New Issue: EFN FixedReset, 6.40%+472 (EFN.PR.E)

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.

3 Responses to “New Issue: EFN FixedReset, 6.40%+472 (EFN.PR.E)”

  1. prefQC says:

    I don’t understand how they can offer this 6.40% + 472 issue (at $25) when EFN.PR.C, which has both a higher coupon and a higher reset and furthermore is about to go ex-dividend for 40.6 cents, is currently trading at very nearly $25.00. They seem to be guaranteeing a significant loss on its first day of trading. Any comments?

  2. reikreik70 says:

    there was also one back in December 2013

    660% + 471

    so comparable in the premium to 5yr Canadian

    current price today 25.15 with a divi soon too I believe.


  3. jiHymas says:

    EFN.PR.C closed today at 25.00-05, 22×7, and will, as prefQC says, will go ex-Dividend soon implying the new issue is over-priced.

    There’s one very, very important difference though … underwriters will get a 3% underwriting fee for flogging the issue (assuming it’s the same deal for them as EFN.PR.C)! This makes the issue much more attractive, for the salesmen.

    What can I say? It’s the wonderful world of retail brokerage.

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