 (TSX: PPL.PR.K) and its cumulative redeemable minimum rate reset Class A Preferred Shares, Series 13 (TSX: PPL.PR.M) …”

    Note these are both minimum resets trading above par. Will this be the first non-bank LRCN?

  2. peet says:

    Stusclues, Pembina’s announcement has caused a bit of a pop in other Pembina prefs, and perhaps this is an example of how diminishing market supply may be driving prices upward [ I believe this is one of your theses :-)].

    It also shows how minimum rate resets are typically not investor-friendly and certainly not now. I suspect we will see more such announcements, given how hybrid subordinated debt securities offer corporate issuers a tax-advantaged and rating- agency- friendly source of capital. These hybrids have actually been around for a few years, DBRS last did a criteria study of them in November 2018.

  3. stusclues says:

    Peet – nice pop indeed 🙂 James has long lamented the mis-pricing of the minimum resets. Investors ignored him at their peril.

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