PrefBlog

The Toronto-Dominion Bank has announced (although not yet on their website):

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 10 million Series 24 Shares at a price of $25.00 per share to raise gross proceeds of $250 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 24 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.

The Series 24 Shares will yield 5.10% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending July 31, 2024. Thereafter, the dividend rate will reset every five years at a level of 3.56% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on July 31, 2024 and on July 31 every 5 years thereafter, TD may redeem the Series 24 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 24 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares (NVCC), Series 25 (the “Series 25 Shares”), on July 31, 2024, and on July 31 every five years thereafter. Holders of the Series 25 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury Bill yield plus 3.56%.

The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

They later announced (not on their website either):

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”), the size of the offering has been increased to 18 million Series 24 Shares. The gross proceeds of the offering will now be $450 million. The offering will be underwritten by a group of underwriters led by TD Securities Inc.

The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

The new issue is somewhat expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair price of the new issue is 24.27.

It is most interesting to compare this issue with TD.PF.L, a FixedReset, 5.20%+327, that commenced trading 2019-1-28 after being announced 2019-01-17. Alert Assiduous Readers will have noticed that although the initial dividends of the two issues are similar, the spreads are 29bp different, which is significant. The fair price of TD.PF.L according to the analysis above is only 23.23, yet the issue was down only $0.17 on the day to close at 25.01-24 on volume of 109,265. I am reminded of the BCE.PR.K Ridiculous Rip-off Wrinkle, in which BCE was able to reopen the issue since – presumably – the initial coupon rate was in-line with the market even though the spread to the Canada 5-year for the re-opened portion was 87bp lower than it should have been.

So I guess TD’s happy enough with the pricing of this issue – after all, given that the calculated spread for a notional perpetual non-callable annuity is 346bp and the spread on the issue is 356bp. They didn’t quite get their call options for free, but close!

Canadian Imperial Bank of Commerce has announced:

that it had entered into an agreement with a group of underwriters led by CIBC Capital Markets for an issue of 10 million Basel III-compliant Non-cumulative Rate Reset Class A Preferred Shares Series 51 (Non-Viability Contingent Capital (NVCC)) (the “Series 51 Shares”) priced at $25.00 per Series 51 Share to raise gross proceeds of $250 million.

CIBC has granted the underwriters an option to purchase up to an additional 2 million Series 51 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.

The Series 51 Shares will yield 5.15% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending July 31, 2024. On July 31, 2024, and on July 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 3.62%.

Subject to regulatory approval and certain provisions of the Series 51 Shares, on July 31, 2024 and on July 31 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 51 Shares at par.

Subject to the right of redemption, holders of the Series 51 Shares will have the right to convert their shares into Non-cumulative Floating Rate Class A Preferred Shares Series 52 (Non-Viability Contingent Capital (NVCC)) (the “Series 52 Shares”), subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter. Holders of the Series 52 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 3.62%.

Holders of the Series 52 Shares may convert their Series 52 Shares into Series 51 Shares, subject to certain conditions, on July 31, 2029 and on July 31 every five years thereafter.

The expected closing date is June 4, 2019. CIBC will make an application to list the Series 51 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.

The new issue is somewhat expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair price of the new issue is 24.85, but alert Assiduous Readers will have noticed that the Implied Volatility plot is very peculiar, having twp expensive issues and four cheap ones, with the new issue being the sole occupant of No Man’s Land.

The two rich issues are:

• CM.PR.S, a FixedReset, 4.50%+245, NVCC-compliant issue that commenced trading 2018-1-18 after being announced 2018-1-10. It traded 5,790 shares today in a range of 20.20-32 before closing at 20.20-25.
• CM.PR.T, a FixedReset, 5.20%+331, NVCC-compliant issue that commenced trading 2019-1-22 after being announced 2019-1-14. It traded 18,075 shares today in a range of 24.98-12 before closing at 25.04-09.

The extremely perplexing issue is CM.PR.R, a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-5-25. It traded 44,632 shares today in a range of 22.66-80 before closing at 22.72-76.

I confess I don’t know quite what to make of this. It is common – normal, even – for a new issue to remain rich for quite some time, but I am at a loss to explain why CM.PR.S should remain rich after being on the market for sixteen months. CM.PR.R is just silly … but note that its current coupon is low relative to the new issue and it won’t reset until 2022-7-31 … three years, roughly, thirteen coupon payments, but that’s only a total of about $0.60 and doesn’t explain the differential with CM.PR.S anyway.

Fortunately, I don’t have to explain it! All I have to do is avoid buying the new issue and favour other, cheaper, choices for any allocation to CM that I care to make.