New Issue: BA (sub) FixedReset 4.85%+209

Bell Aliant has announced:

that its subsidiary Bell Aliant Preferred Equity Inc. (the “Company”) will be issuing 10,000,000 Cumulative Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”), at a price of $25.00 per Series A Preferred Share, for aggregate gross proceeds of $250 million on a bought deal basis to a syndicate of underwriters led by BMO Capital Markets and Scotia Capital Inc.

The underwriters have been granted an over-allotment option to purchase an additional 1,500,000 Series A Preferred Shares at the offering price. Should the over-allotment option be fully exercised, the total gross proceeds of the Series A Preferred Share offering will be $287.5 million.

The Series A Preferred Shares will pay cumulative dividends of $1.2125 per share per annum, yielding 4.85%, payable quarterly (with the first quarterly dividend to be paid June 30, 2011), for the initial five year period ending March 31, 2016. The dividend rate will be reset on March 31, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 2.09%. The Series A Preferred Shares will be redeemable by the issuer on or after March 31, 2016, in accordance with their terms.

Holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series B, (the “Series B Preferred Shares”) subject to certain conditions, on March 31, 2016 and on March 31 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.09%.

The Series A Preferred Shares will be offered for sale to the public in each of the provinces and territories of Canada pursuant to a short form prospectus to be filed with Canadian securities regulatory authorities in all Canadian provinces and territories. The offering is scheduled to close on or about March 9, 2011, subject to certain conditions, including obtaining all necessary regulatory approvals.

The net proceeds of this offering will be used to fund a voluntary $200 million contribution to Bell Aliant’s pension plans and for general corporate purposes, including the repayment of indebtedness under Bell Aliant’s commercial paper program and the financing of fibre-to-the-home (FTTH) and other investments.

DBRS comments:

DBRS has today assigned a rating of Pfd-3 (high), with a Stable trend, to Bell Aliant Preferred Equity Inc.’s preferred share issuance totalling $250 million (the Preferred Shares) with a $37.5 million over-allotment option. The Preferred Shares are cumulative five-year rate reset preferred shares with an initial dividend rate of 4.85%.

This share issuance was initiated by Bell Aliant Preferred Equity Inc. today for settlement on or around March 9, 2011.

The preferred shares will be fully and unconditionally guaranteed by Bell Aliant Regional Communications Inc. (Bell Aliant GP), the general partner and guarantor of Bell Aliant Regional Communications, Limited Partnership (Bell Aliant LP; rated BBB (high)/R-1 (low) by DBRS) and its debt obligations.

While normally this type of corporate structure would raise the issue of structural subordination relative to Bell Aliant LP, DBRS believes that provisions undertaken between the various entities – as part of inter-company loans and guarantees – mitigate this concern while appropriately ranking the preferred shares behind the senior indebtedness of Bell Aliant LP and Bell Aliant GP. (Bell Aliant GP has no external debt outstanding.)

DBRS expects Bell Aliant Preferred Equity Inc. to indirectly lend the proceeds to Bell Aliant LP. With the proceeds, Bell Aliant LP intends to make a lump-sum voluntary payment to certain pension plans and use the remainder for general corporate purposes, including the repayment of indebtedness and the financing of investments and acquisitions.

Update 2011-03-09: Closing delayed until 3/15.

One Response to “New Issue: BA (sub) FixedReset 4.85%+209”

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