Category: New Issues

Husky Energy has announced that it:

has agreed to issue to a syndicate of underwriters led by TD Securities Inc. and RBC Capital Markets for distribution to the public 6,000,000 Cumulative Redeemable Preferred Shares, Series 5 (the “Series 5 Shares”).

The Series 5 Shares will be issued at a price of $25.00 per Series 5 Share, for aggregate gross proceeds of $150 million. Holders of the Series 5 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 4.50 percent annually for the initial period ending March 31, 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 3.57 percent.

Holders of Series 5 Shares will have the right, at their option, to convert their shares into Cumulative Redeemable Preferred Shares, Series 6 (the “Series 6 Shares”), subject to certain conditions, on March 31, 2020 and on March 31 every five years thereafter. Holders of the Series 6 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 3.57 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 5 Shares at the same offering price. The Series 5 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 the partial repayment of short term debt incurred in connection with the Company’s U.S. refining operations.

The offering is expected to close on or about March 12, 2015, subject to customary closing conditions and receipt of required regulatory approvals.

They later announced:

that the underwriters of its Cumulative Redeemable Preferred Shares, Series 5 (the “Series 5 Shares”) offering have exercised their option to increase the size to 8,000,000 shares, due to positive investor response.

The aggregate gross proceeds from the upsized offering will be $200 million. Closing of the offering is expected on or about March 12, subject to customary closing conditions and receipt of required regulatory approvals.

It astonishes me to report that the recently issued HSE.PR.C, a FixedReset 4.50%+313 resetting 2019-12-31 (a mere three months prior to the resetting of the new issue) was not more badly hurt by the news: yesterday it closed at 25.25-30 (3.94%-93) and today it closed at 24.84-93 ( ) on good volume of 77,500, which is far in excess of the turnover it saw in February. Come on, people! Surely rational expectations decree that a 44bp difference in reset rates should be worth more than that!

It might be, of course, that the market is asserting that the new issue is grossly underpriced and will pop as soon as it starts trading. This interpretation is consistent with the exercise of the underwriters’ option. And it is also possible that the market is asserting that Five-Year Canada yields in late 2019/early 2020 will be so high that a mere 44bp in dividend rates will be a mere bagatelle. And it is also possible that the market is asserting that the credit quality of HSE is so incredibly wonderful and adamantine that both issues are certain to be called on their first exchange dates and refinanced at a much cheaper rate.

Well, the market can assert whatever it likes. And it will.

After all, look at TRP.PR.E and TRP.PR.G, which show a bid price difference of $0.08 today, despite an Issue Reset Spread difference of 61bp, albeit with thirteen month difference in next Exchange Date. I suspect that eventually this recent spate of high-spread issues will force down the prices of the older, somewhat lower-spread issues (the very low spread issues have, I think, taken their hits already). But I’ve been wrong before and will be wrong again, so don’t mortgage the house.

Toronto-Dominion Bank has announced:

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 7 (the “Series 7 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 12 million Series 7 Shares at a price of $25.00 per share to raise gross proceeds of $300 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 7 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 7 Shares will yield 3.60% annually, payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending July 31, 2020. Thereafter, the dividend rate will reset every five years at a level of 2.79% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on July 31, 2020 and on July 31 every 5 years thereafter, TD may redeem the Series 7 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption, holders of the Series 7 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 8 (the “Series 8 Shares”), subject to certain conditions, on July 31, 2020, and on July 31 every five years thereafter. Holders of the Series 8 Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury bill yield plus 2.79%.

The expected closing date is March 10, 2015. TD will make an application to list the Series 7 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 P and Series Q on March 2, 2015. It is the intention of the Bank to exercise its right to redeem all of its outstanding 10 million Non-cumulative Redeemable Class A First Preferred Shares, Series R (the “Series R Shares”). The foregoing statement of intention does not constitute formal notice of redemption. Should the Bank exercise its right to redeem the Series R Shares, formal notice of redemption will be issued by the Bank in due course.

They later announced:

that, in connection with its recently announced public offering of 12,000,000 3.60% Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 7 (the “Series 7 Shares”), the underwriters have exercised their option (the “Underwriters’ Option”) to purchase an additional 2,000,000 Series 7 Shares at a price of $25.00 per share. TD will receive additional gross proceeds of $50,000,000 from the exercise of the Underwriters’ Option, increasing the total size of the offering to $350,000,000. Closing of the Underwriters’ Option is expected to occur concurrent with the closing of the public offering on March 10, 2015.

