PrefBlog

Industrial Alliance Insurance and Financial Services Inc. has announced:

that it has entered into an agreement to offer and sell, on a bought deal basis to a syndicate led by BMO Capital Markets, 4,000,000 Non-Cumulative 5-Year Rate Reset Class A Preferred Shares, Series G (the “Series G Preferred Shares”), at a price of $25.00 per share, for aggregate gross proceeds of $100 000 000. This offering constitutes an additional issuance to the 6,000,000 Series G Preferred Shares that Industrial Alliance initially issued on June 1, 2012.

The Series G Preferred Shares will have the same terms and conditions as the existing Series G Preferred Shares. Holders of the Series G Preferred Shares will be entitled to receive fixed non-cumulative preferential cash dividends, as and when declared by the board of directors of Industrial Alliance for the initial period from and including June 1, 2012 to but excluding June 30, 2017, payable quarterly on March 31, June 30, September 30 and December 31 in each year, at an annual rate equal to $1.0750 per Series G Preferred Share. The initial dividend, if declared, will be payable on September 30, 2012 and will amount to $0.3564 per Series G Preferred Share. On June 30, 2017 and on June 30 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.85%. Holders of the Series G Preferred Shares have the right, at their option, to convert their shares into Non-Cumulative Floating Rate Class A Preferred Shares Series H (the “Series H Preferred Shares”), subject to certain conditions and the Company’s right to redeem the Series G Preferred Shares as described below, on June 30, 2017 and on June 30 every five years thereafter.

Holders of the Series H Preferred Shares will be entitled to receive a fixed non-cumulative preferential cash dividend, as and when declared by the Board of Directors of Industrial Alliance, equal to the 90-day Government of Canada Treasury Bill Rate plus 2.85%. Holders of the Series H Preferred Shares will have the right, at their option, to convert their shares into Series G Preferred Shares, subject to certain conditions and the Company’s right to redeem the Series H Preferred Shares as described below, on June 30, 2022 and on June 30 every five years thereafter. The Series G Preferred Shares will not be redeemable by Industrial Alliance prior to June 30, 2017. On June 30, 2017 and on June 30 every five years thereafter, Industrial Alliance may, subject to certain conditions (including regulatory approval), redeem all or any part of the Series G Preferred Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends. The Company may redeem all or any part of the Series H Preferred Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends in the case of redemptions on June 30, 2022 and on June 30 every five years thereafter or $25.50 together with all declared and unpaid dividends in the case of redemptions on any other date after June 30, 2017.

On a pro forma basis, after giving effect to both the June 1, 2012 issuance of Series G Preferred Shares and this additional issue, the Company estimates that, as at March 31, 2012, its solvency ratio would increase by 15 percentage points, from 186% to 201%.

The mention of the solvency ratio is unusual and interesting. Assiduous Readers will remember that the company’s preferreds and sub-debt were placed on Watch-Negative by DBRS very recently. The agency noted:

The Company’s total debt ratio has increased to 36.6% pro forma the $150 million preferred share issue completed in May 2012, which is above the range established by the DBRS rating methodology for the life insurance industry at the current rating category

We will have to wait and see whether this additional debt-like fixed-charge (if I say “debt issue”, I’ll get lots of scornful hate mail) tips the company down a rating notch.

IAG.PR.G is a FixedReset, 4.30%+285, for which the first tranche closed 2012-6-1. It is interesting that the five year GOC yield is now about 1.19%, which implies that the reset dividend in five years is forecast to decline. If it had been forecast to rise, using current GOC5 levels, the company might have had some difficulties persuading OSFI to grant the re-opening Tier 1 status and might have been forced to bring a new issue to market.

But why not bring new issues to market while forecasting declining resets? It hasn’t done BCE.PR.K, an egregious offender any harm!

IAG.PR.G is tracked by HIMIPref™ and is incorporated in the FixedReset index.

IIROC halted IAG.PR.G at 15:36 “pending news”, which was the reopening.

This entry was posted on Tuesday, June 19th, 2012 at 7:24 pm and is filed under Issue Comments, New Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.