Category: New Issues

TD Bank has announced:

a domestic public offering of Non-Cumulative Fixed Rate Preferred Shares (non-viability contingent capital (NVCC)), Series 11 (the “Series 11 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 6 million Series 11 Shares at a price of $25.00 per share to raise gross proceeds of $150 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 11 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing of the offering.

The Series 11 Shares will yield 4.90% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD. The Series 11 Shares will be redeemable in whole or in part by TD on or after October 31, 2020, subject to regulatory consent, at a declining premium.

The expected closing date is July 21, 2015. TD will make an application to list the Series 11 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

It’s nice to see another Straight Perpetual on the market!

Husky Energy has announced that it:

has agreed to issue to a syndicate of underwriters led by RBC Capital Markets, BMO Capital Markets and Scotia Capital Inc. for distribution to the public 6,000,000 Cumulative Redeemable Preferred Shares, Series 7 (the “Series 7 Shares”).

The Series 7 Shares will be issued at a price of $25.00 per Series 7 Share, for aggregate gross proceeds of $150 million. Holders of the Series 7 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.60 percent annually for the initial period ending June 30, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.52 percent.

Holders of Series 7 Shares will have the right, at their option, to convert their shares into Cumulative Redeemable Preferred Shares, Series 8 (the “Series 8 Shares”), subject to certain conditions, on June 30, 2020 and on June 30 every five years thereafter. Holders of the Series 8 Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the 90-day Government of Canada Treasury Bill rate plus 3.52 percent.

Husky has granted the underwriters an option, exercisable in whole or in part prior to closing, to purchase up to an additional 2,000,000 Series 7 Shares at the same offering price. The Series 7 Shares will be offered by way of prospectus supplement to the short form base shelf prospectus of Husky Energy dated February 23, 2015.

The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the offering will be used for general corporate purposes which may include, among other things, the partial repayment of bank debt incurred by the Company to further advance its near-term heavy oil thermal projects.

The offering is expected to close on or about June 17, 2015 subject to customary closing conditions and receipt of required regulatory approvals.

The chart of Implied Volatility for the series of HSE FixedResets indicates that the new issue can be thought of as being a little cheap … not just because it’s above the theoretical yield for the series, but because the Implied Volatility seems a little high, indicating that there is, perhaps, a little bit more downside protection with the higher-spread issues than with the lower-spread issues.

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Loblaw Companies Limited has announced:

a domestic public offering of 6 million cumulative Second Preferred Shares, Series B (the “Preferred Shares Series B”) at a price of $25.00 per share, to yield 5.30% per annum, for an aggregate gross amount of $150 million.

Loblaw has agreed to sell the Preferred Shares Series B to a syndicate of underwriters co-led by RBC Capital Markets, Scotiabank and TD Securities Inc. on a bought deal basis. Loblaw has granted to the underwriters an option to purchase an additional $50 million of the Preferred Shares Series B at any time up to 48 hours prior to closing.

The Preferred Shares Series B will be offered by way of prospectus supplement under the short form base shelf prospectus of Loblaw dated March 19, 2015. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

Loblaw also announced that it intends to redeem all of its outstanding Second Preferred Shares, Series A (TSX:L.PR.A) (the “Preferred Shares Series A”) for cash on July 31, 2015 (“redemption date”). The redemption price for each Preferred Share Series A will be $25.00. Holders of Preferred Shares Series A will separately receive all accrued and unpaid dividends outstanding on the redemption date. Loblaw intends to use the net proceeds of the issue of Preferred Shares Series B to partially fund the redemption of its Preferred Shares Series A. The offering is expected to close on or about June 9, 2015.

Later, they announced:

that as a result of strong investor demand for its offering that was announced earlier today, it has agreed to increase the size of the offering from 6 million to 9 million cumulative Second Preferred Shares, Series B (the “Preferred Shares Series B”) at a price of $25.00 per share, to yield 5.30% per annum, for an aggregate gross amount of $225 million. In addition, there will not be an underwriters’ option as was previously granted.

