PrefBlog

Power Financial Corporation has announced:

that it has agreed to issue 8,000,000 Non-Cumulative First Preferred Shares, Series S (the “Series S Shares”) on a bought deal basis, for gross proceeds of $200 million. The Series S Shares will be priced at $25.00 per share and will carry an annual dividend yield of 4.80%. Closing is expected to occur on or about February 28, 2013. The issue will be underwritten by a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

Power Financial has also granted the underwriters an option to purchase an additional 2,000,000 Series S Shares at the same offering price. Should the underwriters’ option be exercised fully, the total gross proceeds of the Series S Share offering will be $250 million.

Proceeds from the issue will be used to acquire subscription receipts of Great-West Lifeco Inc. (“Lifeco”) exchangeable into common shares of Lifeco as part of the $1.25 billion offering of subscription receipts announced by Lifeco earlier today in connection with its proposed acquisition of Irish Life Group Limited and to supplement Power Financial’s financial resources.

The Irish Life Group acquisition was announced earlier today by Great-West Lifeco, which is controlled by PWF.

Both PWF and its subsidiary IGM are buying stock in GWO which will fund the acquisition:

Power Financial Corporation’s (TSX: PWF) subsidiary, Great-West Lifeco Inc. (“Lifeco”), today announced that it has reached an agreement with the Government of Ireland to acquire all of the shares of Irish Life Group Limited for $1.75 billion (€1.3 billion). Established in 1939, Irish Life is the largest life and pensions group and investment manager in Ireland. The acquisition is transformational for the Lifeco companies in Ireland. Lifeco achieves, with a single transaction, the leading position in life insurance, pensions and investment management, which is consistent with Lifeco’s global business strategy of developing significant market positions in the sectors where the company participates.

Lifeco also announced a $1.25 billion offering of subscription receipts exchangeable into common shares by way of a $650 million public bought deal offering as well as concurrent private placements of subscription receipts for an amount of $600 million.

Power Financial has agreed to purchase $550 million of Lifeco subscription receipts. Power Financial’s subsidiary IGM Financial Inc. has also agreed to purchase $50 million of Lifeco subscription receipts. Each subscription receipt will entitle the holder to receive one common share of Lifeco upon closing of the acquisition of Irish Life, without any action on the part of the holder and without payment of additional consideration. Power Financial and IGM Financial will complete the purchase of subscription receipts by private placements concurrently with the closing of the bought deal public offering of Lifeco’s subscription receipts. The public offering and private placements of subscription receipts will be made at the same price of $25.70 per subscription receipt. The public offering is conditional on closing of the private placement financings and the private placement financings are conditional on closing of the public offering; both closings are expected to occur on March 12, 2013 and are subject to TSX approval.

Should each of the public offering and private placement financings be completed and the subscription receipts converted into common shares of Lifeco, Power Financial will hold, directly and indirectly, a 69.4% economic interest in Lifeco.

Power Financial Corporation is a diversified management and holding company that has interests, directly or indirectly, in companies in the financial services sector in Canada, the United States and Europe. It also has substantial holdings in a diversified industrial group based in Europe. Power Financial Corporation is a member of the Power Corporation group of companies.

Update: Supersize me!

Power Financial Corporation (TSX: PWF) announced today that, due to strong demand, the Corporation has increased the size of its previously announced bought deal public offering to 12,000,000 Non-Cumulative First Preferred Shares, Series S (the “Series S Shares”), for gross proceeds of $300 million. The Series S Shares will be priced at $25.00 per share and will carry an annual dividend yield of 4.80%. Closing is expected to occur on or about February 28, 2013. The issue will be underwritten by a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and Scotiabank.

DBRS announced on February 6 that it:

has today assigned a provisional rating of Pfd-2 (low) to the Class A Preferred Shares, Series 1 (the Preferred Shares) to be issued by Global Champions Split Corp. (the Company). The Preferred Shares will be offered at an issue price of $25.00.

Net proceeds from the initial offering will be used to invest in a portfolio of common shares (the Portfolio) of 15 international large capitalization companies with a strong global presence. The majority of the Portfolio’s investments will be denominated in U.S. dollars, and any exposure to currencies other than the U.S. dollar is expected to be hedged back to the U.S. dollar. Dividends received on the Portfolio securities denominated in currencies other than the U.S. dollar may – but are not required to – be hedged back to the U.S. dollar.

