Category: New Issues

Veresen Inc. has announced:

it has agreed to issue 6,000,000 Cumulative Redeemable Preferred Shares, Series C (“Series C Preferred Shares”) at a price of $25.00 per share (the “Offering”) for aggregate gross proceeds of $150 million on a bought deal basis. The Series C Preferred Shares will be offered to the public through a syndicate of underwriters co-led by Scotiabank,TD Securities Inc. and CIBC.

The holders of Series C 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 March 31, 2019, as and when declared by the Board of Directors of Veresen. The first quarterly dividend payment date is scheduled for December 31, 2013. The dividend rate will reset on March 31, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.01%. The Series C Preferred Shares are redeemable by Veresen, at its option, on March 31, 2019 and on March 31 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

Holders of Series C Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series D (“Series D Preferred Shares”), subject to certain conditions, on March 31, 2019, and on March 31 of every fifth year thereafter. The holders of Series D 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 rate plus 3.01%.

Veresen has granted the underwriters an option to purchase at the offering price an additional 2,000,000 Series C Preferred Shares at a price of $25.00 per share exercisable in whole or in part at any time up to 6:30 AM (Calgary time) on the date that is two business days prior to closing. Should the option be fully exercised, the total gross proceeds of the Offering will be $200 million.

The Offering is expected to close on or about October 21, 2013, subject to customary closing conditions. Net proceeds from the Offering will be used to reduce indebtedness, partially fund capital expenditures and for other general corporate purposes.

The Series C 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 C Preferred Shares and the Series D Preferred Shares on the Toronto Stock Exchange. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Update: This issue is somewhat overpriced. I calculate the Yield-to-Worst on the new issue as 4.81% to perpetuity at issue price, while VSN.PR.A (FixedReset, 4.40%+292) which commenced trading in February, 2012, is bid at 23.75 to yield 4.92% to perpetuity. The new issue should yield more to account for negative convexity (see the comments), but doesn’t … the issuer and underwriters are hoping everybody looks at the Initial Rate rather than the very similar Issue Reset Spreads.

Quadravest has announced:

Prime U.S. Banking Sector Split Corp. (“The Company”) is pleased to announce the filing of a preliminary prospectus dated September 30, 2013 for a proposed new offering. The offering is an investment in common shares of a portfolio consisting primarily of 15 U.S. financial services companies selected from a portfolio universe consisting of 20 companies. The Company will offer two investment choices: Priority Equity Shares at $10 per share and Class A shares at $10 per share.

The Company’s Priority Equity Shares will provide holders with monthly cumulative preferential floating rate cash dividends at an annual rate of U.S. prime plus 1.75% (Min: 5.0% / Max: 7.0%) based on the original issue price.

The Company’s Class A Shares offer regular monthly cash dividends initially targeted to be 6.5% per annum based on the original issue price. The Class A shares will be entitled on redemption to the benefit of any capital appreciation in the market price of the shares in the portfolio.

The Company has been created to provide investors with an opportunity to invest in a portfolio of 15 U.S. financial services companies whose shares will likely continue to benefit from an improving economy. The Company will employ a covered call writing strategy to generate additional income to the portfolio.

The 15 portfolio companies will be selected from a portfolio universe consisting of the following 20 companies:

American Express Company	City National Corporation	Northern Trust Corporation
Bank of America Corporation	Fifth Third Bancorp	The PNC Financial Services Group Inc.
The Bank of New York Mellon Corporation	The Goldman Sachs Group, Inc.	Regions Financial Corporation
BB&T Corporation	JPMorgan Chase & Co.	State Street Corporation
Capital One Financial Corp.	KeyCorp.	SunTrust Banks Inc.
Citigroup Inc.	M&T Bank Corporation	U.S. Bancorp
Morgan Stanley	Wells Fargo & Company

The proposed offering is co-lead by RBC Capital Markets and CIBC World Markets Inc. The other members of the syndicate are BMO Capital Markets, National Bank Financial Inc., Scotiabank, TD Securities Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc. and Mackie Research Capital Corporation.

Please visit our website at: www.primeusbanking.com

According to the preliminary prospectus:

The Shares will be redeemed by the Company in connection with its termination, scheduled to be on or about December 1, 2020, subject to the right of the Board of Directors of the Company, on the advice of Quadravest, to extend the termination date for further terms of five years each (the day the Company terminates being the “Termination Date”). The Company may also be terminated and the Shares redeemed prior to the Termination Date in certain circumstances. See “Termination of the Company”.