Loblaw has agreed to sell the Preferred Shares Series B to a syndicate of underwriters co-led by RBC Capital Markets, Scotiabank and TD Securities Inc. on a bought deal basis.

The Preferred Shares Series B will be offered by way of prospectus supplement under the short form base shelf prospectus of Loblaw dated March 19, 2015. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

Loblaw also announced that it intends to redeem all of its outstanding Second Preferred Shares, Series A (TSX: L.PR.A) (the “Preferred Shares Series A”) for cash on July 31, 2015 (“redemption date”). The redemption price for each Preferred Share Series A will be $25.00. Holders of Preferred Shares Series A will separately receive all accrued and unpaid dividends outstanding on the redemption date. Loblaw intends to use the net proceeds of the issue of Preferred Shares Series B to partially fund the redemption of its Preferred Shares Series A. The offering is expected to close on or about June 9, 2015.

The redemption of L.PR.A has been reported previously.

It’s quite a treat to see another Straight issue being issued hard on the heels of the last one, although there are some among us who might mutter darkly that 40bp isn’t much of a spread for such a wide credit jump (Loblaw is Pfd-3 vs. Royal Bank’s Pfd-2, according to DBRS; P-3(high) vs. P-2, according to S&P).

This issue also looks a little rich when compared to the closest comparables – Straights from its parent, Weston:

WN.PR.C appears to have lost its bid today; it was quoted at 24.81-90 on Friday May 29. Still, I think a 5.40% or 5.45% coupon would have been more appropriate, giving a tiny bit of compensation for a tiny amount of extra call risk, and 10bp as a new issue concession … but, with a 3% commission on sales, it’s doing well anyway!

Update, 2015-6-3: Rated Pfd-3 by DBRS.

Royal Bank of Canada has announced:

a domestic public offering of Non-Cumulative, Preferred Shares Series BH.

Royal Bank of Canada will issue 6 million Preferred Shares Series BH priced at $25 per share to raise gross proceeds of $150 million.

The Preferred Shares Series BH will yield 4.90 per cent annually, payable quarterly, as and when declared by the Board of Directors of Royal Bank of Canada.

Subject to regulatory approval, on or after November 24, 2020, the bank may redeem the Preferred Shares Series BH in whole or in part at a declining premium.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is June 5, 2015.

We routinely undertake funding transactions to maintain strong capital ratios and a cost effective capital structure. Net proceeds from this transaction will be used for general business purposes.

Well! It’s been a long time since we last saw a Straight Perpetual being issued … not since GWO.PR.S, paying 5.25%, announced 2014-5-13 and listed 2014-5-22.

I’m not sure what we can make of this … does this mean that RY’s treasury department thinks FixedResets are cheap? Their recently issued RY.PR.M, FixedReset, 3.60%+262, was hammered on the opening and they might be unwilling to risk a reprise. Or they may simply want to test the waters of the Straight Perpetual market with a small new issue. Or they might feel that they’ve got quite enough capital tied to five-year Canadas, thank you very much, and be willing to pay up a little for diversification of funding.

One way or another, it’s good to see. I’ve been saying for the past six years that I think Straights will always be the ‘little black dress’ of the preferred share market and it’s nice to see a bit of support for that idea.

Update, 2015-5-29: It’s also noteworthy that this issue has a great big fat first dividend, payable in November, that will go ex in late October. There might be some opportunities for dividend capture come October!

Bank of Montreal has announced:

a domestic public offering of $200 million of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 33 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 33”). The offering will be underwritten on a bought-deal basis by a syndicate of underwriters led by BMO Capital Markets. The Bank has granted to the underwriters an option to purchase up to an additional $50 million of the Preferred Shares Series 33 exercisable at any time up to 48 hours before closing.

The Preferred Shares Series 33 will be issued to the public at a price of $25.00 per share. Holders will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period ending August 25, 2020, as and when declared by the Board of Directors of the Bank, payable in the amount of $0.2375 per share, to yield 3.80 per cent annually.

