Category: New Issues

New Issues

New Issue: BMO 4.50% Perpetuals

The first week of the new year has started with a bang!

BMO has announced a bought deal for 14-million shares @ $25: these will be designated “Non-Cumulative Perpetual Class B Preferred Shares, Series 13”.

The anticipated closing date is January 17, 2007.

The redemption schedule is:

Redemption Schedule, BMO Ser 13
From To Price
2012-2-25 2013-2-24 $26.00
2013-2-25 2014-2-24 $25.75
2014-2-25 2015-2-24 $25.50
2015-2-25 2016-2-24 $25.25
2016-2-25 INFINITE DATE $25.00

More later.

Later, more:

Comparator Characteristics
Issue BNS.PR.K CM.PR.I RY.PR.D BMO.PR.? BNS.PR.?
Dividend 1.20 1.175 1.125 1.125 1.125
Quote 25.85-96 25.16-36 25.11-20 25.00 Issue 25.00 Issue
Redemption Schedule Start 2010-4-28 2012-1-31 2012-02-24 2012-2-25 2012-4-26
Price due to base-rate 24.25 24.07 23.45 23.38 23.37
Price due to short-term 0.03 0.04 0.03 0.03 0.03
Price due to long-term 0.49 0.49 0.48 0.46 0.46
Price due to error -0.01 0.02 -0.03 0.00 0.00
Price due to Credit Spread (Low) N/A -0.54 N/A N/A N/A
Intrinsic Curve Price 24.77 24.08 23.94 23.87 23.86
Price due to Liquidity 0.52 1.50 1.51 1.51? 1.51?
Curve Price 25.29 25.58 25.45 25.38? 25.37?
Yield-to-Worst (after Tax) 3.37% 3.66% 3.58% 3.58% 3.57%
Yield-to-Worst (Pre-Tax) 4.24% 4.61% 4.51% 4.50% 4.49%

So … the new issue looks like a good, but not great, purchase at the issue price.

Data Changes

BAM Split Corp.: New Issue 4.35% Retractibles

I have been advised of a new issue by the recently renamed BAM Split Corp. A press release is available via CCN Matthews.

This is a bought issue, with closing scheduled for January 10, 2007. Issue size is $200-million, very nice for a split-share corporation.

 Dividends are cumulative and quarterly, 4.35% p.a. on the par value of $25.00.

The embeddedOptions are:

BAM Split 4.35% Ret. Options
Redemption 2007-1-10 2016-1-9 $26.00
Redemption 2016-1-10 2017-1-9 $25.75
Redemption 2017-1-10 2018-1-9 $25.50
Redemption 2018-1-10 2019-1-9 $25.25
Maturity 2019-1-10 2019-1-10 $25.00

The first record date is projected to be February 22, 2007, for the first (short) dividend of $0.1460 payable March 7, 2007.

The material I have isn’t entirely clear, but it appears that the bought deal is conditional upon DBRS assigning a rating of Pfd-2 to the issue and reconfirming the Pfd-2 ratings outstanding on BNA.PR.A and BNA.PR.B

Update & Bump: The issue has been added to the HIMIPref™ database with a preIssue securityCode of P50009.

An analysis of curvePrice has been prepared, with some comparatives:

Curve Price Components using taxable Curve
Component BNA.PR.? PIC.PR.A LBS.PR.A
Price due to base-rate 24.02 15.80 10.53
Price due to short-term 0.04 0.12 0.03
Price due to long-term 0.81 0.38 0.34
Price to to Cumulative Dividends 0.00 0.00 0.00
Price due to SplitShareCorp -0.96 -0.22 -0.25
Price due to Retractibility 1.72 0.40 0.47
Price due to Credit Spread (2) -0.28 -0.06 -0.08
Price due to error 0.06 -0.00 -0.00
Price due to Credit Spread (High) 0.00 0.00 0.00
Price due to Credit Spread (Low) 0.00 0.00 0.00
Intrinsic Price 25.41 16.43 11.03
Price due to Liquidity ? 0.03 0.23
Curve Price ? 16.46 11.26
Quotation, 12/20 25.00 Issue 16.06-15 10.82-89
Yield-To-Worst (taxable) 3.45% 3.20% 3.20%
Modified Duration To Worst (taxable) 9.79 3.50 5.97
Yield-To-Worst (non-taxable)  4.34%  4.01% 4.03% 
Modified Duration To Worst (non-taxable)  9.38  3.45  5.81

The portfolio evaluation of the experimental SplitShare Index is here.

New Issues

Sentry Select 40 Split Income Trust : New issue of preferred securities

Sentry Select has just filed a prospectus for a new fund with some interesting twists.