There is a NAV Test:

No regular monthly dividends will be paid on the Class A Shares in any month as long as any dividends on the Priority Equity Shares are then in arrears or so long as the net asset value per Unit is equal to or less than $15.00. Additionally, it is currently intended that no special year-end dividends will be paid if after payment of such a dividend the net asset value per Unit would be less than $20.00.

There is annual and monthly retractibility:

Shareholders retracting Shares on an Annual Retraction Date will be entitled to receive a retraction price per Share equal to the net asset value per Unit on the Annual Retraction Date, less any costs associated with the retraction including commissions and other such costs, if any, related to the liquidation of any portion of the Portfolio required to fund such retraction.
…
Except as noted below, holders of Priority Equity Shares whose shares are surrendered for [monthly] retraction will be entitled to receive a price per share (the “Priority Equity Share Retraction Price”) equal to the lesser of (i) $10.00 and (ii) 96% of the net asset value per Unit determined as of the Retraction Date, less in either case the cost to the Company of the purchase of a Class A Share in the market for cancellation and less any other applicable costs.

The Management Expense Ratio looks like it will be somewhere around 1.50%:

Quadravest is entitled to a management fee at an annual rate equal to 0.75% of the Company’s net asset value calculated as at the last Valuation Date in each month, plus an amount equal to the service fee (the “Service Fee”) payable to dealers, together with applicable taxes. Quadravest will pay the Service Fee to each registered dealer whose clients hold Shares. The Service Fee will be calculated and paid at the end of each calendar quarter and will be equal to 0.50% annually of the value of the Class A Shares held by clients of the dealer, plus applicable taxes. For these purposes, the value of a Class A Share at any time is the net asset value per Unit at such time less $10.00. No Service Fee will be paid in any calendar quarter if regular dividends are not paid to holders of Class A Shares in respect of each month of such calendar quarter.
…
The Company will pay for all other expenses incurred in connection with the operation and administration of the Company, estimated to be approximately $300,000 per annum.

Income coverage will be a major problem:

Based on the current dividends paid by the companies in the Portfolio Universe, the Company is initially expected to generate dividend income, net of withholding tax, of approximately 1.53% per annum. The Company would be required to generate an additional return, net of withholding tax, of approximately 6.0% per annum, including from dividend growth, capital appreciation and option premiums from the Portfolio, in order for the Company to pay these initial targeted distributions and maintain a stable net asset value.

Those who have read some of my writings about Split Share Credit Quality will understand the combined effects of cash shortfalls and portfolio volatility. It’s not pretty!

As usual, a lot of space is used up blathering about the ever so wonderful covered call writing strategy. I have never seen any Split Share Corporation publish any evidence that such a strategy has amounted to a row of beans. I find it rather amusing that they present earnest calculations of “Required Call Writing at Various Volatility Levels to Achieve Target Distribution”, without taking into account the idea that Black-Scholes specifies the fair price; i.e., any option premium earned may be assumed to be offset by capital gains foregone. But there’s one born every minute ….

This issue will not be tracked by HIMIPref™; the dependence upon the US Prime Rate means there are insufficient comparables.

Update, 2013-10-28: I understand that the new issue has been withdrawn. However, there is no confirmation of this as yet on the Quadravest website, the fund’s website or SEDAR.

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters, led by RBC Capital Markets and Scotiabank, pursuant to which the underwriters have agreed to purchase from Pembina 6,000,000 cumulative redeemable rate reset class A preferred shares, series 3 (the “Series 3 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 3 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.1750 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 4.70 per cent per annum, for the initial fixed rate period to but excluding March 1, 2019. The first quarterly dividend payment date is scheduled for December 1, 2013. The dividend rate will reset on March 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.60 per cent. The Series 3 Preferred Shares are redeemable by Pembina, at its option, on March 1, 2019 and on March 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 3 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, series 4 (the “Series 4 Preferred Shares”), subject to certain conditions, on March 1, 2019 and on March 1 of every fifth year thereafter. The holders of Series 4 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 2.60 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 3 Preferred Shares at a price of $25.00 per share.