Subject to regulatory approval, on or after August 25, 2020, the Bank may redeem the Preferred Shares Series 33 in whole or in part at par. On August 25, 2020, the dividend rate will reset and will reset thereafter every five years to be equal to the 5-Year Government of Canada Bond Yield plus 2.71 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 33 into an equal number of Non-Cumulative Floating Rate Class B Preferred Shares Series 34 (Non-Viability Contingent Capital (NVCC)) (“Preferred Shares Series 34”) on August 25, 2020, and on August 25 of every fifth year thereafter. Holders of the Preferred Shares Series 34 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the Board of Directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill Yield plus 2.71 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 34 into an equal number of Preferred Shares Series 33 on August 25, 2025, and on August 25 of every fifth year thereafter.

The anticipated closing date is June 5, 2015. The net proceeds from the offering will be used by the Bank for general corporate purposes.

This issue comes with a great big fat first dividend, payable November 25, 2015, which should go ex sometime around the end of October. October might bring a few opportunities for dividend capture!

This issue actually looks reasonably good according to Implied Volatility theory:

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Note that the very high level of Implied Volatility is also calculated when only the NVCC-compliant issues are considered – for these issues alone, I get a spread of 93bp and Implied Volatility of 40%. This level of Implied Volatility is silly and will generally arise when the issues concerned are trading with an expectation of directionality in prices; I suggest that there are a lot of investors who figure that anything with the BMO brand name on it will trade somewhere near par forever.

This has the effect of making the lower spread issues vulnerable to a decline in credit quality and/or an increase in spreads; in other words, the higher-spread issues (such as this new issue) are getting a boatload of downside protection for free (when compared to other BMO issues ONLY!).

Element Financial Corporation has announced:

it plans to sell, on a “bought deal” basis, $1,550 million of subscription receipts (“Subscription Receipts”), $500 million aggregate principal amount of extendible convertible unsecured subordinated debentures (“Debentures”) and $150 million cumulative 5-year rate reset preferred shares, Series G of Element (“Series G Preferred Shares”). The Company intends to use the net proceeds from the Offerings (as defined below) to fund future acquisitions.
…
Element has entered into an agreement to sell, on a bought deal basis, 6,000,000 Series G Preferred Shares at a price of $25.00 per Series G Preferred Share for gross proceeds of $150 million (the “Preferred Share Offering”, and with the Subscription Receipt Offering and the Debenture Offering, the “Offerings”). Holders of the Series G Preferred Shares will be entitled, if, as and when declared by the Board of Directors of Element, to receive a cumulative quarterly fixed dividend for the initial five-year period ending September 30, 2020 of 6.50% per annum. Thereafter, the dividend rate will reset every five years to an annual dividend rate equal to the 5-Year Government of Canada Bond Yield as quoted on Bloomberg on the 30th day prior to the first day of the relevant subsequent five year fixed rate period plus 5.34%.

Holders of the Series G Preferred Shares will have the right to convert their shares into cumulative floating rate preferred shares, Series H of Element (“Series H Preferred Shares”), subject to certain conditions and Element’s right to redeem the Series G Preferred Shares, on September 30, 2020 and on September 30 every five years thereafter. Holders of the Series H Preferred Shares will be entitled to receive a quarterly floating rate dividend, if, as and when declared by the Board of Directors of Element, equal to the then current three-month Government of Canada Treasury Bill plus 5.34%. Holders of the Series H Preferred Shares may convert their Series H Preferred Shares into Series G Preferred Shares, subject to certain conditions and Element’s right to redeem the Series H Preferred Shares, on September 30, 2025 and on September 30 every five years thereafter. The Series G Preferred Shares will not be rated. If an Eligible Transaction does not proceed, the net proceeds from the Preferred Share Offering will be used by Element for general corporate purposes.

The Preferred Share Offering is being led by BMO Capital Markets, CIBC World Markets Inc., National Bank Financial Inc., RBC Capital Markets, and TD Securities, and includes GMP Securities L.P., Cormark Securities Inc., Desjardins Securities Inc., Manulife Securities Inc., and Scotiabank (collectively, the “Preferred Share Underwriters”).

