PrefBlog

Capital Power Corporation has announced:

that it will issue 5,000,000 Cumulative Rate Reset Preference Shares, Series 1 (the “Series 1 Shares”) at a price of $25 per Series 1 Share (the “Offering”) for aggregate gross proceeds of $125 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc. and RBC Capital Markets.

The Series 1 Shares will pay fixed cumulative dividends of $1.15 per share per annum, yielding 4.60% per annum, payable on the last day of March, June, September and December of each year, as and when declared by the board of directors of Capital Power, for the initial five-year period ending December 31, 2015. The first quarterly dividend of $0.3308 per share is expected to be paid on March 31, 2011. The dividend rate will be reset on December 31, 2015 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 2.17%. The Series 1 Shares are redeemable by Capital Power, at its option, on December 31, 2015 and on December 31 of every fifth year thereafter.

Holders of Series 1 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 2 (the “Series 2 Shares”), subject to certain conditions, on December 31, 2015 and on December 31 of every fifth year thereafter. Holders of Series 2 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 2.17%, as and when declared by the board of directors of Capital Power.

The Offering is expected to close on or about December 16, 2010. Net proceeds will be lent to Capital Power L.P. pursuant to a subordinated debt agreement. Capital Power L.P. will use the funds to repay a portion of the outstanding balance under its credit facilities which were used to fund the acquisition of Island Generation and for general corporate purposes.

Standard & Poor’s, a division of the McGraw Hill Companies, Inc. (“S&P”) has assigned a preliminary rating of P-3 (High) for the Series 1 Shares and DBRS Limited (“DBRS”) has assigned a rating of Pfd-3 (low) for the Series 1 Shares.

The Series 1 Shares will be issued pursuant to a short form prospectus that will be filed with securities regulatory authorities in Canada. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Looks expensive to me.

Update: DBRS assigns Pfd-3(low) rating:

Update, 2010-12-2: Note that CPX should be considered the same name as CZP for purposes of issuer concentration calculation, due to the close relationship between the companies:

CPI Income Services Ltd., the general partner of the Partnership (the General Partner), is responsible for management of the Partnership. The General Partner is a wholly-owned subsidiary of CPI Investments Inc. (Investments). EPCOR Utilities Inc. (collectively with its subsidiaries, EPCOR) owns 51 voting, non-participating shares of Investments and Capital Power Corporation (collectively with its subsidiaries, CPC) indirectly owns 49 voting, participating shares of Investments.
…
During the nine months ended September 30, 2010, the Partnership made cash distributions to CPC in the amount proportionate to its ownership interest. At September 30, 2010, CPC owned 29.8% of the Partnership’s units (30.6% at September 30, 2009).

and more specifically:

The Company’s power generation operations and assets are owned by Capital Power LP (CPLP), a subsidiary of the Company. At September 30, 2010, the Company held approximately 21.75 million general partnership units and one common limited partnership unit of CPLP which represented approximately 27.8% and zero %, respectively, of CPLP, and EPCOR held 56.625 million exchangeable limited partnership units of CPLP (exchangeable for common shares of Capital Power on a one-for-one basis) representing approximately 72.2% of CPLP. The general partner of CPLP is wholly-owned by Capital Power and EPCOR’s representation on the Board of Directors does not represent a controlling vote. Accordingly, Capital Power controls CPLP and the operations of CPLP have been consolidated for financial statement purposes.

The assets used in the operating business of the Company are primarily held through CPLP and its subsidiary entities. The interests held by the Company outside CPLP are not material to the Company’s consolidated operations, assets, liabilities and operating business or the Company’s consolidated financial statements and are primarily a consequence of the Company’s organizational structure.

It should also be noted that:

EPCOR, the power utility owned by the city of Edmonton, Alberta, plans to sell about $200 million (US$200 million) worth of stock in Capital Power Corp, a company it created through the spinoff of its generating assets in May last year.

Capital Power Corp and EPCOR said the offering would see 8,334,000 common shares of Capital Power sold at $24.00 each. The offering was to be handled by a syndicate of underwriters led by RBC Capital Markets and TD Securities Inc.

After the offering, EPCOR will indirectly own 61.6 percent of the common shares of Capital Power.

Underwriters have an option to purchase up to an additional 1,250,000 common shares at the price for further proceeds of about $30 million.

