PrefBlog

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets and Scotiabank (together, the “Underwriters”) pursuant to which the Underwriters have agreed to purchase from Pembina 6,000,000 cumulative redeemable minimum rate reset class A preferred shares, Series 13 (the “Series 13 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 13 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.4375 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 5.75 percent per annum, for the initial fixed rate period to but excluding June 1, 2021. The first quarterly dividend payment date is scheduled for September 1, 2016. The dividend rate will reset on June 1, 2021 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 4.96 percent, provided that, in any event, such rate shall not be less than 5.75 percent per annum. The Series 13 Preferred Shares are redeemable by Pembina, at its option, on June 1, 2021 and on June 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 13 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, Series 14 (the “Series 14 Preferred Shares”), subject to certain conditions, on June 1, 2021 and on June 1 of every fifth year thereafter. The holders of Series 14 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 4.96 percent.

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 13 Preferred Shares at a price of $25.00 per share.

Closing of the offering is expected on April 27, 2016, subject to customary closing conditions.

The Company intends to use the net proceeds from the offering of Series 13 Preferred Shares for capital expenditures and working capital requirements in connection with the Company’s 2016 capital program and to reduce indebtedness under the Company’s credit facilities.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Company on March 18, 2015 in each of the provinces of Canada.

They later announced:

that as a result of strong investor demand for its previously announced offering of cumulative redeemable minimum rate reset class A preferred shares, Series 13 (the “Series 13 Preferred Shares”), the size of the offering has been increased to 10,000,000 Series 13 Preferred Shares, for aggregate gross proceeds of $250 million. The offering no longer includes the previously granted underwriters’ option. The syndicate of underwriters is being co-led by RBC Capital Markets and Scotiabank.

No prizes will be awarded for noticing that this issue is very similar to PPL.PR.K, a FixedReset, 5.75%+500M575, that commenced trading 2016-1-15 after being announced 2016-1-6. PPL.PR.K closed today at 25.36-65, 12×10, so this new issue looks to have a decent concession in it.

Implied Volatility analysis reveals that the issue is reasonably priced against the curve, but that the curve has a very high implied volatility:

Click for Big

Thus, as has often been the case lately – if you believe that the current level of spreads to GOC-5 is unnaturally high and will decline, you’ll buy the lower-spread issues, to capture the capital gain on narrowing. If you believe that current conditions are the new normal, you’ll buy the new issue, to avoid losses when implied volatility declines and the curve flattens.

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners, has announced:

that it has agreed to issue to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank, for distribution to the public, six million Cumulative Minimum Rate Reset Class AAA Preference Shares, Series CC (the “Preferred Shares, Series CC”). The Preferred Shares, Series CC will be issued at a price of C$25.00 per share, for aggregate proceeds of C$150 million. Holders of the Preferred Shares, Series CC will be entitled to receive a cumulative quarterly fixed dividend yielding 6.00% annually for the initial period ending June 30, 2021. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of (i) the five-year Government of Canada bond yield plus 5.18% and (ii) 6.00%.

Holders of Preferred Shares, Series CC will have the right, at their option, to convert their shares into Cumulative Floating Rate Class AAA Preference Shares, Series DD (the “Preferred Shares, Series DD”), subject to certain conditions, on June 30, 2021 and on June 30 every five years thereafter. Holders of Preferred Shares, Series DD will be entitled to receive cumulative quarterly floating dividends at a rate equal to the 90-day Government of Canada Treasury Bill yield plus 5.18%.

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 2,000,000 Preferred Shares, Series CC at the same offering price. Should the option be fully exercised, the total gross proceeds of the financing will be C$200 million.

The Preferred Shares, Series CC will be offered in all provinces of Canada by way of a supplement to Brookfield Office Properties’ existing Canadian short form base shelf prospectus dated November 13, 2014.

The net proceeds of the issue will be used for general corporate purposes which may include the redemption of existing preferred shares. The offering is expected to close on or about April 27, 2016.

Implied Volatility analysis tells a rather peculiar tale:

Click for Big

The Implied Volatility is extremely low, which is particularly surprising in light of the fact that calculations for most other series result in a value that is extremely high. This suggests that lower-spread issues should be favoured. The very wide range of Expected Future Current Yield is also surprising – BPO.PR.N resets at +307 on 2016-6-30, which implies a dividend rate of 3.84% at the current level of GOC-5, which is an annual rate of $0.96, which, based on its current bid price of $15.00, implies an Expected Future Current Yield of 6.40%, well in excess of the new offering.

TransCanada Corporation has announced:

that it will issue 12 million cumulative redeemable minimum rate reset first preferred shares, series 13 (the “Series 13 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 co-led by TD Securities Inc., BMO Capital Markets and Scotiabank.

The holders of Series 13 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.375 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 13 Preferred Shares will yield 5.50 per cent per annum for the initial fixed rate period ending May 31, 2021 with the first dividend payment date scheduled for May 31, 2016. The dividend rate will reset on May 31, 2021 and on the last business day of May in every fifth year thereafter to a rate equal to the sum of the then five-year Government of Canada bond yield plus 4.69 per cent, provided that, in any event, such rate shall not be less than 5.50 per cent per annum. The Series 13 Preferred Shares are redeemable by TransCanada, at its option, on May 31, 2021 and on the last business day of May in every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 13 Preferred Shares will have the right to convert their shares into cumulative redeemable first preferred shares, series 14 (the “Series 14 Preferred Shares”), subject to certain conditions, on May 31, 2021 and on the last business day of May in every fifth year thereafter. The holders of Series 14 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 4.69 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 13 Preferred Shares at a price of $25.00 per share.

The anticipated closing date is April 20, 2016. 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.

The Series 13 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 December 23, 2015. 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.

They later announced:

that as a result of strong investor demand for its previously announced offering of cumulative redeemable minimum rate reset first preferred shares, series 13 (the “Series 13 Preferred Shares”), the size of the offering has been increased to 20 million shares. The offering no longer includes the previously granted underwriters’ option. The aggregate gross proceeds of the offering will now be $500 million. The syndicate of underwriters is co-led by TD Securities Inc., BMO Capital Markets and Scotiabank.

Note that (as pointed out by Assiduous Reader FletcherLynd) the company is on Review-Developing by DBRS and Outlook-Negative by S&P.

Implied Volatility analysis must be taken with a grain of salt since the Issue Reset Spread for the new issue (469bp) is so much higher than that of the previous high for this issuer (TRP.PR.G, +296). In addition, this is the first TRP issue with a floor on the reset rate.

However, the fit is reasonable and the Implied Volatility, while very high, is in line with other series:

Click for Big

So on the one hand, it’s a decent (although not especially good) fit. On the other hand, the Implied Volatility is unreasonably high (I would expect that the long term value for implied volatility would be in the high single-digits). So it boils down to what we’ve been seeing a lot of lately: if you believe that current conditions are the new normal, you’ll like the new issue. If you believe that Market Reset Spreads are currently elevated, you like the lower-spread issues.