The Implied Volatility calculation has some points of interest:

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Firstly, the market does not appear to be differentiated between the NVCC compliant and non-compliant issues, as the latter appear to be plotted on a line more or less defined by the former. Additionally, the Implied Volatility is very high – ridiculously high, for NVCC-compliant issues – so I would expect the new issue to outperform the three non-compliant issues (TD.PF.A, TD.PF.B and TD.PF.C) as the market comes to realize what the word “perpetual” means.

The Canadian Imperial Bank of Commerce has announced:

that it had entered into an agreement with a group of underwriters led by CIBC World Markets Inc. for an issue of 10 million Basel III-compliant Non-cumulative Rate Reset Class A Preferred Shares, Series 43 (the “Series 43 Shares”) priced at $25.00 per Series 43 Share to raise gross proceeds of $250 million.

CIBC has granted the underwriters an option to purchase up to an additional two million Series 43 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.

The Series 43 Shares will yield 3.60% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending July 31, 2020. On July 31, 2020, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.79%.

Subject to regulatory approval and certain provisions of the Series 43 Shares, on July 31, 2020 and on July 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 43 Shares at par.

Subject to the right of redemption, holders of the Series 43 Shares will have the right to convert their shares into Non-cumulative Floating Rate Class A Preferred Shares, Series 44 (the “Series 44 Shares”), subject to certain conditions, on July 31, 2020 and on July 31 every five years thereafter. Holders of the Series 44 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 2.79%.

Holders of the Series 44 Shares may convert their Series 44 Shares into Series 43 Shares, subject to certain conditions, on July 31, 2025 and on July 31 every five years thereafter.

The expected closing date is March 11, 2015. CIBC will make an application to list the Series 43 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.

CIBC has two other series of FixedResets outstanding, CM.PR.O and CM.PR.P – sadly, insufficient to perform an Implied Volatility analysis.

I find it interesting that the issue won’t close until March 11 – two weeks is a relatively long marketing period for a major bank. The sluggishness of sales of current issues has been remarked upon both in comments on PrefBlog and elsewhere.

TransCanada Corporation has announced:

that it will issue 10 million cumulative redeemable first preferred shares, series 11 (the “Series 11 Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds of $250 million on a bought deal basis to a syndicate of underwriters in Canada co-led by Scotiabank and RBC Capital Markets.

The holders of Series 11 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $0.95 per share, payable quarterly on the last business day of February, May, August and November, as and when declared by the board of directors of TransCanada. The Series 11 Preferred Shares will yield 3.80 per cent per annum for the initial fixed rate period ending November 30, 2020 with the first dividend payment date scheduled for May 29, 2015. The dividend rate will reset on November 30, 2020 and on the last business day of November in every fifth year thereafter to a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.96 per cent. The Series 11 Preferred Shares are redeemable by TransCanada, at its option, on November 30, 2020 and on the last business day of November in every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 11 Preferred Shares will have the right to convert their shares into cumulative redeemable first preferred shares, series 12 (the “Series 12 Preferred Shares”), subject to certain conditions, on November 30, 2020 and on the last business day of November in every fifth year thereafter. The holders of Series 12 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the board of directors of TransCanada, at an annualized rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.96 per cent.

TransCanada 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 two million Series 11 Preferred Shares at a price of $25.00 per share.

The anticipated closing date is March 2, 2015. The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

Wonder of wonders, this issue actually looks cheap, continuing the brand new tradition set by the announcement of RY.PR.J (which is still cheap according to basic Implied Volatility theory, as far as that goes.

I don’t think this is due to any feelings of generosity amongst the issuers, however. It will be remembered that Implied Volatility theory (in its current stage of development) assumes a constant GOC-5 yield and does not incorporate the current coupon in its calculations (for which it has been harshly criticized).

If instead we look at the single closest comparable, TRP.PR.E, which is a FixedReset 4.25%+235 currently bid at 24.52, we see that it has an Expected Future Current Yield (EFCY) of 3.06%, which is equal to Par Value * (GOC-5 + IRS) / Bid = 25 * (0.65% + 235bp) / 24.52.