Proceeds from the offering will be used to partially fund capital projects, to reduce short-term indebtedness and for other general corporate purposes of the Company and its affiliates.

Closing of the offering is expected on October 2, 2013, subject to customary closing conditions.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Company on February 22, 2013 in each of the provinces of Canada.

This offering actually seems fairly priced relative to PPL.PR.A, which resets at +247 and trades a little under $24.

Update, 2013-9-25: Rated Pfd-3 [Stable] by DBRS.

Artis Real Estate Investment Trust has announced:

that it has entered into an agreement to sell to a syndicate of underwriters led by RBC Capital Markets and CIBC (the “Underwriters”), on a bought deal basis, 3,000,000 Cumulative Rate Reset Preferred Trust Units, Series G (“Series G Units”) at a price of $25.00 per Series G Unit for gross proceeds to Artis of $75,000,000 (the “Financing”). Artis has also granted the Underwriters an option, exercisable at any time up to 48 hours prior to the closing of the Financing, to purchase a further 450,000 Series G Units at the issue price which, if fully exercised, would result in additional gross proceeds of $11,250,000.

The Series G Units will pay fixed cumulative preferential distributions of $1.25 per Series G Unit per annum, yielding 5.00% per annum, payable on the last day of January, April, July and October of each year, as and when declared by the board of trustees of Artis, for the initial period ending July 31, 2019. The first quarterly distribution, if declared, shall be payable on October 31, 2013 and shall be $0.3219 per Series G Unit, based on the anticipated closing of the offering of Series G Units of July 29, 2013. The distribution rate will be reset on July 31, 2019 and every five years thereafter at a rate equal to the sum of the then fiveyear Government of Canada bond yield and 3.13%. The Series G Units are redeemable by Artis, at its option, on July 31, 2019 and on July 31 of every fifth year thereafter.

Holders of Series G Units will have the right to reclassify all or any part of their Series G Units as Cumulative Floating Rate Preferred Trust Units, Series H (the “Series H Units”), subject to certain conditions, on July 31, 2019 and on July 31 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement). Holders of Series H Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of January, April, July and October of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread of 3.13%.

DBRS Limited (“DBRS”) has assigned a provisional rating of Pfd-3 (low) to the Series G Units. The Financing is being made pursuant to the REIT’s base shelf prospectus dated June 15, 2012. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Financing is expected to close on or about July 29, 2013 and is subject to regulatory approval.

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters, led by RBC Capital Markets and Scotiabank, pursuant to which the underwriters have agreed to purchase from Pembina 8,000,000 cumulative redeemable rate reset class A preferred shares, series 1 (the “Series 1 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 1 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.0625 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 4.25 per cent per annum, for the initial fixed rate period to but excluding December 1, 2018. The first quarterly dividend payment date is scheduled for December 1, 2013. The dividend rate will reset on December 1, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.47 per cent. The Series 1 Preferred Shares are redeemable by Pembina, at its option, on December 1, 2018 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 1 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, series 2 (the “Series 2 Preferred Shares”), subject to certain conditions, on December 1, 2018 and on December 1 of every fifth year thereafter. The holders of Series 2 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 2.47 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 1 Preferred Shares at a price of $25.00 per share.

Proceeds from the offering will be used to partially fund capital projects, to reduce short-term indebtedness and for other general corporate purposes of the Company and its affiliates.

Closing of the offering is expected on July 26, 2013, subject to customary closing conditions.

Update, 2013-7-19: Provisionally rated Pfd-3 by DBRS

Rated Pfd-3 by DBRS.

Fortis Inc. has announced:

that it has entered into an agreement with a syndicate of underwriters led by TD Securities Inc., CIBC and Scotiabank, (collectively, the “Underwriters”), pursuant to which the Underwriters have agreed to purchase, on a bought deal basis, from Fortis and sell to the public 10,000,000 Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series K of the Corporation (the “Series K First Preference Shares”). The purchase price of $25.00 per Series K First Preference Share will result in gross proceeds for Fortis of $250 million.

Fortis has granted the Underwriters the option to purchase up to an additional 2,000,000 Series K First Preference Shares at the same offering price (the “Underwriters’ Option”). Should the Underwriters’ Option be fully exercised, the total gross proceeds of the offering will be $300 million.