BAM Split Corp has announced:

that it has entered into an agreement to sell $110,000,000 principal amount of Class AA Preferred Shares, Series 5 (the “Series 5 Preferred Shares”), with an underwriters’ option to purchase an additional $15,000,000 principal amount of Series 5 Preferred Shares, to a syndicate of underwriters co-led by Scotia Capital Inc., CIBC World Markets Inc., RBC Capital Markets, and TD Securities Inc. on a bought deal basis. Closing of the offering is expected to occur on or about December 10, 2010. The Series 5 Preferred Shares will carry a fixed coupon of 4.85% and will have a final maturity of December 10, 2017. The Series 5 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS. The net proceeds of the offering will be used to pay a special cash dividend to holders of the Company’s Capital Shares.

BAM Split Corp. owns a portfolio consisting of 53,160,644 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the company’s Preferred Shares and to enable the holders of the company’s Capital Shares to participate in any capital appreciation of the Brookfield Shares.

As of the March 2010 Semi-annual report there were 14.713-million units outstanding, so the addition of 4.4-million new preferreds (which will presumably be accompanied by a split of the capital units) will dilute the NAV to about 77% of its October 31 value of $109.53, or $84.

Another way to state this is that there used to be 3.61 shares of BAM.A held per unit; now there will be 2.78.

So credit quality has declined, but is still very high.

The funny thing about this is that BNA.PR.C has not budged on the news. It closed Friday at 22.56-69 for a yield-to-worst of 5.87-79% to its scheduled maturity 2019-1-10. So, compared with the new issue, an investor can pick up more than a point of yield for a one-year term extension, which sounds pretty good to me! I will also point out that the tax on the capital gain component of BNA.PR.C’s yield is, of course, deferred …. and, should the company exercise its call right in the event of a takeover of BAM, there’s a lot more upside than in the new issue.

But, you see, the other funny thing about this is that BNA.PR.C pays a dividend of 1.0875 p.a., which means that the Current Yield (which, of course, ignores the capital gain on maturity) is 4.82%. I don’t think the coupon rate of 4.85% on the new issue is coincidental … I love this market!

CU Inc. has announced:

it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets and RBC Capital Markets, and including TD Securities Inc. The underwriters have agreed to buy 3,000,000 3.80% Cumulative Redeemable Preferred Shares Series 4 at a price of $25.00 per share for aggregate gross proceeds of $75,000,000. The Corporation intends to use the proceeds to purchase preferred shares to be issued by its wholly owned operating subsidiaries, ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd. It is expected that these subsidiaries will use the proceeds to fund a portion of their 2010 capital expenditure programs, to repay existing indebtedness, and for other general corporate purposes.

The Series 4 Preferred Shares will be issued to the public at a price of $25.00 per share and holders will be entitled to receive fixed cumulative preferential cash dividends, payable quarterly for an initial period of five years, as and when declared by the Board of Directors of the Corporation, at an annual rate of $0.95 per share, to yield 3.80% annually. Thereafter, the dividend rate will reset every five years to the then current 5-Year Government of Canada bond yield plus 1.36%. On June 1, 2016, and on June 1 of every fifth year thereafter, the Corporation may redeem the Series 4 Preferred Shares in whole or in part at par.

Holders may elect to convert any or all of their Series 4 Preferred Shares into an equal number of Cumulative Redeemable Preferred Shares Series 5 on June 1, 2016, and on June 1 of every fifth year thereafter. Holders of the Series 5 Preferred Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the board of directors, equal to the then current 3-month Government of Canada Treasury Bill yield plus 1.36%. On June 1, 2021, and on June 1 of every fifth year thereafter, the Corporation may redeem the Series 5 Preferred Shares in whole or in part at par. The Corporation may redeem the Series 5 Preferred Shares in whole or in part by the payment of $25.50 for each share to be redeemed in the case of redemption on any other date.

The offering is being made only in the provinces of Canada by means of a prospectus and the closing date of the issue is expected to be on or about December 2, 2010.

It is of interest to note that they issued long debs yesterday:

CU Inc. announced today that it will issue $125,000,000 of
4.947% Debentures maturing on November 18, 2050, at a price of $100.00 to yield 4.947%. This issue was sold by RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., and TD Securities Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd.

Update, 2010-11-19: Rated Pfd-2(high) by DBRS and debs rated A(high).