If we say that the new issue should have the same EFCY, then its Issue Reset Spread (IRS) should be 3.06% – 0.65% = 241bp. This is 55bp below the actual IRS, implying that the current coupon should also be 55bp below the actual coupon, so we conclude that if it was to trade even-yield with TRP.PR.E, then the new issue should actually carry terms of 3.25%+241. Note that if we were being more precise, the EFCY of the new issue should be a bit more than that of TRP.PR.E, as compensation for the greater negative convexity – call it about 20bp more, which certainly changes the numbers considerably, but not by enough to affect my argument.

The trouble for the issuers is, however, that a current coupon of 3.25% will bring with it a large amount of expected sticker shock for retail. I’m not sure if it would be possible for the underwriters to sell an issue at 3.25%+241 based on current market conditions – or even possible to sell it at 3.45%+261, accounting for negative convexity and volatility. You can be pretty sure they’d try it if they thought they could get away with it!

So what I think is happening is that the issuers are simply selling it based on current coupon and letting the chips fall where they may as far as the Issue Reset Spread is concerned. To a large extent it doesn’t matter much to them – if GOC-5 recovers in the next five years and spreads narrow, then they can just call it and reissue new paper.

This is much the same thing as what the banks did in 2009, with their enormous issuance of FixedResets with huge Issue Reset Spreads.

And all these suppositions break Implied Volatility theory, because – assuming that expectations are met and the market behaves as expected – then there is directionality in market prices and it is entirely possible that capital gains on the currently discounted issues will swamp any differential in coupon. But we will see! Check back in five years.

Still, for what it’s worth, here’s the Implied Volatility Chart for TRP FixedResets, incorporating the new issue at par:

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According to this analysis, the new issue would be fairly priced at $26.07.

Fairfax Financial Holdings Limited has announced (emphasis added):

that it will issue in Canada 8 million Preferred Shares, Series M at a price of C$25.00 per share, for aggregate gross proceeds of C$200 million, on a bought deal basis to a syndicate of Canadian underwriters led by BMO Capital Markets, RBC Capital Markets and Scotia Capital Inc. (the “Preferred Share Offering”).

As previously announced, in light of the positive impact of the announcement of the recommended cash offer for Brit plc on February 17, 2015 and approaches from certain investors who expressed interest in investing in Fairfax equity, Fairfax entered into a bought deal financing for 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), plus up to an additional 150,000 Subordinate Voting Shares pursuant to an over-allotment option, at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650,000,000 or C$747,500,000 if the over-allotment option is exercised in full (the “Subordinate Voting Share Offering”).

Holders of the Preferred Shares, Series M will be entitled to receive a cumulative quarterly fixed dividend yielding 4.75% annually for the initial five year period ending March 31, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current 5-year Government of Canada bond yield plus 3.98%.

Holders of Preferred Shares, Series M will have the right, at their option, to convert their shares into Preferred Shares, Series N, subject to certain conditions, on March 31, 2020, and on March 31 every five years thereafter. Holders of the Preferred Shares, Series N will be entitled to receive cumulative quarterly floating dividends at a rate equal to the then current three-month Government of Canada Treasury Bill yield plus 3.98%.

Fairfax has granted the underwriters an option, exercisable in whole or in part at any time up to 9:00 a.m. on the date that is two business days prior to the closing date, to purchase up to an additional 2 million Preferred Shares, Series M at the same offering price for additional gross proceeds of C$50 million.

Fairfax intends to use the net proceeds of the Preferred Share Offering and the Subordinate Voting Share Offering to partially fund the previously announced proposed acquisition of all of the issued and to be issued shares of Brit plc. Fairfax may raise additional funding for the acquisition of Brit plc through possible future debt issuances. There can be no assurance that such acquisition will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds from the offerings to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes. The Preferred Share Offering is expected to close on or about March 3 2015.

Fairfax intends to file a prospectus supplement to its short form base shelf prospectus dated December 19, 2014 in respect of the Preferred Share Offering with the applicable Canadian securities regulatory authorities. Details of the Preferred Share Offering will be set out in the prospectus supplement which will be available on the SEDAR website for Fairfax at www.sedar.com. To comply with the provisions of the UK Takeover Code in connection with Fairfax’s offer for the issued and to be issued shares of Brit plc, purchasers of Preferred Shares, Series M pursuant to the prospectus supplement will be deemed to have represented and agreed that they and their affiliates do not own any shares of Brit plc and will not acquire any shares of Brit plc prior to the completion of Fairfax’s offer.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. This press release is not an offer of securities for sale in the United States, and the securities may not be offered or sold in the United States absent registration or an exemption from the registration requirements. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended.