This issue joins EFN.PR.A (FixedReset, 6.60%+471); EFN.PR.C (FixedReset, 6.50%+481); and EFN.PR.E (FixedReset, 6.40%+472).

As with the three previous issues, this issue will not be tracked by HIMIPref™ on the grounds that it is not rated. This is not because I can’t come to my own views regarding credit quality, or because I worship the Credit Rating Agencies, but because I feel the threat of an imminent downgrade from a major agency does an excellent job of focussing the minds of the directors and management that they have a problem that really should be addressed. A ‘Review-Negative’ by Hymas Investment Management does not have quite the same effect.

The Toronto-Dominion Bank has announced:

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 9 (the “Series 9 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 8 million Series 9 Shares at a price of $25.00 per share to raise gross proceeds of $200 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 9 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 Series 9 Shares will yield 3.70% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending October 31, 2020. Thereafter, the dividend rate will reset every five years at a level of 2.87% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on October 31, 2020 and on October 31 every 5 years thereafter, TD may redeem the Series 9 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 9 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 10 (the “Series 10 Shares”), on October 31, 2020, and on October 31 every five years thereafter. Holders of the Series 10 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury bill yield plus 2.87%.

The expected closing date is April 24, 2015. TD will make an application to list the Series 9 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

The Bank, as previously announced, will redeem its outstanding Non-cumulative Redeemable Class A First Preferred Shares, Series R on May 1, 2015.

The redemption of TD.PR.R has been previously reported on PrefBlog.

This new issue actually looks pretty reasonable. If we look at the standard Implied Volatility calculation …:

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… we see that the Implied Volatility is very high, at 40%+, but that it appears that the (expected) relative richness of the NVCC non-compliant issues might be throwing off the calculation.

If the calculation is repeated using only the NVCC-compliant issues as sources of error …:

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… we see that our fears of material miscalculation are not realized: the Implied Volatility remains at 40%+.

This number is too high, ridiculously high. Although such high levels can be maintained for lengthy periods of time, they are associated with issues trading near par; the lowest price for a NVCC-compliant TD issues is 23.90 (for TD.PF.C, resetting 2020-1-31 at GOC-5 + 225bp), which is close enough to par that some people (I am sure) figure that it will always be close to par (an idea that has been dubbed the par always, shit forever hypothesis.

I conclude that the new issue is very attractively priced relative to the other TD NVCC FixedResets, as in the event of a spread-widening and consequent decline in price of each element of the series, the lower spread issues will significantly underperform as Implied Volatility declines to a more reasonable figure; of course, it is entirely possible and completely logical that the Implied Volatility will decline (flattening the curve) even in the absence of spread-widening for this series.

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters co-led by Scotiabank and RBC Capital Markets (together, the “Underwriters”) pursuant to which the Underwriters have agreed to purchase from Pembina 8,000,000 cumulative redeemable rate reset class A preferred shares, Series 9 (the “Series 9 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 9 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.1875 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, yielding 4.75 per cent per annum, for the initial fixed rate period to but excluding December 1, 2020. The first quarterly dividend payment date is scheduled for September 1, 2015. The dividend rate will reset on December 1, 2020 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.91 per cent. The Series 9 Preferred Shares are redeemable by Pembina, at its option, on December 1, 2020 and on December 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 9 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, Series 10 (the “Series 10 Preferred Shares”), subject to certain conditions, on December 1, 2020 and on December 1 of every fifth year thereafter. The holders of Series 10 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Pembina, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.91 per cent.

Pembina has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series 9 Preferred Shares at a price of $25.00 per share.

Closing of the offering is expected on April 10, 2015, subject to customary closing conditions.

Proceeds from the offering will be used to reduce indebtedness under the Company’s credit facilities, which was incurred in connection with Pembina’s 2015 capital expenditure program.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Company on March 18, 2015 in each of the provinces of Canada.

There is a whacking great first dividend on this, $0.4685, payable September 1, which will go ex around about maybe the end of July. There may be opportunities for dividend capture strategies in July!