The fund is based on Income Trusts and will turn into an open-ended mutual fund in two years. The preferred securities are non-callable and will mature in two years – or, to be precise, December 1, 2008 – from the expected closing date of January 5, 2007 … which is just in time to mop up some RRSP money!

The prefs will pay 5.25% and are provisionally rated Pfd-2(low) by DBRS. There will be no distribution to the capital units if this would leave the prefs with asset coverage of less than 1.5:1.

Not the worst issue I’ve ever seen in my life, but 5.25% sounds pretty skimpy compared with what’s already out there – see the current ‘Interest Bearing’ Index for comparisons. Trouble is, of course, there just plain ain’t that many preferred securities around any more, and somebody who wants to buy a hatful … through a full-service brokerage and paying commissions through the nose … might well be pleased to get a big fill.

Due to the short term-to-maturity on these things, I will not be adding them to the HIMIPref™ database – unless forced to do so by outraged hue-and-cry!

Data Changes

ASC.PR.A : Rights Offering and DBRS Upgrade

Here’s a switch!

AIC Global Financial Split Corp. has announced a rights offering, giving unit holders the opportunity to subscribe for additional units. Given that ASC (the capital units) closed at $16.25 today and ASC.PR.A closed at $10.52, it would appear that the offering should be successful and the company will issue additional units worth about $9.3-million.

The decision to issue more units makes all kinds of sense to me: the fund had total assets of only about $41-million as of the last annual report, dated 2005-12-31. Issuing more units should result in increased liquidity for the unitholders – not to mention increased fees for the manager!  It’s a cheap way to raise money for a split share fund, according to the prospectus disclosure of fees:

Proceeds from the Subscription for Units to the Company: Approximately $9,295,625 after deduction of expenses of the Offering estimated at $290,000 inclusive of all fees and commissions which could be payable by the Company pursuant to the Soliciting Dealer Group Agreement (as hereinafter defined) between the Company and National Bank Financial Inc. (the “Dealer Manager”) which provides that the Company will pay a fee of $100,000 to the Dealer Manager plus a subscription fee of $0.30 per Unit in respect of each subscription procured by a member of the Soliciting Dealer Group (as hereinafter defined). See “Soliciting Dealer Group”.

So AIC expects to receive $9,295,625 of the total $9,585,625 paid by the ultimate owners. In other words, they’re raising this money with an efficiency of 96.97%. We can compare this to the efficiency of the 5Banc reissue, where they expect to see $285,850,000 of the total $300-million, for an efficiency of 95.28%.

Equity analysts and other such good-for-nothing spendthrifts will doubtless pooh-pooh an efficiency increase of 1.69% absolute, but here in this blog we’re fixed income analysts and know better. Pennies Count! And when these pennies are left inside the company, they help our credit quality!

Just to make things more exciting, DBRS announced today that the credit rating of the ASC.PR.A has been increased to Pfd-2(high) from Pfd-2, which should help sales a bit. The prospectus claims that this occurred on November 28, 2006, but the DBRS press release is dated today, December 6. The prospectus itself is dated November 30, so it’s all rather mysterious. I regret to say I don’t know the DBRS policy on giving committments to issuers and making these committments public.

 The HIMIPref™ database has been updated with the new creditRatingDataRecord effective tomorrow, December 7, 2006.

More later.

Later, more : ASC.PR.A currently has an AFTER-TAX YTW of 3.34% based on a bid of $10.52 and a hardMaturity 2011-05-31 at $10.00. The curvePrice is $10.76 evaluated under the after-tax curve. The PRE-TAX bid-YTW is 4.19%.

Data Changes

Royal Bank New Issue: 4.5% Perp

Royal Bank has announced a new issue of 4.5% Perpetuals – I am advised that the redemption schedule commences 2012-2-24 at $26.00, but have not yet confirmed this.

This would not appear, at first blush, to be a particularly attractive issue considering the most obvious comparables. Reasonable, but not particularly attractive:

Recent RY Perpetuals
Issue Dividend Rate Quote 11/30
RY.PR.A 4.45% 24.98-00
RY.PR.B 4.70% 25.90-22
RY.PR.C 4.60% 25.35-37

More later.

Later, more:

Royal Bank Perpetuals
Analysis Using AFTER-TAX Curve (except as noted)
Curve price Component RY.PR.A RY.PR.B RY.PR.C RY.PR.W RY.PR.?
Price due to base-rate 23.12 23.91 23.69 24.44 23.29
Price due to short-term 0.04 0.05 0.05 0.04 0.05
Price due to long-term 0.56 0.59 0.57 0.61 0.54
Price to to Cumulative Dividends 0.00 0.00 0.00 0.00 0.00
Price due to Liquidity 1.46 1.50 1.49 0.66 1.49?
Price due to error -0.03 -0.03 -0.03 -0.02 -0.00
CurvePrice 25.16 26.01 25.77 25.74 25.36
Annual Dividend 1.1125 1.1750 1.1500 1.2250 1.1250
2006-12-01 Quote 25.00-08 25.90-09 25.40-50 26.45-52 Issue: $25.00
After-tax Bid YTW 3.55% 3.37% 3.54% 3.19% 3.58%
Pre-Tax Bid YTW 4.47% 4.24% 4.46% 4.01% 4.50%

 

Tax has been included in the calculation of the elements of the above table in accordance with the Ontario Highest Marginal Rate.