I find that a very interesting note about the prohibition on holding shares in Brit plc!

Fairfax has been busy since having their outlook downgraded to negative by S&P. First they offered $650-million in Subordinate Voting Shares:

Fairfax Financial Holdings Limited (“Fairfax” or the “Company”) (TSX:FFH)(TSX:FFH.U) has announced [February 19] that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets, under which the underwriters have agreed to buy on a bought deal basis 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650 million (the “Offering”). The Offering is expected to close on March 3, 2015.

Fairfax intends to use the net proceeds of the Offering to partially fund the previously announced proposed acquisition of all of the outstanding shares of Brit PLC (“Brit”). Fairfax may raise additional funding for the acquisition of Brit through possible future debt and/or preferred share issuances. There can be no assurance that the acquisition of Brit will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes.

Then they announced a $300-million 10-year notes offering:

Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces that it will issue C$300 million in aggregate principal amount of Senior Notes due 2025 on a bought deal basis to a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and Scotiabank (the “Notes Offering”).

As previously announced, in light of the positive impact of the announcement of the recommended cash offer for Brit plc on February 17, 2015 and approaches from certain investors who expressed interest in investing in Fairfax equity, Fairfax entered into a bought deal financing for 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), plus up to an additional 150,000 Subordinate Voting Shares pursuant to an over-allotment option, at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650,000,000 or C$747,500,000 if the over-allotment option is exercised in full (the “Subordinate Voting Share Offering”). Fairfax also announced today a bought deal financing for 8 million Preferred Shares, Series M at a price of C$25.00 per share (the “Preferred Share Offering”). Fairfax has granted the underwriters in the Preferred Share Offering an option, exercisable in whole or in part at any time up to 9:00 a.m. on the date that is two business days prior to the closing date, to purchase up to an additional 2 million Preferred Shares, Series M at the same offering price.

Fairfax intends to use the net proceeds of the Notes Offering, the Preferred Share Offering and the Subordinate Voting Share Offering to partially fund the previously announced proposed acquisition of all of the issued and to be issued shares of Brit plc. There can be no assurance that such acquisition will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds from the offerings to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes. The Notes Offering is expected to close on or about March 3, 2015.

And the notes offering was upsized:

Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces an increase in the size of its offering of Senior Notes due 2025 from $300 million to $350 million in aggregate principal amount, to be priced at $99.114 per $100 principal amount of Senior Notes (the “Notes Offering”). The Senior Notes are being offered through a syndicate of dealers led by BMO Capital Markets, RBC Capital Markets and Scotiabank. The Senior Notes will be unsecured obligations of Fairfax and will pay a fixed rate of interest of 4.95% per annum.

Fairfax has five other issues of FixedResets outstanding; FFH.PR.C, FFH.PR.E, FFH.PR.G, FFH.PR.I and FFH.PR.K.

FFH.PR.C reset 2014-12-31 to 4.578% (GOC5 +315bp) and about 40% of the issue was converted to FFH.PR.D, its FloatingReset Strong Pair counterpart. FFH.PR.E a FixedReset 4.75%+216 will have its first Exchange Date 2015-3-31, but no announcement has yet been made regarding extension; given a comparison of that spread and the new issue spread, I think extension can be regarded as a certainty!

Implied Volatility theory yields the following chart:

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According to this, the new issue is $0.87 cheap, which is not as cheap as FFH.PR.I, which resets 2015-12-31 at GOC5+285bp and is currently bid at 19.01 to be $1.11 cheap.

Royal Bank of Canada has announced:

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

Royal Bank of Canada will issue 12 million Preferred Shares Series BD 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 BD at the same offering price.

The Preferred Shares Series BD 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 May 24, 2020. Thereafter, the dividend rate will reset every five years at a rate equal to 2.74 per cent over the 5-year Government of Canada bond yield.

Subject to regulatory approval, on or after May 24, 2020, the bank may redeem the Preferred Shares Series BD in whole or in part at par. Holders of Preferred Shares Series BD 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 BE on May 24, 2020 and on May 24 every five years thereafter.

Holders of the Preferred Shares Series BE 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 2.74 per cent. Holders of Preferred Shares Series BE will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series BD on May 24, 2025 and on May 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 30, 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.

