Great-West Lifeco has announced that it:
has today entered into an agreement … under which the underwriters have agreed to buy, on a bought deal basis, 6,000,000 Non-Cumulative First Preferred Shares, Series L … 5.65% per annum
The morons have copy-protected the PDF, since this press release is such a big secret. I’m not retyping all that!
Issue: Great-West Lifeco Inc. Non-Cumulative First Preferred Shares, Series L
Size: 6-million shares (=$150-million) + greenshoe 4-million shares (=$100-million)
Dividends: 5.65% p.a. (= $1.4125); first dividend payable 2009-12-31 for $0.34829 based on closing 2009-10-2
Redeemable: Black-out until 2014-12-31. Redeemable at $26.00 commencing 2014-12-31; redemption price declines by $0.25 p.a. until 2018-12-31; redeemable at $25.00 thereafter.
This issue has great significance: it is the first straight to be issued since RY.PR.H settled 2008-4-29 and … they didn’t fiddle with the standard redemption terms. I had been afraid that issuers would assume that market had been lulled into idiocy by the five-year redemption terms that are standard in the FixedReset sector and try to grab themselves a little more advantage.
The issue may be compared with extant GWO issues outstanding:
| GWO Comparables As of Close 2009-9-23 |
|||
| Ticker | Dividend | Quote | Bid-YTW |
| GWO.PR.G | 1.30 | 22.61-89 | 5.77% |
| GWO.PR.H | 1.2125 | 20.85-90 | 5.85% |
| GWO.PR.I | 1.125 | 19.52-63 | 5.80% |
| GWO.PR.F | 1.475 | 25.19-43 | 5.63% |
I, too, welcome the appearance of a straight pref — clearly a better value for the investor, not to mention potentially stimulating more interest and trading in the straight asset class.
However, I am wondering why the issuer would want a straight when he could likely save 105 bp with a fixed reset (comparing GWO with TRP) and apparently be able to sell it like hot cakes!!??
It seems very remarkable — is it a signal of some kind?
All I can imagine is that GWO is genuinely seeking long-term funding at a known price; in other words, precisely the characteristics offered by straights.
If we assume that GWO could issue a FixedReset at 4.60%+192, they are faced with some uncertainty regarding the situation five years hence; if 5-Year Canada hit a not-unreasonable 4% at that time (last seen 2007-11-14) their money is more expensive and there is the potential at having to refinance and incurring yet another underwriting fee.
Since GWO has not “flown of the shelf” like the TRP offering is the pricing for a straight too low?
POW / PWF / GWO has something of a reputation – with me, at any rate – of pricing their issues tight to market, favouring cheapness over quantity.
The table certainly shows no new-issue concession; quite the opposite, in fact.
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