This issue has been added to the HIMIPref™ database on a preIssue basis with the securityCode P75000.

Data Changes

5Banc Split New Issue

The 5Banc Split Inc. new issue has been added to the HIMIPref™ database.

The anticipated closing date is 2006-12-15; it pays 4.75% as a cumulative dividend; it’s provisionally rated Pfd-2 by DBRS; and it’s a split share backed by … (wait for it) … five banks! BMO, BNS, CM, RY & TD are the portfolio shares.

I had a hard time deciding whether or not to include this issue in the database. It’s redeemable annually at the $10 issue price and I don’t like that. It means, for one thing, that the YTW will almost always be based on a call at the next annual date (assuming it trades at a premium, which, with a 4.75% dividend, seems likely for the forseeable future). I like the system whereby a declining schedule is put in place … like, f’rinstance, BSD.PR.A has. I’d be prepared to give up a little coupon for such a feature (how much? Consultancy can be easily arranged at a moderate fee).

In the end, I decided – sure, let’s include it. After all, it’s just replacing the FBS.PR.A and given that I expect a lot of redemptions over the next few years, I’d like to ensure I have a lot of issues with some history at all times, just to maintain continuity of the calculations.

The annual no-fee no-pain redemption feature for the capital units just creates a lot of churn (which may be the point, given that the selling commission is 3% on the prefs, 6% on the capital units.). This is a refinancing for 5Banc, with the old capital units eligible for tax-free conversion into the new capital units; the historical units outstanding have been:

5Banc Split Inc. Unit Activity
Date Units
2001-12-28 (Issue) +3,250,000
2002 -168,855
2003 -1,408,167
2004 -605,827
2005 -254,044
For Redemption 2006-12-15 813,107

The dividend is certainly attractive and the issue should go to a premium immediately after issue – and the underwriters are selling the prefs separately. The upside is limited by the very onerous redemption schedule, though, and I calculate a curvePrice of $10.26 (excluding liquidity considerations). One thing to remember about this kind of issue is that redemption will be driven by Capital Unitholders trying to cash in on the Next Big Thing – it will not necessarily have anything to do with prevailing interest rates. You could get redeemed (and receive the $10 par value) if rates are at 10% and the prefs are trading at $7.50. I can’t model that possibility though, and I wouldn’t count on it!

The preIssue securityCode for this issue is P50008.

New Issues

Brookfield Asset New Issue : Perp, 4.75%

I have been advised that there is a new issue contemplated: Brookfield Asset Management, 4.75%, Perpetual.

8-million shares at $25.00 : $200-million issue.

Closing Nov. 20, 2006

Options:

  • Redemption      2012-01-31      2013-01-30  26.000000
  • Redemption      2013-01-31      2014-01-30  25.750000
  • Redemption      2014-01-31      2015-01-30  25.500000
  • Redemption      2015-01-31      2016-01-30  25.250000
  • Redemption      2016-01-31   INFINITE DATE  25.000000

Initial reaction:

More or less fairly priced, if it stays highly liquid. Compare it with the WN.PR.E, which has the same coupon and credit rating; the call schedule commences 6 months earlier; and it closed last night at $24.98-04.

Comparison using “Taxable Curve”
Component of Curve Price BAM.PR.? WN.PR.E
Price due to base-rate 24.03 24.14
Price due to short-term 0.09 0.09
Price due to long-term 0.46 0.49
Price to to Cumulative Dividends 0.05 0.05
Price due to Credit Spread (2) -0.48 -0.52
Price due to Credit Spread (Low) -0.48 -0.52
Price due to error 0.00 0.06
Intrinsic Value 23.67 23.79
Price due to Liquidity 1.49? 1.49
Curve Price 25.16 25.28

Data Changes

New Issue : CIBC 4.7% Perp

Well, it didn’t take long for CIBC to replace the capital lost via the redemption of CM.PR.B! They announced a new issue (with a headline announcing a redemption!) that will close on November 15.

