TransCanada Corporation has announced:
it will issue 12,000,0000 cumulative redeemable first preferred shares, series 1 (the “Series 1 Preferred Shares”) at a price of $25.00 per share, for aggregate gross proceeds of $300 million on a bought deal basis to a syndicate of underwriters in Canada led by Scotia Capital Inc., and RBC Capital Markets.
The holders of Series 1 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.15 per share, payable quarterly, as and when declared by the board of directors of TransCanada, yielding 4.6% per annum, for the initial five-year period ending December 31, 2014 with the first dividend payment date scheduled for December 31, 2009. The dividend rate will reset on December 31, 2014 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 1.92%. The Series 1 Preferred Shares are redeemable by TransCanada on or after December 31, 2014.
The holders of Series 1 Preferred Shares will have the right to convert their shares into cumulative redeemable first preferred shares, series 2 (the “Series 2 Preferred Shares”), subject to certain conditions, on December 31, 2014 and on December 31 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 TransCanada, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate and 1.92%.
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 2,000,000 Series 1 Preferred Shares at a price of $25.00 per share.
The anticipated closing date is September 30, 2009. The net proceeds of the offering will be used to partially fund capital projects, for other general corporate purposes and to re-pay short term indebtedness of TransCanada and its affiliates.
The Series 1 Preferred Shares will be offered to the public in Canada pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under TransCanada’s short form base shelf prospectus dated September 21, 2009. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The initial dividend will be payable 2009-12-31 for $0.2899, based on a September 30 closing.
The existing TRP straight perpetuals, TRP.PR.X and TRP.PR.Y, closed yesterday very near par to yield about 5.63%; the Break-Even Rate Shock on this issue is therefore 145bp, a fairly high figure. The analytical concept of Break-Even Rate Shock was introduced in the June PrefLetter; the next edition of Canadian Moneysaver will contain a briefer exposition of the technique.
I am advised that this issue has flown off the shelves and the books are closed, which brings with it the prospect of another flurry of new issues. This leads to interesting possibilities for future issuance and analysis … with the bank issues that reset at spreads of 300bp+, one might reasonably (rather aggressively, too aggressively according to me, but reasonably) have made the assumption that a call at the first reset date was a certainty. At +192bp for an issue of this credit quality, the future is somewhat murkier.
Update: “Flew off the shelves” was a bit of an understatement … TRP has announced that the customers wanted to supersize their orders:
TransCanada Corporation (TransCanada) today announced that as a result of strong investor demand for its domestic public offering of cumulative redeemable first preferred shares, series 1 (the “Series 1 Preferred Shares”), the size of the offering has been increased to a total of 22 million shares. The gross proceeds of the offering will now be $550 million.
There will not be an underwriters option, as was previously granted. The syndicate of underwriters is led by Scotia Capital Inc., and RBC Capital Markets. The anticipated closing date is September 30, 2009.
It should be noted that the TCA.PR.X and TCA.PR.Y issues referenced above are issued by the TransCanada Pipelines subsidiary, with all the usual complexities of determining relative credit quality (diversification vs. proximity to the money). The TransCanada 2008 Annual Report notes:
TransCanada’s issuer rating assigned by Moody’s Investors Service (Moody’s) is Baa1 with a stable outlook. TransCanada PipeLines Limited’s (TCPL) senior unsecured debt is rated A with a stable outlook by DBRS, A3 with a stable outlook by Moody’s, and A- with a stable outlook by Standard and Poor’s.