They later announced:

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BD, the size of the offering has been increased to 24 million shares. The gross proceeds of the offering will now be $600 million. The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 30, 2015.

Monster issue!

It doesn’t happen very often, but this issue actually looks cheap to its peers! The new issue looks a whopping $1.47 cheap, while the most expensive issue is RY.PR.I, bid at 25.31 and – according to Implied Volatility theory – is $0.40 rich. RY.PR.I resets at +193 on 2019-02-24 … and has a good chance of being called then because it’s not NVCC-compliant.

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Brompton Funds Limited has announced (table formatting added):

that Brompton Oil Split Corp. (the “Company”) has filed an amended and restated preliminary prospectus in respect of an initial public offering of preferred shares and class A shares.

The Company will invest in a portfolio (the “Portfolio”) of equity securities of at least 15 large capitalization North American oil and gas issuers, as listed below, selected by the Manager from the S&P 500 Index and the S&P/TSX Composite Index giving consideration to attractive valuation, growth prospects, profitability, liquidity, sustainability of dividends and a strong balance sheet. The Portfolio will be focused primarily on oil and gas issuers that have significant exposure to oil, and will include equities of the following oil and gas issuers:

ARC Resources Ltd.	Chevron Corporation	Occidental Petroleum Corporation
Canadian Natural Resources Limited	Encana Corporation	PrairieSky Royalty Ltd.
ConocoPhillips	EOG Resources Inc.	Suncor Energy Inc.
Crescent Point Energy Corp.	Husky Energy Inc.	Vermilion Energy Inc.
Cenovus Energy Inc.	Imperial Oil Limited	Exxon Mobil Corporation

Prospective purchasers investing in the Company will have the option of paying for shares in cash or by exchanging equity securities of Exchange Eligible Issuers (the “Exchange Option”), as set forth below. Prospective purchasers who utilize the Exchange Option must have their investment advisor deposit their securities of Exchange Eligible Issuers with Equity Financial Trust Co. (the “Exchange Agent”) through CDS prior to 5:00 p.m. (Toronto time) on January 23, 2015. Please contact your investment advisor or refer to the prospectus for detailed information on how to participate in the offering by way of either cash purchase or exchange of securities. The Exchange Eligible Issuers include all of the Portfolio issuers, with the exception of Occidental Petroleum Corporation.

Holders of Class A shares will receive the benefits of monthly cash distributions targeted to be 8.0% per annum on the $15.00 issue price, low management fees and the opportunity for growth in net asset value. Holders of preferred shares will receive attractive quarterly distributions of 5.0% per annum on the $10.00 issue price.

Brompton Funds Limited will be the investment fund manager and portfolio manager of the Company. The Manager currently manages 4 split share funds with assets under management over $900 million. The portfolio management team will be led by Laura Lau, an award winning portfolio manager with over 20 years of experience in financial services, who has a proven track record in managing flow-through funds and resource assets. The team also includes Michael Clare, an experienced energy and flow-through portfolio manager who specializes in the analysis of crude oil and natural gas markets.

The syndicate of agents for the offering is being led by Scotiabank, CIBC and RBC Capital Markets with TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

The preliminary prospectus is available on the Brompton website.

Brompton Oil Split Corp. (the ‘‘Company’’) is a mutual fund corporation established under the laws of the Province of Ontario. The Company proposes to offer preferred shares (‘‘Preferred Shares’’) and class A shares (‘‘Class A Shares’’) at a price of $10.00 per Preferred Share and $15.00 per Class A Share (the ‘‘Offering’’). Preferred Shares and Class A Shares are issued only on the basis that an equal number of Preferred Shares and Class A Shares will be outstanding at all times.

The investment objectives for the Preferred Shares are to provide their holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.1250 per Preferred Share ($0.50 per annum or 5.0% per annum on the issue price of $10.00 per Preferred Share) until March 31, 2020 (the ‘‘Maturity Date’’) and to return the original issue price of $10.00 to holders on the Maturity Date. See ‘‘Investment Objectives’’.

It is noteworthy that:

No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears or (ii) in respect of a cash distribution by the Company, the NAV per Unit would be less than $15.00.
…
Preferred Shares may be surrendered at any time for retraction to • (the “Registrar and Transfer Agent”), the Company’s registrar and transfer agent, but will be retracted only on the second last Business Day of a month (the “Retraction Date”). … Holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00.
…
Redemption of the Shares by the Company: All Preferred Shares and Class A Shares of the Company outstanding on the Maturity Date will be redeemed by the Company on such date provided that theterm of the Company may be extended after the Maturity Date for a further period of five years and thereafter for additional successive periods of five years as determined by the Company’s Board of Directors on such date.

