PrefBlog

Capital Power Corporation has announced:

that it will issue 6,000,000 Cumulative Rate Reset Preference Shares, Series 5 (the “Series 5 Shares”) at a price of $25 per Series 5 Share (the “Offering”) for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, led by RBC Capital Markets and Scotiabank. In addition, Capital Power has granted the underwriters an option, exercisable in whole or in part anytime up to two business days prior to closing, to purchase up to an additional 2,000,000 Series 5 Shares on the same terms, for additional gross proceeds of up to $50 million. Any additional Series 5 Shares will also be issued on the closing date.

The Series 5 Shares will pay fixed cumulative dividends of $1.125 per share per annum, yielding 4.50% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the board of directors of Capital Power, for the initial period ending June 30, 2018. Based on a March 14, 2013 closing, the first quarterly dividend of $0.3329 per share is expected to be paid on June 28, 2013. The dividend rate will be reset on June 30, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 3.15%. The Series 5 Shares are redeemable by Capital Power, at its option, on June 30, 2018 and every five years thereafter.

Holders of Series 5 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 6 (the “Series 6 Shares”), subject to certain conditions, on June 30, 2018 and every five years thereafter. Holders of Series 6 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 3.15%, as and when declared by the board of directors of Capital Power.

Net proceeds of the offering will be lent to Capital Power L.P. pursuant to a subordinated debt agreement. Capital Power L.P. will use the funds to repay the outstanding balance under its credit facilities, to finance development projects including the Shepard Energy Centre project, and for general corporate purposes.

Standard & Poor’s, a division of the McGraw Hill Companies, Inc. has assigned a rating of P-3 for the Series 5 Shares and DBRS Limited has assigned a preliminary rating of Pfd-3 (low) for the Series 5 Shares.

The Series 5 Shares will be issued pursuant to a prospectus supplement to Capital Power’s short form base shelf prospectus dated February 16, 2012. This prospectus supplement will be filed with securities regulatory authorities in Canada. An application will be made when the prospectus supplement is filed to list the Series 5 Shares and the Series 6 Shares on the Toronto Stock Exchange as of the closing date. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

This issue may be compared with their two extant FixedResets:

• CPX.PR.A, 4.60%+217, quoted at 25.05-95 to yield 3.46%-3.26%
• CPX.PR.C, 4.60%+323, quoted at 25.15-25 to yield 4.33%-4.31%

Yields are quoted to perpetuity (which is the YTW scenario), assuming five-year Canadas trade at 1.20%. It will be noted that in the glorious brain-dead tradition of the Canadian preferred share market, the prices reflect only the current coupon and not expectations on reset.

Update, 2013-3-10: Upsized to $200-million.

This entry was posted on Tuesday, March 5th, 2013 at 2:42 pm and is filed under 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.