The net proceeds of the offering will be used to repay a portion of borrowings under the Corporation’s $1 billion committed corporate credit facility, including amounts borrowed in connection with the redemption of the Corporation’s First Preference Shares, Series C, the construction of the Waneta Expansion and equity injections into certain of the Corporation’s subsidiaries, and for general corporate purposes.

The holders of Series K First Preference Shares will be entitled to receive fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Corporation (the “Board of Directors”), for the initial period commencing on the date of issue and ending on but excluding March 1, 2019 (the “Initial Period”) at a rate of 4.0%, in an amount equal to $1.00 per share per annum paid in equal quarterly instalments. The first of such dividends, if declared, will be payable on September 1, 2013 for the period commencing on the date of issue in the amount of $0.1233 per Series K First Preference Share, based on the anticipated closing of the offering on July 18, 2013. The dividend rate will be reset on March 1, 2019 and thereafter every five years at a level of 2.05% above the five-year Government of Canada Bond yield.

At the end of the Initial Period and every five years thereafter, the holders of Series K First Preference Shares will, subject to certain conditions and the right of the Corporation to redeem those shares, have the option to convert any or all of their Series K First Preference Shares into an equal number of Cumulative Redeemable Floating Rate First Preference Shares, Series L of the Corporation (the “Series L First Preference Shares”). The holders of Series L First Preference Shares will be entitled to receive floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors, at the rate of the three-month Government of Canada Treasury Bill average yield plus 2.05%, reset on a quarterly basis.

The offering is subject to the receipt of all necessary regulatory and stock exchange approvals.

The Break Even Rate Shock for this issue is 147bp – somewhat on the high side – given a Current Yield of 5.03% for the FTS PerpetualDiscounts (FTS.PR.J and FTS.PR.F), a yield spread of -1.03% and a term of 5.625 years.

Manulife Financial Corp has announced (although not yet on their website):

a Canadian public offering of Non-cumulative Rate Reset Class 1 Shares Series 13 (“Series 13 Preferred Shares”). Manulife will issue 8 million Series 13 Preferred Shares priced at $25 per share to raise gross proceeds of $200 million. The offering will be underwritten by a syndicate of investment dealers co-led by Scotia Capital Inc. and RBC Capital Markets and is anticipated to qualify as Tier 1 capital for Manulife. The expected closing date for the offering is June 21, 2013. Manulife intends to file a prospectus supplement to its July 18, 2012 base shelf prospectus in respect of this issue.

Holders of the Series 13 Preferred Shares will be entitled to receive a non-cumulative quarterly fixed dividend yielding 3.80 per cent annually, as and when declared by the Board of Directors of Manulife, for the initial period ending September 19, 2018. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.22 per cent.

Holders of Series 13 Preferred Shares will have the right, at their option, to convert their shares into Non-cumulative Rate Reset Class 1 Shares Series 14 (“Series 14 Preferred Shares”), subject to certain conditions, on September 19, 2018 and on September 19 every five years thereafter. Holders of the Series 14 Preferred Shares will be entitled to receive non-cumulative quarterly floating dividends, as and when declared by the Board of Directors of Manulife, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.22 per cent.

The net proceeds from the offering will be utilized for general corporate purposes, including future refinancing requirements.

“Our financing activities take into account future refinancing needs. We have taken the opportunity to issue preferred shares with favourable terms,” said Senior Executive Vice President and Chief Financial Officer, Steve Roder.

Birchcliff Energy has announced:

that in connection with its previously announced marketed offering of cumulative redeemable preferred shares, Series C (“Preferred Shares, Series C”), it has entered into an underwriting agreement with a syndicate of underwriters and has filed an amended and restated preliminary short form prospectus (the “Amended Preliminary Prospectus”), which amends and restates the Corporation’s preliminary short form prospectus dated May 28, 2013 (the “Preliminary Prospectus”).

The underwriting agreement provides for the sale of 2,000,000 Preferred Shares, Series C, with a 7% yield, at a price of $25.00 per Preferred Share, Series C, for gross proceeds of $50,000,000 (the “Offering”). Holders of the Preferred Shares, Series C will be entitled to receive, as and when declared by the Board of Directors, cumulative annual dividends of $1.75 per Preferred Share, Series C, payable quarterly. The Preferred Shares, Series C will not be redeemable by the Corporation prior to June 30, 2018 and will not be redeemable by the holders of the Preferred Shares, Series C prior to June 30, 2020, in accordance with their terms.