Implied Volatility theory suggests that this issue is cheap relative to its peers – not because it is cheap to the fitted curve, but because the implied volatility is so large – ridiculously large, in fact – and the curve may therefore to be deemed likely to flatten.

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Update, 2015-4-6: Rated Pfd-3 by DBRS.

Veresen Inc. has announced:

it has agreed to issue 8,000,000 Cumulative Redeemable Preferred Shares, Series E (“Series E Preferred Shares”) at a price of $25.00 per share for total gross proceeds of $200 million on a bought deal basis. The Series E Preferred Shares will be offered to the public through a syndicate of underwriters co-led by Scotiabank, TD Securities Inc. and RBC Capital Markets.

The holders of Series E Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 5.00%, representing $1.25 per share, payable quarterly for an initial period up to but excluding June 30, 2020, as and when declared by the Board of Directors of Veresen. The first quarterly dividend payment date is scheduled for June 30, 2015. The dividend rate will reset on June 30, 2020 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 4.27%.

Subject to regulatory approval, the Series E Preferred Shares are redeemable by Veresen, in whole or in part, on June 30, 2020 and on June 30 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series E Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series F (“Series F Preferred Shares”), subject to certain conditions, on June 30, 2020, and on June 30 of every fifth year thereafter. The holders of Series F Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.27%.

The offering is expected to close on or about April 1, 2015, subject to customary closing conditions. Net proceeds from the offering will be used to repay amounts outstanding under the credit facility that Veresen entered into for purposes of financing its acquisition of a 50% convertible preferred interest in Ruby Pipeline Holding Company, L.L.C., the entity which indirectly owns the Ruby pipeline system.

The Series E Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with the securities regulatory authority in each of the provinces of Canada under Veresen’s short form base shelf prospectus dated September 20, 2013. An application has been made to list the Series E Preferred Shares and the Series F Preferred Shares on the Toronto Stock Exchange.

This issue will join VSN.PR.A, a FixedReset 4.40%+292 that commenced trading 2012-2-14 and VSN.PR.E, a FixedReset 5.00%+301 that commenced trading 2013-10-21. One more and I can start calculating Implied Volatility!

Both extant issues were hit hard on the day: VSN.PR.A closed at 21.45-55, with the bid down 1.7% on the day, while VSN.PR.C closed at 24.00-12, with the bid down 3.7%.

Royal Bank of Canada has announced:

a domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BF.

Royal Bank of Canada will issue 12 million Preferred Shares Series BF priced at $25 per share to raise gross proceeds of $300 million. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series BF at the same offering price.

The Preferred Shares Series BF will yield 3.60 per cent annually, payable quarterly, as and when declared by the Board of Directors of Royal Bank of Canada, for the initial period ending November 24, 2020. Thereafter, the dividend rate will reset every five years at a rate equal to 2.62 per cent over the 5-year Government of Canada bond yield.

Subject to regulatory approval, on or after November 24, 2020, the bank may redeem the Preferred Shares Series BF in whole or in part at par. Holders of Preferred Shares Series BF will, subject to certain conditions, have the right to convert all or any part of their shares to Non-Cumulative Floating Rate Preferred Shares Series BG on November 24, 2020 and on November 24 every five years thereafter.

Holders of the Preferred Shares Series BG will be entitled to receive a non-cumulative quarterly floating dividend, as and when declared by the Board of Directors of Royal Bank of Canada, at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 2.62 per cent. Holders of Preferred Shares Series BG will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series BF on November 24, 2025 and on November 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is March 13, 2015.

We routinely undertake funding transactions to maintain strong capital ratios and a cost effective capital structure. Net proceeds from this transaction will be used for general business purposes.

The issue will be NVCC compliant, so it will be treated as a true perpetual in the course of HIMIPref™ analysis.

The market’s certainty that anything issued by a Big Bank will keep its value, regardless of terms, is illustrated by the Implied Volatility chart – the Implied Volatility of 40%+ is completely unrealistic.

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