New Issue: BIP FixedReset, 4.50%+356

Brookfield Infrastructure Partners L.P. has announced:

that it has agreed to issue 5,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 1 (“Series 1 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC, RBC Capital Markets, Scotiabank and TD Securities Inc. The Series 1 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000. Holders of the Series 1 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 4.50% annually for the initial period ending June 30, 2020. Thereafter, the distribution rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 3.56%. The Series 1 Preferred Units are redeemable on or after June 30, 2020.

Holders of the Series 1 Preferred Units will have the right, at their option, to reclassify their Series 1 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 2 (“Series 2 Preferred Units”), subject to certain conditions, on June 30, 2020 and on June 30 every 5 years thereafter. Holders of Series 2 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 3.56%.

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 1 Preferred Units which, if exercised, would increase the gross offering size to $175,000,000. The Series 1 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 1 Preferred Units for general corporate purposes, including to fund new investments that were previously announced and repay amounts outstanding under its credit facilities. The offering of Series 1 Preferred Units is expected to close on or about March 12, 2015.

But have a look at the issuer! Brookfield Infrastructure Partners L.P.! LP, LP! For various tax reasons I am not competent to either judge or explain, this means that they cannot guarantee that the distributions will actually be dividends; instead, the distributions will be partially a return of capital and the “Certain Canadian Federal Income Tax Considerations” section of the prospectus will be more fraught with interest than otherwise might be the case.

For the past five years, the Return of Capital proportion of distribution with respect to ordinary units has been (starting with 2014) 1.60%, 76.90%, 47.03%, 63.44% and 79.00%, which many will consider gives rise to a pleasant deferral of tax (you eventually pay tax. Don’t worry about that! The ROC lowers the Adjusted Cost Base for capital gains purposes).

Just what the proportions might be in the future is for God to know and man to guess, but it appears that REI.PR.A and REI.PR.C and AX.PR.A, AX.PR.E and AX.PR.G, which also have this ROC structure now have some competition in the ‘deferred taxation’ space.

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