Great-West Lifeco has announced that it:

has today entered into an agreement with a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets, and Scotia Capital Inc. and including CIBC World Markets Inc., TD Securities Inc., National Bank Financial Inc. and Desjardins Securities Inc. under which the underwriters have agreed to buy, on a bought deal basis, 10,000,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) from Lifeco for sale to the public at a price of $25.00 per Series N Share, representing aggregate gross proceeds of $250 million.

Lifeco has granted the underwriters an option to purchase an additional 2 million Series N Shares at the offering price. Should the underwriters’ over-allotment option be fully exercised, the total gross proceeds of the Series N Share offering will be $300 million.

The Series N Shares will yield 3.65% per annum, payable quarterly, as and when declared by the Board of Directors of the Company, for an initial period ending December 31, 2015. On December 31, 2015 and on December 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 1.30%. Holders of the Series N Shares will have the right to convert their shares into Non-Cumulative Floating Rate First Preferred Shares, Series O of the Company (the “Series O Shares”), subject to certain conditions and the Company’s right to redeem the Series N Shares as described below, on December 31, 2015 and on December 31 every five years thereafter. Holders of the Series O Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of the Company, equal to the three-month Government of Canada Treasury Bill yield plus 1.30%. Holders of the Series O Shares may convert their Series O Shares into Series N Shares, subject to certain conditions and the Company’s right to redeem the Series O Shares as described below, on December 31, 2020 and on December 31 every five years thereafter.

The Series N Shares will not be redeemable prior to December 31, 2015. On December 31, 2015 and on December 31 every five years thereafter, the Company may, subject to certain conditions, redeem all or any part of the Series N Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends. The Company may redeem all or any part of the Series O Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends in the case of redemptions on December 31, 2020 and on December 31 every five years thereafter or $25.50 together with all declared and unpaid dividends in the case of redemptions on any other date after December 31, 2015.

The Series N Share offering is expected to close on November 23, 2010. The net proceeds will be used for general corporate purposes to augment Lifeco’s current liquidity position.

It’s very nice to see an investment-grade FixedReset with a current coupon! However, if we look at GWO’s PerpetualDiscounts as of Friday’s close:

We’ll throw out the data point for GWO.PR.H because only morons would choose to buy them given the other prices. So we’ll estimate an average YTW of 5.40% for GWO PerpetualDiscounts.

So we’ll plug the following into the Break Even Rate Shock Calculator: PD Yield 5.40%, FR Spread -1.75%, Term 5 Years and come up with a Break Even Rate Shock of 257bp, which seems pretty high.

Note that we can’t use GWO.PR.J as a comparable, because it has an Issue Reset Spread of 307bp and is therefore very likely to be called on its first exchange date, 2013-12-31. But for those who are interested, it was quoted at 27.75-99 on Friday, to yield 2.66-36% to call.

Update: Some entertaining commentary from the Globe:

Monday’s issue yields 3.65 per cent, a spread of 130 basis points over the 5-year Government of Canada bonds. In February, the company brought a series of preferred shares that yielded 5.8 per cent. That’s a 215 basis point gap, which new investors may not be aware of.
…
The difference likely stems from the types of preferred shares offered. The February issue, Series M, were non-cumulative preferred shares, while Monday’s issue, Series N, were non-cumulative rate reset preferred shares.

Brookfield Asset Management has announced:

that it has agreed to issue to a syndicate of underwriters led by CIBC, RBC Capital Markets, Scotia Capital Inc. and TD Securities Inc. for distribution to the public 8,000,000 Preferred Shares, Series 26. The Preferred Shares, Series 26 will be issued at a price of $25.00 per share, for aggregate gross proceeds of CDN$200,000,000. Holders of the Preferred Shares, Series 26 will be entitled to receive a cumulative quarterly fixed dividend yielding 4.50% annually for the initial period ending March 31, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.31%.

Holders of Preferred Shares, Series 26 will have the right, at their option, to convert their shares into cumulative Preferred Shares, Series 27, subject to certain conditions, on March 31, 2017 and on March 31 every five years thereafter. Holders of the Preferred Shares, Series 26 will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.31%.

Brookfield Asset Management Inc. has granted the underwriters an option, exercisable in whole or in part prior to closing, to purchase an additional 2,000,000 Preferred Shares, Series 26 at the same offering price. The Preferred Shares will be offered by way of prospectus supplement under the short form base shelf prospectus of Brookfield Asset Management Inc. dated January 12, 2009, as amended. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the issue will be added to the general funds of Brookfield Asset Management Inc. and be used for general corporate purposes.

