PrefBlog

Element Financial Corporation has announced that it (emphasis added):

has entered into an agreement to sell, on a bought deal basis, 4,000,000 Series E Preferred Shares at a price of $25.00 per Series E Preferred Share for gross proceeds of $100 million (the “Preferred Share Offering”, and with the Subscription Receipt Offering and the Debenture Offering, the “Offerings”). Holders of the Series E Preferred Shares will be entitled, if, as and when declared by the Board of Directors of Element, to receive a cumulative quarterly fixed dividend for the initial five-year period ending September 30, 2019 of 6.4% per annum. Thereafter, the dividend rate will reset every five years to an annual dividend rate equal to the 5-Year Government of Canada Bond Yield as quoted on Bloomberg on the 30th day prior to the first day of the relevant subsequent five year fixed rate period plus 4.72%.

Holders of the Series E Preferred Shares will have the right to convert their shares into cumulative floating rate preferred shares, Series F of Element (“Series F Preferred Shares”), subject to certain conditions and Element’s right to redeem the Series E Preferred Shares, on September 30, 2019 and on September 30 every five years thereafter. Holders of the Series F Preferred Shares will be entitled to receive a quarterly floating rate dividend, if, as and when declared by the Board of Directors of Element, equal to the then current three-month Government of Canada Treasury Bill plus 4.72%. Holders of the Series F Preferred Shares may convert their Series F Preferred Shares into Series E Preferred Shares, subject to certain conditions and Element’s right to redeem the Series F Preferred Shares, on September 30, 2024 and on September 30 every five years thereafter. The Series E Preferred Shares will not be rated. If the Acquisition does not proceed, the net proceeds from the Preferred Share Offering will be used by Element for general corporate purposes.

The Preferred Share Offering is being led by BMO Nesbitt Burns Inc. and includes CIBC World Markets Inc., GMP Securities L.P., Barclays Capital Canada Inc., National Bank Financial Inc., TD Securities Inc., Credit Suisse Securities (Canada) Inc., RBC Dominion Securities Inc., Scotia Capital Inc., Cormark Securities Inc. and Manulife Securities Inc. (collectively, the “Preferred Share Underwriters”).

This is part of a major capital-raising exercise:

• Bought deal financing of $750 million subscription receipts, $250 million extendible convertible debentures and $100 million cumulative 5-year rate reset preferred shares
• Amended and restated revolving credit facility for aggregate commitment of $1 billion
• US$1.36 billion bridge financing commitment obtained

… which is in turn due to a major acquisition announcement:

Element Financial Corporation (TSX:EFN) (“Element” or the “Company”), one of North America’s leading equipment finance companies, today announced that it has entered into a definitive agreement to acquire the assets and operations of PHH Arval, PHH Corporation’s North American fleet management services business (the “Transaction”). Under the terms of the agreement, Element will pay approximately US$1.4 billion for the business in an all-cash transaction representing a purchase price multiple of 1.56 times the adjusted book value of the acquired business. At March 31, 2014, PHH Arval reported more than US$4.6 billion in total assets, of which US$4.0 billion represented net investment in fleet leases, and generated annual origination volumes of approximately US$1.7 billion during 2013.
…
The Transaction, which is expected to close on or before July 31, 2014, is subject to customary closing conditions, including regulatory approvals, and post-closing purchase price adjustments.

This issue joins EFN’s other FixedResets outstanding, EFN.PR.A, FixedReset, 6.60%+471 and EFN.PR.C, FixedReset, 6.50%+481.

As with the two previous issues, this issue will not be tracked by HIMIPref™ on the grounds that it is not rated. This is not because I can’t come to my own views regarding credit quality, or because I worship the Credit Rating Agencies, but because I feel the threat of an imminent downgrade from a major agency does an excellent job of focussing the minds of the directors and management that they have a problem that really should be addressed. A ‘Review-Negative’ by Hymas Investment Management does not have quite the same effect.

This entry was posted on Monday, June 2nd, 2014 at 9:46 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.