New Issue : NA 6.00% Perps

National Bank has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. to sell an issue of 6 million Non-Cumulative Fixed Rate First Preferred Shares, Series 20 (the “Preferred Shares”), carrying a face value of $25 per share, to raise gross proceeds of $150 million. Holders will be entitled to receive non-cumulative preferential quarterly dividends in the amount of $0.375 per share, to yield 6.00% annually.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 900,000 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to 30 days after closing of the offering. The maximum gross proceeds raised under the offering will be $172.5 million should this option be exercised in full.

National Bank may redeem the Preferred Shares, subject to regulatory approval, in whole or in part, at a declining premium after five years.

The net proceeds of this offering will be used for general corporate purposes and will qualify as Tier 1 capital for National Bank. The expected closing date is April 16, 2008.

Issue: National Bank of Canada 6.00% Non-Cumulative Fixed Rate First Preferred Shares Series 20

Size: 6-million shares @ $25.00 = $150-million; Greenshoe for 900,000 shares = $22.5-million

Dividend: $0.375 Quarterly; Long first dividend of $0.494178 payable August 15 based on April 16 Closing.

Redemption: Redeemable commencing 2013-5-15 @ $26.00; Redemption price declines by $0.25 annually until 2017-5-15; Redeemable at $25.00 thereafter. [nb: “Redemption” means at the bank’s option]

Priority: Parri Passu with all other 1st Preferred Shares, senior to Second Preferred Shares, Senior to Common shares, junior to everything else.

Provisional Ratings: Pfd-1(low) by DBRS; P-2(high) by S&P; A1 by Moody’s

Closing: April 16, 2008

More Later.

Later, More: Some comparables:

NA Perps 3/28
Issue Quote
Dividend Curve
NA.PR.K 24.83-99 1.4625 25.00 5.97%
NA.PR.L 21.00-24 1.2125 21.86 5.86%
NA.PR.? Issue
1.50 25.35 6.00%

Update, 2008-3-31: After the carnage of March 31 – almost certainly brought about by retail looking at the handle on this coupon – the curvePrice is $25.21.

18 Responses to “New Issue : NA 6.00% Perps”

  1. madequota says:

    ~shaking my head~

    This is turning into a joke.

    I’ll make everyone a deal here. You don’t tell me this is wonderful . . . and I won’t tell you that it isn’t.


    p.s. don’t go long . . . Laurentian will be out next Monday @ 6.2%

  2. madequota says:

    Here’s one for you all:

    LB.PR.E last @ $20.79 (down $1.47 on the day) to yield 6.35%

    I’m getting a little indigestion . . . on all these eggs. Where is Rob Carrick when you really need him?

    But on the positive side, CIU.PR.A last @ $20.90 (up .40 on the day), and ELF.PR.G last @ $19.25 (up .09 on the day, and an ex day at that!), and DC.PR.A last @ $20.98 (up a whopping .68 on the day).


  3. scomac says:

    madequota wrote: “I’ll make everyone a deal here. You don’t tell me this is wonderful . . . and I won’t tell you that it isn’t.”

    That pretty well sums up my reaction to this issue. Something is not quite right when the banks are will to pay +/- 6% pre-tax for the use of unsecured funds for up to 10 years and yet are willing to spend something in the order of 9% pre-tax to have indefinite use of funds that will qualify for regulatory capital and almost tripping voer each other to do it. The write-downs that are going to come down the pipe in the next little while have got to be bad. That can’t be good for bank issued securities whether they be commons, preferreds or debt.

    The question that I have to ask is that from a historical perspective, has it been commonplace for the banks to have to pay so dearly for regulatory capital versus unsecured term debt?

  4. jiHymas says:

    The question that I have to ask is that from a historical perspective, has it been commonplace for the banks to have to pay so dearly for regulatory capital versus unsecured term debt?

    Not really … but “historical” doesn’t really take in a lot of time. It’s not so long ago that banks were able to count retractibles as part of equity and Basel I itself only got rolling in 1992.

    But spreads have come way, way out … compare the spreads given in my post for the primer and the special bonus RBC report on Hybrids with today’s spreads:

    TD Innov. Tier 1 Capital, 10 year to call : Canadas + 285bp bid
    TD Sub Debt, 10 year to call : Canadas + 250bp bid
    BMO Deposit Note, 10 year : Canadas + 214bp bid
    BMO Deposit Note, 5 year : Canadas + 183bp bid
    TD Deposit Note, 5 year : Canadas + 174bp bid

    (sorry … couldn’t find a quote for a 10-year TD deposit note, so I had to form a grid with BMO)

    Basically, the banks are hurting.

