RF.PR.A Raising Capital

C.A.Bancorp has announced:

that a preliminary prospectus had been filed with, and a receipt therefor issued by, the securities regulatory authorities in each of the provinces and territories of Canada.

The Corporation is offering (the “Offering”) units (the “Units”) at a price of $10.00 per Unit. Each Unit consists of one Class A Share and one warrant (a “Warrant”) to purchase one Series 1, Preferred Share (the “Preferred Shares”). Prospective purchasers may purchase Units by (i) cash payment, or (ii) an exchange (the “Exchange Option”) of eligible securities of certain issuers (“Issuers”) at the applicable exchange ratio. The Offering is for a minimum of 2,000,000 Units ($20,000,000) and a maximum of 10,000,000 Units ($100,000,000).

C.A. Bancorp Ltd. (the “Manager”) views the Preferred Shares as a form of financial leverage to the Class A Shares as the Preferred Shares have a fixed term, fixed cash distributions and fixed maturity value.

The Manager uses the maturity value of the Preferred Shares issued and outstanding and compares that to the tangible net book value of the Class A Shares issued and outstanding as a measure of debt (the Preferred Shares) to equity (the Class A Shares) ratio of the Corporation (the “Leverage Ratio”). As at June 30, 2008, the Leverage Ratio was 8.8 to 1.

Each Warrant will entitle the holder to purchase one Preferred Share at a subscription price of $24.50 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.

Assiduous Readers will recall I hated this issue on announcement. At issue, the Leverage Ratio was about 8:1, so it would appear that so far in their short history, they’ve lost money … but this is just a guess, since their investment update, while lauding many attractive features of the fund, does not go so far as to provide even an estimated mark-to-market of the fund’s value. Fortunately, however, there is a prospectus for this capital raise on SEDAR (search the last six months for “Bancorp”):


The Preferred Shares’ distribution (interest) requirements, after giving effect of the issuance of Preferred Shares through the exercise of the maximum number of Warrants offered under this Offering would have been $19,473,273 per annum. The Corporation had a loss before interest of $1,870,240 (annualized from $666,113 for the 130 days ended June 30, 2008). An increase of $24,573,439 per annum in earnings would be necessary to produce an earnings coverage ratio of one to one for the annualized period ended June 30, 2008 which would have required a yield of 7.32% on any net proceeds received on a maximum Offering of Class A Shares and full exercise of all Warrants distributed under the Offering.

Well, it’s all very interesting, but I won’t be looking at this further. It’s a wonderful idea for a company, but I have great difficulty envisaging the preferred shares as investment grade. Mind you, RF.PR.A is currently quoted at 20.51-50, 4×1, so those with an appetite for junk might be interested.

One Response to “RF.PR.A Raising Capital”

  1. […] As previously reported on PrefBlog, there was a 2-million unit minimum on the offering. […]

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