PrefBlog

Capital Power Corporation has announced:

that it has priced a public offering (the “Offering”) in Canada of C$350 million 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 1, due September 9, 2082 (the “Notes”).

The Offering is expected to close on or about September 9, 2022. The Company intends to allocate an amount equal to the net proceeds from the sale of the Notes to finance or refinance new or existing “green” investments that meet the eligibility criteria as described in the Company’s Green Financing Framework. Pending such allocation, the Company expects to use the net proceeds from the sale of the Notes to redeem the Company’s outstanding Cumulative Minimum Rate Reset Preference Shares, Series 9 (TSX: CPX.PR.I) (the “Preferred Shares”), to repay certain amounts drawn on the Company’s credit facilities and for general corporate purposes. Although the Company intends to allocate an amount equal to the net proceeds of the Offering to eligible investments, it will not be an event of default under the Company’s indenture governing the Notes if the Company fails to do so.

The Offering represents the Company’s first green bond offering pursuant to its recently released Green Financing Framework, which Sustainalytics reviewed and provided a second-party opinion confirming its credibility. The Green Financing Framework and the second-party opinion from Sustainalytics can be found on the Company’s website.

The Notes have been assigned a provisional rating of BB by S&P Global Ratings and BB by DBRS Limited.

The Offering is being made in Canada through a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets, and Scotia Capital, under Capital Power’s short form base shelf prospectus dated June 10, 2022, as supplemented by a prospectus supplement dated August 18, 2022 to be filed with the securities regulatory authorities in each of the provinces and territories of Canada. The short form base shelf prospectus and prospectus supplement contain important detailed information about the Notes. Copies of these documents are, and in the case of the prospectus supplement, will be available electronically on the System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators (“SEDAR”), at www.sedar.com. Investors should read the short form base shelf prospectus and the prospectus supplement before making an investment decision.

DBRS comments:

DBRS Limited (DBRS Morningstar) assigned a provisional rating of BB with a Stable trend to the $350 million Fixed-to-Fixed Rate Subordinated Notes, Series 1 due September 9, 2082 (the Subordinated Notes), to be issued by Capital Power Corporation (the Company).

The Company intends to allocate an amount equal to the net proceeds from the sale of the Subordinated Notes to finance or refinance new or existing investments and expenditures that meet the eligibility criteria as described in its Green Financing Framework. Pending such allocation, the Company expects to use the net proceeds to redeem the Company’s outstanding Cumulative Minimum Rate Reset Preference Shares, Series 9, to repay certain amounts drawn on the Company’s credit facilities and for general corporate purposes.

CPX.PR.I is a FixedReset, 5.75%+412M575, that commenced trading 2017-8-9 after being announced 2017-7-27. The issue has been tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

Brompton Group has announced:

Brompton Oil Split Corp. (the “Fund”) is pleased to announce that the board of directors has approved an extension of the maturity date of the Class A and Preferred shares of the Fund. The current maturity date of March 30, 2023 will be extended for an additional period of one to three years. The new term and the proposed rate for the preferred share dividend for the new term will be announced at least 60 days prior to the current March 30, 2023 maturity date. The preferred share dividend rate for the extended term will be based on market yields for preferred shares with similar terms at that time. The extension of the term of the Fund is not expected to be a taxable event.

The Fund invests in a portfolio of equity securities of large capitalization North American oil and gas issuers, primarily focused on those with significant exposure to oil.

OSP.PR.A is the preferred part of a Split Share Corporation that commenced trading 2015-2-24 after being announced 2015-2-9. It ran into problems in 2019 but announced an extension anyway. Problems worsened by late 2019 and by the time extension details were published the fund’s NAVPU only just covered the preferred share obligation. The fund then suffered a 75% retraction of preferred shares. The fund’s NAVPU is now 12.78 amidst an uncertain future for oil prices, so we could well see further excitement at the next retraction date.

Thanks to Assiduous Reader RAV4guy for bringing this to my attention!

