PrefBlog

Element Financial Corporation has announced (emphasis added):

that it plans to sell, on a bought deal basis, pursuant to a supplement to Element’s Base Shelf Prospectus dated December 6, 2013, an aggregate of 3,000,000 Cumulative 5-year Rate Reset Preferred Shares, Series C of Element (the “Series C Preferred Shares”) at a price of $25.00 per Series C Preferred Share for gross proceeds of $75 million (the “Offering”) to a syndicate of underwriters co-led by GMP Securities L.P, National Bank Financial Inc., BMO Nesbitt Burns Inc., CIBC World Markets, RBC Capital Markets, and TD Securities Inc. and including Desjardins Securities Inc., Raymond James Ltd. and Manulife Securities Inc. (collectively, the “Underwriters”).

“Our initial preferred share offering last December allowed Element to establish our access to this funding option, which is non-dilutive to our common shareholders,” noted Steven K. Hudson, Element’s Chairman and CEO. “Early in the year we are already seeing exceptionally strong organic growth across all of our origination platforms and the five-year rate reset feature of these securities makes it ideally suited as a matched funding source for these platforms, including our recently announced strategic alliance with Trinity Industries. This second preferred share transaction allows us to respond to the investor demand that emerged in response to our initial offering, add further diversification to our funding sources and provide Element with access to capital that is not dilutive over 2014 to our common shareholders,” added Mr. Hudson.

Holders of the Series C Preferred Shares will be entitled, as and when declared by the Board of Directors of the Company, to receive a cumulative quarterly fixed dividend for the initial five-year period ending June 30, 2019 of 6.50% per annum. Thereafter, the dividend rate will reset every five years to an annual dividend rate equal to the 5-Year Government of Canada Bond Yield as quoted on Bloomberg on the 30th day prior to the first day of the relevant subsequent five year fixed rate period plus 4.81%. Holders of the Series C Preferred Shares will have the right to convert their shares into Cumulative Floating Rate Preferred Shares, Series D of the Company (the “Floating Rate Series D Preferred Shares”), subject to certain conditions and the Company’s right to redeem the Series C Preferred Shares, on June 30, 2019 and on June 30 every five years thereafter.

Holders of the Floating Rate Series D Preferred 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 then current three-month Government of Canada Treasury Bill yield plus 4.81%. Holders of the Floating Rate Series D Preferred Shares may convert their Floating Rate Series D Preferred Shares into Series C Preferred Shares, subject to certain conditions and the Company’s right to redeem the Floating Rate Series D Preferred Shares, on June 30, 2024 and on June 30 every five years thereafter. The Series C Preferred Shares will not be rated.

The Company has granted to the Underwriters an option (the “Over-Allotment Option”), which may be exercised at any time for a period of 30 days following the closing of the Offering, to purchase at the issue price an additional 450,000 Series C Preferred Shares for additional gross proceeds of up to $11.25 million. In the event that the Over-Allotment Option is exercised in its entirety, the aggregate gross proceeds of the Offering will be approximately $86.25 million.

The proceeds of the Offering, including any proceeds from the exercise of the Over-Allotment Option, will be used to originate and finance, directly or indirectly, finance assets as well as for general corporate purposes. The Offering is expected to close on March 7, 2014 and is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals including the approval of the Toronto Stock Exchange.

They later announced:

that it has amended the terms of its previously announced bought deal offering of Cumulative 5-Year Rate Reset Preferred Shares, Series C of Element (“Series C Preferred Shares”) to increase the size of such offering to $125.0 million (the “Offering”).

Under the amended terms of the Offering, a syndicate of underwriters co-led by GMP Securities L.P, National Bank Financial Inc., BMO Capital Markets, CIBC World Markets, RBC Capital Markets and TD Securities Inc. and including Desjardins Securities Inc., Raymond James Ltd. and Manulife Securities Inc. (collectively, the “Underwriters”) have agreed to purchase, on a bought deal basis, an aggregate of 5,000,000 Series C Preferred Shares at a price of $25.00 per Series C Preferred Share for total gross proceeds of $125.0 million.

This issue will not be tracked by HIMIPref™ due to the lack of a credit rating. As I explain every time this comes up, this is not because I worship the Credit Rating Agencies, but because a downgrade (or simply a threat of one) from a major agency can help to focus the minds of management and directors.

Element Financial was last mentioned on PrefBlog when they issued a FixedReset, 6.60%+471 in December 2013. That issue, EFN.PR.A, closed at 25.25 today.

Algonquin Power & Utilities Corp. has announced:

that it will issue 4 million cumulative rate reset preferred shares, Series D (the “Series D Shares”) at a price of $25.00 per share, for aggregate gross proceeds of $100 million, on a bought deal basis to a syndicate of underwriters in Canada led by CIBC and TD Securities Inc.

The holders of the Series D Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.25 per share, payable quarterly, as and when declared by the board of directors of APUC. The Series D Shares will yield 5.00% per cent annually, for the initial period ending on March 31, 2019. The first of such dividends, if declared, shall be payable on June 30, 2014, and shall be $0.4007 per Series D Share, based on the anticipated closing of the offering on March 5, 2014. The dividend rate will be 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 3.28%. The Series D Shares are redeemable by APUC, at its option, on March 31, 2019 and on March 31 of every five years thereafter.

The holders of Series D Shares will have the option to convert all or any of their Series D Shares into Cumulative Floating Rate Preferred Shares, Series E (the “Series E Shares”) of APUC on the basis of one Series E Share for each Series D Share converted, subject to certain conditions, on March 31, 2019 and on March 31 every five years thereafter. The holders of the Series E Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the board of directors of APUC, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.28%.

The net proceeds of the offering will be used to partially finance certain of APUC’s previously disclosed growth opportunities, reduce amounts outstanding on APUC’s credit facilities and for general corporate purposes.

The Series D Shares will be offered to the public in Canada by way of a supplement to APUC’s short form base shelf prospectus dated February 18, 2014.

Not much of a new issue concession here! AQN.PR.A has an Issue Reset Spread of 294bp, which implies a future dividend yield of 4.64%, or $1.16 p.a. given a current five-year Canada rate of 1.70%. It’s trading at about $22.50, for a ‘future Current Yield’ of 5.16%, which is about 20bp MORE than the new issue … and the new issue has greater negative convexity, too.

I say this issue is expensive.