PrefBlog

Pembina Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters co-led by CIBC and Scotiabank (together, the “Underwriters”) pursuant to which the Underwriters have agreed to purchase from Pembina 6,000,000 cumulative redeemable rate reset class A preferred shares, Series 7 (the “Series 7 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 7 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.125 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, yielding 4.50 per cent per annum, for the initial fixed rate period to but excluding December 1, 2019. The first quarterly dividend payment date is scheduled for December 1, 2014. The dividend rate will reset on December 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.94 per cent. The Series 7 Preferred Shares are redeemable by Pembina, at its option, on December 1, 2019 and on December 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 7 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, Series 8 (the “Series 8 Preferred Shares”), subject to certain conditions, on December 1, 2019 and on December 1 of every fifth year thereafter. The holders of Series 8 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Pembina, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.94 per cent.

Pembina has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series 7 Preferred Shares at a price of $25.00 per share.

Closing of the offering is expected on September 11, 2014, subject to customary closing conditions.

The proceeds from the offering will be used to help fund a portion of Pembina’s proposed purchase of the Vantage pipeline system and the Saskatchewan Ethane Extraction Plant from Mistral Midstream Inc. and other entities controlled by Riverstone Holdings LLC (the “Transaction”), as well as to fund a portion of the remainder of the Company’s 2014 capital expenditure program and for general corporate purposes. The Transaction is subject to regulatory approvals including approval of the National Energy Board and under the Competition Act (Canada) and the Canada Transportation Act, required consents and other customary closing conditions. Further details about the Transaction are set out in a separate press release from Pembina dated today’s date, and which may be found on Pembina’s SEDAR profile atwww.sedar.com. The closing of the offering of the Series 7 Preferred Shares is not conditional on the closing of the Transaction. If the Transaction does not close, the portion of proceeds to be allocated to the Transaction will be reallocated to fund a portion of the remainder of the Company’s 2014 capital expenditure program, and for general corporate purposes.

The offering is being made by means of a prospectus supplement under the short form base shelf prospectus filed by the Company on February 22, 2013 in each of the provinces of Canada.

They later announced:

that as a result of strong investor demand for its previously announced offering of cumulative redeemable rate reset class A preferred shares, Series 7 (the “Series 7 Preferred Shares”), the size of the offering has been increased to 10 million shares. The offering no longer includes the previously granted underwriters’ option. The aggregate gross proceeds will be $250 million.

The acquisition of the Vantage Pipeline System was discussed in the Globe:

Pembina said in a separate news release Tuesday that the Vantage ethane pipeline being acquired from Riverstone Holdings LLC provides long-term, fee-for-service cash flow and strategic access to the expanding North Dakota Bakken play.

“We have watched the development of these assets with great interest as they represent an excellent opportunity to expand our footprint into one of the most promising hydrocarbon plays in North America and, as such, the Transaction is a low-risk, logical step-out for Pembina,” company president and chief executive officer Mike Dilger said.

As part of the Vantage transaction, Pembina is also acquirinig Mistral Midstream Inc.’s interest in the Saskatchewan Ethane Extraction Plant, a development-stage, 60-million-cubic-feet-per-day deep cut gas processing facility, as well as pipeline infrastructure currently under construction.

The plant has a long-term ethane sales agreement and a long-term, fee-for-service processing agreement, Pembina said; the facility is expected to produce about 4,500 barrels per day and will connect into Vantage.

Additional capital expenditures of about $100-million are anticipated before the end of 2015 in order to complete construction of the ethane extraction plant and the associated gathering and delivery infrastructure, Pembina said.

DBRS comments:

DBRS notes today that Pembina Pipeline Corporation (Pembina or the Company; rated BBB with a Stable trend by DBRS) has announced that it has entered into an agreement to acquire the Vantage pipeline system (Vantage) and Mistral Midstream Inc.’s interest in the Saskatchewan Ethane Extraction Plant (SEEP) for total consideration of USD 650 million (the Acquisition). DBRS views that the proposed Acquisition is not expected to have a material impact on Pembina’s credit profile in the short term. However, it could have a modestly positive impact on the business risk profile over the long term, reflecting the geographical diversification benefit and relatively stable cash flow from long-term take-or-pay transportation contracts and fee-for-service processing contracts associated with the Acquisition. The proposed Acquisition is subject to regulatory approvals and other customary closing conditions, including the approval of the Toronto Stock Exchange.
…
Based on DBRS’s view of Pembina’s long-term corporate financing strategy and its Acquisition financing plan, DBRS believes that the impact on the financial risk profile is expected to be neutral. Pembina intends to finance the Acquisition with a mix of equity (40%), preferred shares (20%) and debt (40%). This financing plan should not have a material impact on the current debt leverage, cash flow and interest coverage metrics, which improved in the last 12 months ended June 2014, compared with 2013 and previous years’ metrics due to much stronger EBIT and cash flow and marginally lower net debt. In the long term, Pembina is committed to maintaining its debt-to-capital ratio around the 40% range. Overall, DBRS does not consider the financing of the proposed Acquisition to have a material impact on the Company’s financial risk profile.

This issue will join PPL’s other three FixedResets:

This illustrates an important point about FixedReset analysis with respect to the interactions between Current Rate, Issue Reset Spread and Price. PPL.PR.E will pay 0.5% more than the new issue until its reset date, despite having a roughly identical Issue Reset Spread. Fifty bp more per annum over the five year term comes to about sixty cents; therefore one would expect PPL.PR.E to be priced roughly $0.60 more than the new issue, since the rates after reset (assuming, of course, that they both do get reset) will be almost identical.

The yields to worst, however, are greatly different, since the premium on PPL.PR.E is enough to make the yield-to-call less than the yield-to-perpetuity, even though the projected yields to perpetuity (4.39% for PPL.PR.E when priced at 25.90; 4.41% for the new issue when priced at 25.00) are almost identical.

It will be most interesting to see how they trade relative to each other once the new issue closes.

Update, 2014-9-4: Pfd-3 from DBRS.

This entry was posted on Tuesday, September 2nd, 2014 at 11:32 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.