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.

Hot on the heels of the BNS 5.25% Perp New Issue comes a very similar offering from BMO!

Bank of Montreal (TSX, NYSE: BMO) today announced a domestic public offering of $250 million of Non-Cumulative Perpetual Class B Preferred Shares Series 14 (the “Preferred Shares”).

With an anticipated closing date of October 9, this too will get the Tier 1 Capital onto BMO’s balance sheet prior to their year-end.

Size: 10-million shares = $250-million. Greenshoe option for 2-million shares = $50-million.

Dividends: 5.25% of par = $1.3125 p.a. Fat first dividend of $0.49983 payable February 25, 2008 based on October 9 closing.

Redemption: Redeemable at $26 commencing November 25, 2012; redemption price declines by $0.25 annually until November 25, 2016; redeemable at $25.00 thereafter.

Priority: Parri Passu with all other preferred shares; Senior to common; Junior to everything else.

Ratings: S&P: P-1(low); DBRS Pfd-1; Moody’s: Aa3 (I can’t remember seeing a Moody’s rating for a Canadian Pref before … is BMO doing a little ratings-shopping after their downgrade by S&P?)

HIMIPref™ Valuation: The issue has been added to the HIMIPref™ database with a preIssue securityCode of P25008. Estimated fair price with some comparables is:

Scotia has announced:

a domestic public offering of 12 million, 5.25% non-cumulative preferred shares Series 16 (the “Preferred Shares Series 16”) at a price of $25.00 per share, for an aggregate amount of $300 million.
    The Bank has agreed to sell the Preferred Shares Series 16 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The Bank has granted to the underwriters an over allotment option to purchase up to an additional $45 million of the Preferred Shares Series 16 at any time up to 30 days after closing.
    Closing is expected to occur on or after October 12, 2007. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure.

This will get the money into Tier 1 prior to Scotia’s year-end on October 31. I certainly don’t think Scotia’s in any trouble, but I suspect that all the banks will have seen their balance sheets bulk up over the past six weeks (as their sometime customers find it more difficult or too expensive to borrow on the money market) and who knows? We might even see some more issuance from those banks that have the room.

Come on TD! Let’s see a good big batch of TD Perps!

Anyway:

Size: 12-million shares (= $300-million), underwriters’ option for additional 1.8-million shares (= $45-million)

Issue Price: $25.00 

Dividend: 5.25% = $1.3125 p.a.  Paid on third-last business day of Jan, April, July, Oct. Long first dividend of $0.39195 anticipated, to be paid Jan 29.

Redemption: Redeemable commencing third-last business day in January, 2013, at $26.00. Redemption price declines by $0.25 p.a. until January 27, 2017; redeemable at $25.00 thereafter.

Seniority: On parity with all other preferred shares, senior to common, junior to everything else.

On the whole, the issue looks pretty good and I suspect that it will trade at an immediate premium:

The new issue has been added to the HIMIPref™ database with the securityCode P50013.

Update, after close: What a difference a day makes! As briefly discussed in the September 25 Review, the new issue appears to have been the cause (or at least the trigger!) for a mass repricing of perpetuals. A revised table of comparibles is:

Update, 2007-10-10: As of the close today, fair value is estimated as $24.52.

Update, 2007-10-11: As of the close today, fair value is estimated at $24.43.