Yesterday, BAM issued 10-year notes:

an offering of C$350 million of senior notes (unsecured) (“notes”) with a March 1, 2021 maturity and a yield of 5.3%.

The notes have been assigned a credit rating of Baa2 (stable outlook) by Moody’s; A- (negative outlook) by Standard & Poor’s; BBB (stable outlook) by Fitch; and A low (stable outlook) by DBRS.

The notes are being offered through a syndicate of agents led by CIBC World Markets Inc., RBC Capital Markets and TD Securities Inc.

The net proceeds of the issue will be used to refinance existing indebtedness and for general corporate purposes.

This comes on top of the recent BPO 5.15%+300 FixedReset and news that the group is selling a chunk of Brookfield Renewable Power Fund. So they’ve been active! I wonder if something is in the wind?

We can take a stab at valuing these things with the BreakEven Rate Shock Calculator … using values of 5.85% as the yield on BAM’s PerpetualDiscounts and a yield spread of -1.35% to the FixedReset initial rate, with a term to reset of 6.5 years we get a Break Even Rate Shock of 224bp … pretty hefty, but by no means recordbreaking.

Additionally, we can look at the BAM.PR.R 5.40%+230 FixedReset, which has its first reset date 2016-6-30, nine months before the new issue’s. Interestingly, the Issue Reset Spreads are virtually identical for these two issues, although the initial fixed rate is lower for the new issue. BAM.PR.R will pay 90bp p.a. less than the new issue until reset, or $0.225 p.a., and is trading at around 25.80. The new issue looks a little rich.

Update, 2010-11-15: BAM did an almost simultaneous bond deal:

Following a bunch of debt and equity financings by its some of its subsidiaries, Brookfield Asset Management Inc. (BAM.A-T30.350.130.43%) came to market this morning with a $200-million preferred share offering. The deal comes a day after BAM tapped debt markets for $350-million of 10-year senior unsecured notes that pay 5.3 per cent.

Brookfield Office Properties has announced:

that it has agreed to issue to a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotia Capital Inc. and TD Securities Inc., for distribution to the public, eight million Preferred Shares, Series P. The Preferred Shares, Series P will be issued at a price of C$25.00 per share, for aggregate proceeds of C$200 million. Holders of the Preferred Shares, Series P will be entitled to receive a cumulative quarterly fixed dividend yielding 5.15% annually for the initial 6 ½-year period ending March 31, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 3.00%.

Holders of Preferred Shares, Series P will have the right, at their option, to convert their shares into cumulative Preferred Shares, Series Q, subject to certain conditions, on March 31, 2017 and on March 31 every five years thereafter. Holders of Preferred Shares, Series Q will be entitled to receive cumulative quarterly floating dividends at a rate equal to the 90-day Government of Canada Treasury Bill yield plus 3.00%.

Brookfield Office Properties has granted the underwriters an option, exercisable in whole or in part anytime up to two business days prior to closing, to purchase an additional two million Preferred Shares, Series P at the same offering price. Should the option be fully exercised, the total gross proceeds of the financing will be C$250 million.

The Preferred Shares, Series P will be offered by way of a prospectus supplement to the short-form base shelf prospectus of Brookfield Office Properties dated December 15, 2009. The prospectus supplement will be filed with securities regulatory authorities in all provinces of Canada.

The net proceeds of the issue will be added to the general funds of Brookfield Office Properties and be used for general corporate purposes. The offering is expected to close on or about October 21, 2010.

Note that this issue has a long fixed-rate period of six and a half years; this allows BPO to use a GOC bond of longer term than normal to determine spread without compromising the issue structure (since they’re not a bank, they don’t have to worry about such things, but the underwriters are trying to keep things consistent).

This new issue joins two other BPO FixedResets:

Update, 2010-10-21: The issue was quickly upsized:

Brookfield Properties Corporation (“Brookfield Office Properties”) (BPO: NYSE, TSX) announced today that as a result of strong investor demand for its previously announced public offering of 5.15% Preferred Shares, Series P, it has agreed to increase the size of the offering from C$200 million to C$300 million with no underwriters’ option, or from 8.0 million to 12.0 million Preferred Shares, Series P. The offering was underwritten by a syndicate led by RBC Capital Markets, CIBC, Scotia Capital Inc. and TD Securities Inc.