BCE Inc. has announced:

BCE Inc. will, on September 1, 2022, continue to have Cumulative Redeemable First Preferred Shares, Series AA (“Series AA Preferred Shares”) outstanding if, following the end of the conversion period on August 22, 2022, BCE Inc. determines that at least 2,500,000 Series AA Preferred Shares would remain outstanding. In such a case, as of September 1, 2022, the Series AA Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 4.94%.

BCE.PR.A is a FixedFloater that was issued with a 5.45% coupon in 2002 and reset to 4.80% in 2007; about half were converted to the RatchetRate BCE.PR.B.. It then reset to 3.45% in 2012 and there was a small net conversion back to the FixedFloater. It reset to 3.61% in 2017 and there was a 6% net conversion in the FixedFloater. Notice of extension in 2022 was announced previously.

BCE.PR.B is a RatchetRate preferred that is interconvertible with BCE.PR.A every five years.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g. BCE.PR.A and BCE.PR.B). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market seems to love the RatchetRate issues, with most BCE pairs trading with breakeven yields well in excess of the current 4.70% Prime Rate – exceptions are BCE.PR.T / BCE.PR.S (3.13%), BCE.PR.A / BCE.PR.B (4.93%) and BCE.PR.C / BCE.PR.D (4.45%). The average breakeven prime rate for the BCE pairs (without including the BCE.PR.T / BCE.PR.S outlier) is 5.65%.

If we plug in the current bid price of the the BCE.PR.A FixedFloater, we may construct the following table showing consistent prices for BCE.PR.B following the expiration of the conversion privilege given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that RatchetRate issue, BCE.PR.B, is likely to trade above the price of its FixedFloater counterpart, BCE.PR.A. Therefore, I recommend that holders of BCE.PR.A tender for conversion to BCE.PR.B. It may then be possible, for holders for whom portfolio considerations make the FixedFloater preferable, to swap back in the market with a good take-out in price. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue after the conversion period has elapsed and that the relative pricing of the two new pairs will reflect these conditions.

One important consideration that must be given particular attention for this pair of issues is: do you want to hold either one? Other BCE RatchetRate preferreds are trading in the 18.30-40 range, well below the 19.30 bid for BCE.PR.B; whatever one might think of fixed rates in general, or the BCE.PR.A fixed rate in particular, one RatchetRate is pretty much like another – suggesting that the current market price of both elements of this pair have been elevated by the excitement of a reset and conversion.

Those who wish to convert are advised that the deadline for notifying the company of such a desire is 5:00 p.m. (Eastern time) on August 22, 2022.. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so don’t waste time! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

BCE Inc. has announced (on 2021-7-9):

BCE Inc. will, on August 1, 2021, continue to have Cumulative Redeemable First Preferred Shares, Series AI (“Series AI Preferred Shares”) outstanding if, following the end of the conversion period on July 22, 2021, BCE Inc. determines that at least 2 million Series AI Preferred Shares would remain outstanding. In such a case, as of August 1, 2021, the Series AI Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 3.39%

They later announced (on 2021-7-23):

that 12,985 of its 5,949,884 fixed-rate Cumulative Redeemable First Preferred Shares, Series AI (“Series AI Preferred Shares”) have been tendered for conversion on August 1, 2021, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AJ (“Series AJ Preferred Shares”). In addition, 3,598,141 of its 8,050,116 Series AJ Preferred Shares have been tendered for conversion on August 1, 2021, on a one-for-one basis, into Series AI Preferred Shares. Consequently, on August 1, 2021, BCE will have 9,535,040 Series AI Preferred Shares and 4,464,960 Series AJ Preferred Shares issued and outstanding. The Series AI Preferred Shares and the Series AJ Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.I and BCE.PR.J, respectively.

The Series AI Preferred Shares will pay on a quarterly basis, for the five-year period beginning on August 1, 2021, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.39%.

The Series AJ Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on August 1, 2021, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AJ Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

This post is very late and appears as a matter of record only!