New Issue: BNA Split-Share, 7-Year, 4.85%

BAM Split Corp has announced:

that it has entered into an agreement to sell $110,000,000 principal amount of Class AA Preferred Shares, Series 5 (the “Series 5 Preferred Shares”), with an underwriters’ option to purchase an additional $15,000,000 principal amount of Series 5 Preferred Shares, to a syndicate of underwriters co-led by Scotia Capital Inc., CIBC World Markets Inc., RBC Capital Markets, and TD Securities Inc. on a bought deal basis. Closing of the offering is expected to occur on or about December 10, 2010. The Series 5 Preferred Shares will carry a fixed coupon of 4.85% and will have a final maturity of December 10, 2017. The Series 5 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS. The net proceeds of the offering will be used to pay a special cash dividend to holders of the Company’s Capital Shares.

BAM Split Corp. owns a portfolio consisting of 53,160,644 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the company’s Preferred Shares and to enable the holders of the company’s Capital Shares to participate in any capital appreciation of the Brookfield Shares.

As of the March 2010 Semi-annual report there were 14.713-million units outstanding, so the addition of 4.4-million new preferreds (which will presumably be accompanied by a split of the capital units) will dilute the NAV to about 77% of its October 31 value of $109.53, or $84.

Another way to state this is that there used to be 3.61 shares of BAM.A held per unit; now there will be 2.78.

So credit quality has declined, but is still very high.

The funny thing about this is that BNA.PR.C has not budged on the news. It closed Friday at 22.56-69 for a yield-to-worst of 5.87-79% to its scheduled maturity 2019-1-10. So, compared with the new issue, an investor can pick up more than a point of yield for a one-year term extension, which sounds pretty good to me! I will also point out that the tax on the capital gain component of BNA.PR.C’s yield is, of course, deferred …. and, should the company exercise its call right in the event of a takeover of BAM, there’s a lot more upside than in the new issue.

But, you see, the other funny thing about this is that BNA.PR.C pays a dividend of 1.0875 p.a., which means that the Current Yield (which, of course, ignores the capital gain on maturity) is 4.82%. I don’t think the coupon rate of 4.85% on the new issue is coincidental … I love this market!

2 Responses to “New Issue: BNA Split-Share, 7-Year, 4.85%”

  1. dudsy says:

    Another way to look at the ‘pick up’… with Series 5 priced at 4.85%, the market is pricing BNA.PR.C’s final 1 year & 1 month at 12.1%???

  2. […] is a SplitShare issue with a 4.85% coupon and a seven year term, announced November 22. It traded 190,750 shares today in a tight range of 24.85-93, closing at 24.90-92, […]

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