Fairfax Financial Holdings Limited has announced:

that it will issue in Canada 8 million Preferred Shares, Series I at a price of $25.00 per share, for aggregate gross proceeds of $200 million, on a bought deal basis to a syndicate of Canadian underwriters.

Holders of the Preferred Shares, Series I will be entitled to receive a cumulative quarterly fixed dividend yielding 5.0% annually for the initial five year period ending December 31, 2015. 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 2.85%.

Holders of Preferred Shares, Series I will have the right, at their option, to convert their shares into Preferred Shares, Series J, subject to certain conditions, on December 31, 2015, and on December 31 every five years thereafter. Holders of the Preferred Shares, Series J 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 2.85%.

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

Fairfax intends to use the net proceeds of the offering to augment its cash position, to increase short term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations from time to time, and for general corporate purposes. The offering is expected to close on or about October 5, 2010.

Fairfax intends to file a prospectus supplement to its short form base shelf prospectus dated September 25, 2009, in respect of this offering with the applicable Canadian securities regulatory authorities. Details of this offering will be set out in the prospectus supplement, which will be available on the SEDAR website for the Company at www.sedar.com.

It is my understanding that the deal has been biggie-sized to $250-million, with a $50-million greenshoe. The junk just keeps coming!

Update: Fairfax has announced:

that as a result of strong investor demand for its previously announced offering of Preferred Shares, Series I, the size of the offering has been increased to 10 million shares. The aggregate gross proceeds will now be $250 million. The offering will be underwritten on a bought deal basis to a syndicate of Canadian underwriters.
…
Fairfax has granted the underwriters an option, exercisable in whole or in part at any time up to 9:00 am on the date that is two business days prior to the closing date, to purchase an additional 2 million Preferred Shares, Series I at the same offering price for additional gross proceeds of $50 million.

Innergex Renewable Energy Inc. has announced:

that it will be issuing 3,400,000 Cumulative Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) for aggregate gross proceeds of $85 million on a bought deal basis to a syndicate of underwriters led by BMO Capital Markets and TD Securities Inc.

The Series A Preferred Shares will pay cumulative dividends of $1.25 per share per annum, yielding 5.00% per annum, payable quarterly, for the initial five year period ending January 15, 2016. The dividend rate will be reset on January 15, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 2.79%. The Series A Preferred Shares will be redeemable by Innergex on or after January 15, 2016, in accordance with their terms.

Holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series B, (the “Series B Preferred Shares”) subject to certain conditions, on January 15, 2016 and on January 15 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.79%.

As stated by Michel Letellier, President and Chief Executive Officer of Innergex: “With this transaction, Innergex’s capital structure is more diversified and will appeal to a broader investor base”. Net proceeds resulting from the sale of the Series A Preferred Shares will be used by Innergex to enhance its financial flexibility, to reduce indebtedness and for general corporate purposes.

The Series A Preferred Shares will be offered for sale to the public in each of the provinces of Canada pursuant to a short form prospectus of Innergex to be filed with Canadian securities regulatory authorities in all Canadian provinces. The offering is scheduled to close on or about September 14, 2010, subject to certain conditions, including obtaining all necessary regulatory approvals.

Furthermore, Innergex will be filing a revised Annual Information Form which takes into account the previously completed combination of the Corporation with Innergex Power Income Fund.

Innergex Renewable Energy Inc. is a leading developer, owner and operator of run-of-river hydroelectric facilities and wind energy projects in North America. Innergex’s management team has been involved in the renewable power industry since 1990. Innergex owns a portfolio of projects which consists of: i) interests in 17 operating facilities with an aggregate net installed capacity of 326 MW; ii) interests in 7 projects under development with an aggregate net installed capacity of 203 MW for which power purchase agreements have been secured; and iii) prospective projects of more than 2,000 MW (net).

The issue is rated P-3 by S&P and Pfd-3(low) by DBRS. The first dividend, if declared, shall be payable on January 17, 2011, the first business day after January 15, 2011 for $0.42123 per Series A Preferred Share, based on closing September 14, 2010.

More junk!

Update: DBRS comments:

While the Company’s existing assets would be expected to produce reasonable financial results and credit metrics under a steady-state scenario, the capital program will require significant financing beyond internally generated cash flow, expected to consist largely of debt. Furthermore, DBRS expects that Innergex will maintain a high common dividend payout ratio (in excess of 100% of net income) throughout the medium term. As such, consolidated credit metrics are expected to remain tight for the rating category through the medium term, with EBITDA-to-interest in the area of 2.5 times (x) and cash flow-to-debt in the 8% to 10% range. DBRS would expect future modest improvement in coverage metrics when assets under development are completed and enter service. Debt-to-capital, currently 62%, would be expected to migrate upward over time, given the significant common dividends.