  5. scomac says:

    Thanks James. 🙂

  6. adrian2 says:


    I’ll try to obey your “make a deal” requirement, but I’ll paraphrase Mr. Buffett: assuming for the future decades you’re a net consumer of hamburgers, would you prefer their price to go up or down?

    Any similarities to the price/yield of bank preferreds may be a pure coincidence.


  7. […] PrefBlog Canadian Preferred Shares – Data and Discussion « New Issue : NA 6.00% Perps […]

  8. madequota says:

    aw Adrian, I thought my deal would hold up.

    Here’s the thing . . . I own 50,000 hamburgers, which I love being able to sell profitably every day . . . all of a sudden, National Hamburgerco sets up across the road from me, and starts to sell their burgers 30% cheaper than I was. All of a sudden, my hamburgers are dying produce, and I’m no longer happily making money.

    Any similarities to oversupply/demand of bank preferreds may be a pure coincidence.


    p.s. Mr. Buffett is not where he is tday because he endorses the idea of having his holdings enlessly diluted by mindless bank executives.

  9. madequota says:

    “Basically, the banks are hurting.” . . . James Hymas, 3/31/08

    There’s about 50 ways to approach that comment; let’s try this one:

    TD’s last quarterly earnings were just over $1 billion, and they raised their common dividend by 3.5%. Ed Clark continues to claim that TD has no ABCP or sub-prime exposure.

    Yet, with not one, but two 5.6% pref issues in recent history, TD is one of the worst pref diluting offendors of the big 5.

    “Basically, the banks are hurting.”?? Not the response I might have expected.


  10. kaspu says:

    “Basically, the banks are hurting.” .

    Ahem…the bank PREFS are hurting, Sherlock

  11. jiHymas says:

    Basically, the banks are hurting

    TD is going through the credit crunch with admirable aplomb, and yet their stock price is flat over the past year (which is good! Other Canadian bank stocks are down!).

    As I indicated in the schedule of yields on their various securities, spreads to Canadas are very wide and as their Q1 investor presentation, this is having an effect on margins. They have just closed their purchase of Commerce Bancorp, which I have previously noted will bring with it a sharp decline in their Tier 1 ratio. Hence, their eagerness to issue Tier 1 prefs at what some people (madequota among them, I believe) consider to be elevated yields.

    This is not the sorriest tale of woe ever told in the history of investments, but this is a bank that is doing really, really well. We can discuss NA, CM and BMO instead, if you like.

  12. madequota says:

    good response, JH . . . concise and on target as usual . . . you’re making it difficult for me to become the Rex Murphy of prefs; however, all the banks continue to churn huge bottom lines, so far, even in the wake of the assorted fi-disasters out there.

    Beyond that, Li Kashing thinks CM is not that sorry a tale either!

    Have you noticed that today, like yesterday, is turning into another good one for prefs pretty much across the board?! I know most readers here seem to prefer watching their prefholdings recede, but today looks like it’s going to be another disappointment for them . . . to the upside. JIT as well; isn’t BMO 5.8 debuting tomorrow? Maybe my prediction of the underwater opening may have been premature!



  13. prefhound says:

    I haven’t noticed an uptick in pref prices today. I saw the TXPR index down a bit earlier and noticed quite a few quality prefs at lower prices — allowing me to switch from a premium 5-year provincial bond into an HSBC pref at a pre-tax spread of more than 2% (almost 4% after tax!) The pref market is giving the opposite signal to the equity markets today — despite lots of new financial issues in both!

    Maybe the pref market is just lagging a day or two — the TXPR index is trolling along at new lows — and we will see better things later this week if equities hold today’s gains.

  14. prefhound says:

    Ooops, did the calc instead of approximating and its nearly 3% after tax on this switch.

  15. jiHymas says:

    HSB.PR.C & HSB.PR.D are good quality prefs, surprisingly volatile considering their credit rating. The fund rarely holds them, mainly due to volume considerations … but every now and then things get irresistable!

  16. […] news certain to make Assiduous Reader madequota (who hates new issues) glad that he’s north of the border, JPM has come out with a $6-billion fixed-floater: The […]

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  18. […] new issue of National Bank 6.00% Perpetuals, announced March 31 and reported to have experienced brisk demand settled today, trading 412,080 shares in a range of […]

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