So it’s got a NAV test on Capital Units dividends, monthly retractions and no redemption prior to maturity. I like it already!

They also state (I believe that this is a regulatory requirement):

Assuming that the gross proceeds of the Offering are $100 million and fees and expenses are as presented in this prospectus, in order to achieve the Company’s targeted annual distributions for the Class A Shares and the Preferred Shares while maintaining a stable NAV per Unit, the Company will be required to generate an average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 8.4%. The Portfolio currently generates dividend income of 3.5% per annum and would be required to generate an additional 4.9% per annum from other sources to return and distribute such amounts. Such distributions may consist of ordinary dividends, capital gains dividends or returns of capital. There can be no assurance that the Company will be able to pay distributions to the holders of Preferred Shares or Class A Shares.

This is hopelessly misleading. In the presence of cash flows and volatility, the company is exposed to Sequence of Returns risk and the quoted 8.4% total return requirement is applicable only if volatility is zero (ha!) or option profits make up the “additional 4.9% from other sources” (ha!) or in some other way the company does not have to take market action on its portfolio to alternately raise and invest cash (see Credit Quality of SplitShare Preferreds. 8.4% is the mathematical minimum requirement; in practice the requirement is much higher. But that’s mainly for the suckers who buy Capital Units to worry about and discuss.

The pricing doesn’t give much of a concession to buyers, but if this is issued in reasonable size it will certainly be tracked by HIMIPref™.

Update, 2015-01-08: Provisionally rated Pfd-3(high) by DBRS:

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (high) to the Preferred Shares to be issued by Brompton Oil Split Corp. (the Company). The Company will issue an equal number of Preferred Shares and Class A Shares, at an issue price of $10.00 per Preferred Share and $15.00 per Class A Share. The Preferred Shares and Class A Shares will be scheduled to mature on March 31, 2020.

Net proceeds from the offering will be used to invest in the common shares of at least 15 large capitalization North American oil and gas issuers (the Portfolio). The Portfolio will be initially equally weighted and will be rebalanced at least semi-annually. A portion of the Portfolio’s investments will be denominated in U.S. dollars, and this exposure is expected to be hedged completely back to the Canadian dollar.

Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares of $0.1250 per Preferred Share ($0.50 per annum or 5.0% per annum on the initial issue price of $10.00 per Preferred Share), while holders of the Capital Shares are expected to receive a regular monthly non-cumulative cash distribution of $0.10 per Class A Share. The Company has the ability to write covered call options or engage in securities lending in order to generate additional income. Based on the minimum offering size, the initial downside protection available to holders of the Preferred Shares is expected to be approximately 57.3%.

The provisional rating is primarily based on the expected level of downside protection and dividend coverage available to holders of the Preferred Shares as well as the credit quality of the underlying companies in the Portfolio.

Faircourt Asset Management has announced (although not yet on their website):

Faircourt Asset Management Inc., the manager of Faircourt Split Trust (the “Trust”) (TSX: FCS.UN; FCS.PR.B), is pleased to announce that it has filed a preliminary short form prospectus for an offering of a new series of 6.00% preferred securities (the “Preferred Securities”) in order to relever the existing trust units (the “Units”) of the Trust and additional Units and Preferred Securities on a matched basis (the “Offering”).

The Preferred Securities are to be issued at $10.00 per Preferred Security to yield 6.00% on the issue price. The Preferred Securities have been provisionally rated Pfd-3 (low) by DBRS Limited.

The Offering is expected to close on or about December 30, 2014. The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014. To the extent the net proceeds of the Offering exceed the funding requirements associated with these redemptions, the Trust may purchase additional securities to be held in the portfolio of securities of the Trust in accordance with the investment objectives and investment strategy of the Trust and subject to the investment restrictions of the Trust.

The syndicate of agents for the Offering is being co-led by National Bank Financial Inc. and CIBC World Markets Inc., and includes Canaccord Genuity Corp., GMP Securities L.P. and Raymond James Ltd.