 Terms of the issue (Class A Series 31) are:

Dividend: Non-cumulative, 4.7% on $25.00 p.v. is $1.1750

Callable:

  • $26.00, 2012-1-31 – 2013-1-30
  • $25.75, 2013-1-31 – 2014-1-30
  • $25.50, 2014-1-31 – 2015-1-30
  • $25.25, 2015-1-31 – 2016-1-30
  • $25.00, 2016-1-31 +

DBRS: Pfd-1 (low)

S&P: P-1 (low)

There will be 16-million shares outstanding; underwriters have a greenshoe option for an additional 2-million shares. It’s a bought deal.

The terms of this issue make it a reasonably close match to CM.PR.H, issued 2005-3-10, paying $1.20, call schedule commencing 2001-3-30, closing 2006-11-3 at $25.80-89

  CM.PR.H New Issue
Base Rate 24.02 23.83
Price due to short-term 0.09 0.10
Price due to long-term 0.52 0.48
Price due to error 0.02 0.01
Price due to Credit Spread (Low) -0.54 -0.49
Intrinsic 24.11 23.93
Price due to Liquidity 1.58 1.58?
Total $25.69 $25.51?

Basically, the thing looks pretty good … priced to move! I’ll also note that it yields 10bp more (at issue) than the recently issued RY.PR.C, in terms of PRE-TAX DIVIDENDS, which is about right considering that the credit spread for “Low” is 11bp AFTER TAX.

This issue has been entered into HIMIPref™ with the temporary security code P50007.

New Issues

Royal Bank New Issue : 4.60% Perp

Royal Bank has announced a new issue of perpetual preferred shares, Series AC. The issue size is smaller than their previous issues, only 8 million shares ($200-million p.v.)

Pays $1.15 p.a., quarterly. Initial dividend (if declared) $0.362329 payable Feb 24, 2007, based on a closing date of Nov 1, 2006.

Redemption Schedule is:

  • Nov 24, 2011 – Nov 23, 2012 : $26.00
  • Nov 24, 2012 – Nov 23, 2013 : $25.75
  • Nov 24, 2013 – Nov 23, 2014 : $25.50
  • Nov 24, 2014 – Nov 23, 2015 : $25.25
  • On and after Nov 24, 2015 : $25.00

DBRS rates Royal preferreds as Pfd-1. The information I have indicates this issue is rated Pfd-1(low), but I suspect that this is a misprint – especially since there is at least one other obvious misprint in the term sheet I have.

I will calculate a preliminary valuation of these shares later today.

 Update : The new issue (in the table as RY.PR.?) looks quite reasonable:

Curve Price Components (Taxable Curve)
Issue RY.PR.A RY.PR.B RY.PR.?
Dividend $1.1125 $1.1750 $1.1500
Price due to base-rate 23.01 23.90 23.39
Price due to short-term 0.09 0.09 0.09
Price due to long-term 0.54 0.56 0.52
Price due to error -0.03 -0.03 0
Intrinsic Value 23.61 24.52 24.00
Liquidity 1.45 1.51 ~1.45
Total Value (rounding) 25.06 26.02 25.45
Data Changes

New Perpetual Issue : Sunlife 4.45%

I have just learned that Sunlife is coming out with a new issue of preferreds, Series 4.

They are perpetual and pay $1.1125 p.a. Closing is expected to be 2006-10-10.

The redemption schedule is:

  • Redemption      2011-12-31      2012-12-30  26.000000
  • Redemption      2012-12-31      2013-12-30  25.750000
  • Redemption      2013-12-31      2014-12-30  25.500000
  • Redemption      2014-12-31      2015-12-30  25.250000
  • Redemption      2015-12-31   INFINITE DATE  25.000000

If we compare this issue with

  • RY.PR.A, which has the same dividend and credit rating, and is perpetual with the call schedule starting seven months earlier
  • SLF.PR.C, which also has the same dividend, is perpetual and has the call schedule starting nine months earlier

, using the yield curve as derived for taxable clients:

  SLF.PR.? RY.PR.A SLF.PR.C
Price due to base-rate 22.69  22.77 22.70
Price due to short-term 0.08  0.08 0.08
Price due to long-term 0.58  0.61 0.62
Price due to error 0.01  -0.01 -0.01
Price due to Credit Spread (Low) -0.29  -0.31 -0.31
Intrinsic Curve Price 23.07  23.14 23.08
Price due to Liquidity  1.32 (?)  1.32 1.32
Total Curve Price  24.39 (?)  24.46 24.40
Closing Quote, 2006-09-28 N/A 24.93-94 24.65-79

Well, I’m going to reserve judgement until I’ve received the prospectus! But this doesn’t look like a very attractive issue at all, given that even after allowing over $1.00 for the privilege of trading a million shares at a time it STILL looks over-valued at the issue price of $25.

Once I’ve seen a prospectus I’ll be issuing a press release. The issue has been added to the HIMIPref™ database and full pre-issue analytics are available to subscribers.