The Amended Preliminary Prospectus reflects the updated terms of the Offering and was filed by the Corporation on May 30, 2013 in all provinces of Canada, except Quebec. The Amended Preliminary Prospectus will be available on Birchcliff’s website at www.birchcliffenergy.com and on SEDAR at www.sedar.com.

The Offering is being conducted through a syndicate of underwriters co-led by National Bank Financial Inc., Cormark Securities Inc. and GMP Securities L.P., on their own behalf and on behalf of CIBC World Markets Inc., RBC Dominion Securities Inc., Scotia Capital Inc., HSBC Securities (Canada) Inc., Macquarie Capital Markets Canada Ltd., Peters & Co. Limited, Stifel Nicolaus Canada Inc. and Integral Wealth Securities Limited (collectively, the “Underwriters”).

Net proceeds of the Offering will be used to initially reduce indebtedness under the Corporation’s revolving credit facilities, which will be subsequently redrawn and applied as needed to fund the Corporation’s ongoing exploration and development programs and for general working capital purposes.

The Offering is scheduled to close on or about June 14, 2013 and is subject to certain conditions including, but not limited to, completion of a satisfactory due diligence investigation by the Underwriters and the receipt of all necessary third party and regulatory approvals, including the approval of the Toronto Stock Exchange.

According to the prospectus:

The Preferred Shares, Series C will not be redeemable by the Corporation prior to June 30, 2018. On and after June 30, 2018, the Corporation may, at its option, upon not less than 30 days and not more than 60 days prior written notice, redeem for cash, all or any number of the outstanding Preferred Shares, Series C at $25.75 per share if redeemed before June 30, 2019, at $25.50 per share if redeemed on or after June 30, 2019 but before June 30, 2020 and at $25.00 per share if redeemed on or after June 30, 2020 (each, a “Redemption Price”), in each case together with all accrued and unpaid dividends (less any tax required to be deducted or withheld by Birchcliff) to but excluding the date fixed for redemption. See “Details of the Offering”.

The Preferred Shares, Series C will not be redeemable by the holders thereof prior to June 30, 2020. On and after June 30, 2020, a holder of Preferred Shares, Series C may, at its option, upon not less than 30 days prior written notice to the Corporation (the “Notice of Redemption”), redeem for cash, all or any number of Preferred Shares, Series C held by such holder on the last day of March, June, September and December of each year at $25.00 per share (being the then applicable Redemption Price), together with all accrued and unpaid dividends (less any tax required to be deducted or withheld by Birchcliff) to but excluding the date fixed for redemption. Upon receipt of the Notice of Redemption, the Corporation may, at its option (subject, if required, to stock exchange approval), upon not less than 20 days prior written notice, elect to convert such Preferred Shares, Series C into common shares (“Common Shares”) of the Corporation. The number of Common Shares into which each Preferred Share, Series C may be so converted will be determined by dividing the amount of $25.00 (being the then applicable Redemption Price) together with all accrued and unpaid dividends to but excluding the date fixed for conversion, by the greater of $2.00 and 95% of the weighted average trading price of the Common Shares on the Toronto Stock Exchange (the “TSX”) for a period of 20 consecutive trading days ending on the fourth day prior to the date specified for conversion, or, if that fourth day is not a trading day, on the immediately preceding trading day (the “Current Market Price”). See “Details of the Offering”.

On and after June 30, 2018, the Corporation may, at its option (subject, if required, to stock exchange approval), upon not less than 30 and not more than 60 days prior written notice, convert all or any number of the outstanding Preferred Shares, Series C into Common Shares. The number of Common Shares into which each Preferred Share, Series C may be so converted will be determined by dividing the then applicable Redemption Price, together with all accrued and unpaid dividends to but excluding the date fixed for conversion, by the greater of $2.00 and 95% of the Current Market Price. See “Details of the Offering”.

Also in the prospectus is:

The Preferred Shares, Series C and the Common Shares are not rated by any credit rating agency.

As there is no rating, the issue will not be tracked by HIMIPref™. As has been previously explained, this is not because I worship the rating agencies, but because a credit rating is a newsworthy item; downgrades will attract public attention which may serve to focus the directors’ attention on improving the situation in bad times.

Update, 2014-4-19: Trades as BIR.PR.C