New Issue: BAM FixedReset, 4.50%+286

Brookfield Asset Management Inc. has announced:

that it has agreed to issue 8,000,000 Class A Preferred Shares, Series 40 on a bought deal basis to a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc. for distribution to the public. The Preferred Shares, Series 40 will be issued at a price of C$25.00 per share, for gross proceeds of C$200,000,000. Holders of the Preferred Shares, Series 40 will be entitled to receive a cumulative quarterly fixed dividend yielding 4.50% annually for the initial period ending September 30, 2019. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.86%.

Brookfield has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Preferred Shares, Series 40 which, if exercised, would increase the gross offering size to C$250,000,000. The Preferred Shares, Series 40 will be offered in all provinces of Canada by way of a supplement to Brookfield’s existing short form base shelf prospectus. The Preferred Shares, Series 40 may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

Brookfield also announced that it intends to redeem all of its outstanding Class A Preferred Shares, Series 22 (TSX:BAM.PR.P) for cash on September 30, 2014. The redemption price for each Preferred Share, Series 22 will be C$25.00. Holders of Preferred Shares, Series 22 will separately receive all accrued and unpaid dividends outstanding on the redemption date.

Brookfield intends to use the net proceeds of the issue of Preferred Shares, Series 40 to partially fund the redemption of its Preferred Shares, Series 22. The offering of Preferred Shares, Series 40 is expected to close on or about June 5, 2014.

The redemption of BAM.PR.P has been given its own post.

The issue looks fairly priced, with a small but reasonable new issue concession. Implied Volatility Theory suggests it is cheap relative to the lower-spread BAM issues, as the theoretical curve should flatten as implied volatility declines from its very high level of 40%.


BAM PerpetualDiscounts (BAM.PR.M, BAM.PR.N, BAM.PF.C, BAM.PF.D) were yielding within a tight range of 5.50-5.55% at the close yesterday, so the Break Even Rate Shock on this new issue is about 1.4%, a little less than we have seen on several recent new issues.

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