The proceeds from the intended $85 million preferred share offering will be used to refinance existing debt and to fund future capital expenditures. While the amount of preferred shares will comprise a material portion of the capital structure, particularly in relation to the book value of shareholders’ equity, DBRS is comfortable with the provisional Pfd-3 (low) rating given the stability of the underlying business (largely attributable to the young generating fleet and strong PPAs), as well as the significant financial cushion that the common dividends provide.

Eight of the Company’s 14 operating assets have non-recourse debt totalling approximately $320 million; while selective use of project financing can serve to isolate business risk at the individual asset level, the asset-level debt obligations rank ahead of Innergex’s obligations.

Update, 2010-9-8: DBRS has finalized the rating at Pfd-3(low) with a stable trend.

AltaGas has announced:

that it will issue 6,000,000 Cumulative Redeemable Five-Year Fixed Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) at a price of $25 per Series A Preferred Share (“the Offering”) for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, led by TD Securities Inc., RBC Capital Markets and CIBC World Markets Inc.

Holders of the Series A Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend for the initial period ending on but excluding September 30, 2015 (the “Initial Period”) at an annual rate of 5.00%, payable on the last day of March, June, September and December, as and when declared by the board of directors of AltaGas. The first quarterly dividend payment is payable on December 31, 2010 and shall be $0.4589 per Series A Preferred Share. The dividend rate will reset on September 30, 2015 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.66%. The Series A Preferred Shares are redeemable by AltaGas, at its option, on September 30, 2015 and on September 30 of every fifth year thereafter.

Holders of Series A Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”), subject to certain conditions, on September 30, 2015 and on September 30 of every fifth year thereafter. Holders of Series B Preferred Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 2.66%, as and when declared by the board of directors of AltaGas.

The Offering is expected to close on or about August 19, 2010. Net proceeds will be used to reduce outstanding indebtedness under AltaGas’ credit facilities, thereby strengthening AltaGas’ balance sheet and giving it the financial flexibility to support, among other things, construction activities related to the Forrest Kerr project.

The Series A Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under AltaGas’ short form base shelf prospectus dated July 15, 2010. An application has been made to list the Series A Preferred Shares on the Toronto Stock Exchange as of the closing date. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

More junk! This is rated Pfd-3 by DBRS and P-3 by S&P

Update: According to DBRS:

DBRS has today assigned a rating of Pfd-3 with a Stable trend to AltaGas Ltd.’s (AltaGas or the Company) $200 million Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series A (Series A Preferred Shares), with a dividend rate of 5.0% per annum, payable quarterly for the initial five-year period ending September 30, 2015. The dividend rate will reset on September 30, 2015, and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.66%. The Series A Preferred Shares are redeemable by AltaGas on September 30, 2015, and on September 30 every five years thereafter.

The Series A Preferred Shares are being issued under the Prospectus Supplement dated August 10, 2010 to the Short Form Base Shelf Prospectus dated July 15, 2010, and are expected to settle on August 19, 2010. The Series A Preferred Shares will rank equally with any future preferred shares of the Company and the net proceeds from the offering will be used for repayment of outstanding bank indebtedness and for general corporate purposes.

Update: Tim Kiladze of the Globe writes in AltaGas quenches retail investors’ thirst for yield:

With a 5 per cent coupon, investors got more than double the five-year Canada bond yield.

And they ate it up. There was such strong demand that lead manager TD Securities upsized the offering to $200-million. (RBC Dominion Securities and CIBC World Markets were co-leads.)

The deal serves as another reminder that retail investors typically can’t participate in corporate debt issues, so to them preferred shares and stocks/units with sustainable yields look very attractive right now.

Retail can’t usually participate directly in corporate debt issues, no. But there are plenty of good ETFs out there with low MERs that can.

Preferred shares … with sustainable yields look very attractive right now. Quite right; they do. Trouble is, this isn’t one of them. It’s callable at par September 30, 2015. This is A SHORT-TERM ISSUE, unless they get into serious trouble, in which case it will be a long term issue. In either case, calling the yield “sustainable” is, shall we say, something of a stretch.