The preliminary prospectus is available on SEDAR with the references “Dec 10 2014 10:59:07 ET Preliminary short form prospectus – English PDF 378 K”. I am not permitted to link directly to the preliminary prospectus since the Alberta Securities Commission has decided that this would make life too easy for retail scum like you. Suck it up, scumbags!

DBRS has assigned a preliminary rating of Pfd-3(low):

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (low) to the 6.00% Preferred Securities to be issued by Faircourt Split Trust (the Company). The 6.00% Preferred Securities are being issued to fund the redemption of the currently outstanding 6.25% Preferred Securities, which are scheduled to mature on December 31, 2014. Additional 6.00% Preferred Securities and Trust Units may be issued on a matched basis. The 6.00% Preferred Securities will be scheduled to mature on June 30, 2019.
…
The Company has advised DBRS that the initial downside protection available to holders of the 6.25% Preferred Securities is expected to be approximately 34.9% after the payment of all issuance expenses. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of November 24, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.04 times.

The Dividend Coverage Ratio referred to by DBRS is extremely low but looks accurate. According to the 2014H1 Semi-Annual Report, the fund’s income from “Distributions and dividends” was $ 475,389 and “Interest for distribution purposes” was $27,866, is a total of $503,255. I am ignoring realized and unrealized capital gains for this purpose, as well as “Income from Derivatives” which is capital gains from options trading, and ignoring the Foreign Exchange loss.

Expenses include Management Fees, Service Fees, Audit Fees, Legal Fees, Security Holder Reporting Costs, Custodial Fees, Independent Review Committee Fees and Withholding Taxes, total $456,188 (I’m leaving out Commissions and Other Portfolio Transaction Costs) leaves a net $47,067 to cover $903,204 in Preferred Security interest payments, is an income coverage of 5%. So it looks like the DBRS estimate of 4% is entirely realistic.

This is likely to be a very small issue, but since HIMIPref™ has been tracking FCS.PR.B (which will be refunded from the proceeds of this issue), I’ll track this one too.

The Canadian Imperial Bank of Commerce has announced:

that it had entered into an agreement with a group of underwriters led by CIBC World Markets Inc. for an issue of 10 million Basel III-compliant non-cumulative Rate Reset Class A Preferred Shares, Series 41 (the “Series 41 Shares”) priced at $25.00 per Series 41 Share to raise gross proceeds of $250 million.

CIBC has granted the underwriters an option to purchase up to an additional two million Series 41 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.

The Series 41 Shares will yield 3.75% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending January 31, 2020. On January 31, 2020, and on January 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.24%.

Subject to regulatory approval and certain provisions of the Series 41 Shares, on January 31, 2020 and on January 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 41 Shares at par.

Subject to the right of redemption, holders of the Series 41 Shares will have the right to convert their shares into non-cumulative Floating Rate Class A Preferred Shares, Series 42 (the “Series 42 Shares”), subject to certain conditions, on January 31, 2020 and on January 31 every five years thereafter. Holders of the Series 42 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 2.24%.

Holders of the Series 42 Shares may convert their Series 42 Shares into Series 41 Shares, subject to certain conditions, on January 31, 2025 and on January 31 every five years thereafter.

The expected closing date is December 16, 2014. CIBC will make an application to list the Series 41 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.

CM has only one other FixedReset outstanding, CM.PR.O, which is a NVCC-compliant FixedReset, 3.90%+232, which commenced trading 2014-6-11 after being announced 2014-6-2.

The Toronto-Dominion Bank has announced:

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

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 12 million Series 5 Shares at a price of $25.00 per share to raise gross proceeds of $300 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 5 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 5 Shares will yield 3.75% annually, payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending January 31, 2020. Thereafter, the dividend rate will reset every five years at a level of 2.25% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on January 31, 2020 and on January 31 every 5 years thereafter, TD may redeem the Series 5 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption, holders of the Series 5 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 6 (the “Series 6 Shares”), subject to certain conditions, on January 31, 2020, and on January 31 every five years thereafter. Holders of the Series 6 Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury bill yield plus 2.25%.

The expected closing date is December 16, 2014. TD will make an application to list the Series 5 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

Later, they announced:

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 5 (the “Series 5 Shares”), the size of the offering has been increased to 20 million Series 5 Shares. The gross proceeds of the offering will now be $500 million. The offering will be underwritten by a group of underwriters led by TD Securities Inc.

I can’t say the Implied Volatility calculation is particularly helpful, but I’ll show it anyway:

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