The provisional rating is primarily based on the expected level of downside protection available to holders of the Preferred Shares (49.0%), the Preferred Share distribution coverage ratio (1.27 times), the credit quality of the underlying companies in the indicative Portfolio and disclosure included in the preliminary prospectus.

The assignment of final rating is subject to receipt by DBRS of final portfolio-related information that is consistent with the information DBRS has already reviewed and the settlement of material transaction documents in a manner acceptable to DBRS commensurate with the relevant rating level and in accordance with the applicable DBRS methodologies.

According to SEDAR, Global Champions Split Corp. filed a preliminary long-form prospectus on December 7 that makes rather interesting reading. It seems that all of the Capital Units will be held by the sponsor, BAM Investments, although the only committment made is that “BAM Investments will also acquire at least a majority of the Capital Shares to be issued in connection with the Offering of the Series 1 [Preferred] Shares under this prospectus.”

The ownership chain – as is usual for Brookfield – is rather complex

Brookfield Financial Corp. is wholly-owned by Brookfield Asset Management Inc. (“Brookfield”). Partners Limited together with its related company, BAM Investments Corp. (“BAM Investments”), collectively own 56,776,184 million Class A Limited Voting Shares and 85,120 Class B Limited Voting Shares, representing approximately 9.1% and 100% respectively, of each class of shares of Brookfield. BAM Investments owns all of the voting shares of the Company. Therefore the Company may be considered a related issuer to Brookfield Financial Corp. for purposes of applicable securities laws. The terms of the Offering were negotiated at arm’s length between the Company and the Agents. Brookfield Financial Corp. will not receive any benefit in connection with the Offering other than as described herein.

The “related issuer” part is considered to be of interest only because Brookfield Financial Corp. is one of the agents of the offering. Brookfield Asset Management (BAM) owns all of Brookfield Financial Corp, and:

BAM Investments is a publicly listed investment company.

Further, from the BAM Investments 2011 Annual Report:

BAM Investments Corp., (the “company”) is a leveraged investment company whose prinicipal investment is a direct and indirect ownership interest in 56.2 million Class A Limited Voting Shares (“Class A Shares”) of Brookfield Asset Management Inc.

So on the one hand, BAM Investments will be diversifying, which is good. On the other hand, it’s diversifying on a leveraged basis, which raises the potential for contagion: a sharp decline in the value of Global Champions could force BAM Investments to raise cash, which it can do only by selling its (leveraged) position in BAM.A.

Unfortunately, I have not been able to determine the source of funding for the BAM Investments proposed position in this new Global Champions venture.

Update, 2013-3-7:DBRS rates Pfd-2(low):

DBRS has today assigned a final rating of Pfd-2 (low) to the Class A Preferred Shares, Series 1 (the Preferred Shares) issued by Global Champions Split Corp. (the Company). The Company will issue a maximum of 2,300,000 Class A Preferred Shares at an issue price of $25.00 per Class A Preferred Share and an equal number of capital shares (the Capital Shares) in order to attain a leveraged split share structure. The redemption date for the Class A Preferred Shares will be on or about July 31, 2019.

Net proceeds from the initial offering will be used to invest in a portfolio of common shares of approximately 15 international large capitalization companies (the Portfolio). The Portfolio will initially be equally weighted and may be changed from time to time.
All of the Portfolio’s investments denominated in currencies other than the U.S. dollar (USD) are expected to be hedged back to USD. Dividends received on the Portfolio securities denominated in currencies other than USD may – but are not required to – be hedged back to USD. Distributions to holders of the Class A Preferred Shares are denominated in Canadian dollars and will be hedged back to USD unless the net asset value (NAV) of the Company is less than the aggregate original issue price of the Class A Preferred Shares.

The Portfolio provides initial downside protection of approximately 48.9% to holders of the Class A Preferred Shares. The Company will make quarterly fixed cumulative distributions of $0.25 per Class A Preferred Share to yield 4.00% per annum on the issue price. Based on the dividend yields on Portfolio and foreign exchange rates as of February 27, 2013, the initial dividend coverage ratio (net of expenses) is 1.2 times. Holders of the Capital Shares are expected to receive all excess income after Company expenses and Class A Preferred Share distributions have been paid.

The Pfd-2 (low) rating on the Class A Preferred Shares is primarily based on the downside protection and dividend coverage available to holders of the Preferred Shares, the credit quality of the underlying companies in the Portfolio and disclosure included in the final prospectus.