GMP Capital has announced:
that it has entered into an agreement with a syndicate of underwriters led by National Bank Financial Inc., GMP Securities L.P. and Scotia Capital Inc., acting as joint bookrunners, under which the underwriters have agreed to purchase, on a bought-deal basis, 4,000,000 Cumulative 5-Year Rate Reset Preferred Shares, Series B (the “Series B Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds to GMP of $100,000,000.
The Series B Preferred Shares will pay fixed cumulative dividends of $1.375 per share per annum, yielding 5.50% per annum, payable quarterly on the last day of March, June, September and December of each year, as and when declared by the Board of Directors of GMP, for the initial five year period ending on March 31, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the sum of the then current five-year Government of Canada bond yield plus 2.89%.
The Series B Preferred Shares will be redeemable in whole or in part by GMP, at its option, on March 31, 2016, and on March 31 of every fifth year thereafter in accordance with their terms, at a cash redemption price per share of $25.00 together with all accrued and unpaid dividends.
Holders of Series B Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series C (the “Series C Preferred Shares”), subject to certain conditions and GMP’s right to redeem the Series B Preferred Shares as described above, on March 31, 2016 and on March 31 of every fifth year thereafter. Holders of the Series C Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 2.89%, as and when declared by the Board of Directors of GMP.
Holders of the Series C Preferred Shares may convert their Series C Preferred Shares into Series B Preferred Shares, subject to certain conditions and GMP’s right to redeem the Series C Preferred Shares as described below, on March 31, 2021 and on March 31 every five years thereafter.
The Series C Preferred Shares will be redeemable in whole or in part by GMP, at its option, at a cash redemption price per share of $25.00 together with all accrued and unpaid dividends in the case of redemptions on March 31, 2021 and on March 31 every five years thereafter or $25.50 together with all accrued and unpaid dividends in the case of redemptions on any other date after March 31, 2016.
The Company has also granted the underwriters an option (the “Over-Allotment Option”) to purchase up to an additional 600,000 Series B Preferred Shares, on the same terms and conditions as the offering, exercisable any time, in whole or in part, until the date that is 30 days from the closing date of the offering. If the Over-Allotment Option is exercised in full, the total gross proceeds to GMP will be $115,000,000.
The net proceeds of the offering will be used by GMP for general corporate purposes, which may include the reduction of indebtedness.
The Series B Preferred Shares will be offered for sale to the public in each of the provinces of Canada pursuant to a short form prospectus to be filed with Canadian securities regulatory authorities in all Canadian provinces.
DBRS Limited (“DBRS”) has assigned a provisional rating of Pfd-3 (low) for the Series B Preferred Shares.
The offering is scheduled to close on or about February 22, 2011, subject to certain conditions, including Toronto Stock Exchange and other customary regulatory approvals, as well as other conditions set forth in the underwriting agreement.
More junk! This is going to end in tears. It always does.
Update: The DBRS press release offers a lengthy justification of the rating. Note that according to DBRS, Pfd-3(low) is “investment grade”.
[…] is a FixedReset 5.50%+289 announced February 1. The issue traded 183,700 shares today in a range of 24.63-90 before closing at 24.68-69, […]
I am curious as to why you consider this junk and will end in tears? I unfortunately bought this for the dividend several months ago and have been watching it drop since. Any insight is appreciated.
Although DBRS considers Pfd-3(low) to be investment grade, I don’t – Pfd-3(low) maps to BB- on the global scale.
DBRS changed the credit quality trend to negative within two years of issue.
Before FixedResets grew so wildly popular, it was basically impossible to issue preferred shares with a rating of less than Pfd-2(low), but the structure’s popularity was sufficient to overcome, in some people’s minds, the fact that it is still perpetual exposure to the issuer.
As noted in the post, the issue will reset its dividend on March 31, 2016, at GOC-5 + 289; given a five-year Canada yield of 0.77%, that implies a dividend rate f 3.66% (paid on par), or $0.915, which is a decline of about 33%.
Recent new issues from major banks have come in with a reset spread in the 260-280bp range, so 289bp for an inferior credit such as GMP looks pretty skinny.
Now that the all-in yield on this issue is 7.32% (see What is The Yield Of HSE.PR.A? for instructions on calculating an all-in yield; the yield calculator was recently upgraded) I consider that investors are being compensated for the inherent risk … but given the current bid of $12.95 that is required to achieve this lofty height, original investors have lost nearly half their capital.
Thank you for the quick response. Your post is very insightful, clear and makes sense to me.
And thank you for this site. It is a great tool to learn from – and I have a lot of learning to do!