TRP.PR.B To Reset At 2.152%

TransCanada Corporation has announced:

that it has notified the registered shareholder of its Cumulative Redeemable First Preferred Shares, Series 3 (Series 3 Shares) of the Conversion Privilege and Dividend Rate Notice.

Beginning on June 1, 2015 and ending on June 15, 2015, holders of the Series 3 Shares will have the right to choose one of the following options with regard to their shares:
1.To retain any or all of their Series 3 Shares and continue to receive a fixed quarterly dividend; or
2.To convert, on a one-for-one basis, any or all of their Series 3 Shares into Cumulative Redeemable First Preferred Shares, Series 4 (Series 4 Shares) of TransCanada and receive a floating quarterly dividend.

Holders of the Series 3 Shares and the Series 4 Shares will have the opportunity to convert their shares again on June 30, 2020, and every five years thereafter as long as the shares remain outstanding.

Effective June 1, 2015, the Annual Fixed Dividend Rate for the Series 3 shares was set for the next five year period at 2.152%.

Effective June 1, 2015, the Floating Quarterly Dividend for the Series 4 Shares was set for the first Quarterly Floating Rate Period (being the period from and including June 30, 2015, to but excluding September 30, 2015) at 1.945%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 3 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 3 Shares is the Canadian Depositary for Securities Limited (CDS). All rights of beneficial holders of Series 3 Shares must be exercised through CDS or the CDS participant through which the Series 3 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 3 Shares into Series 4 Shares is 3 p.m. (MDT)/ 5 p.m. (EDT) on June 15, 2015. Any notices received after this deadline will not be valid. As such, holders of Series 3 Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

For more information on the terms of, and risks associated with an investment in, the Series 3 Shares and the Series 4 Shares, please see the Corporation’s prospectus supplement dated March 4, 2010 which is available on or on the Corporation’s website.

TRP.PR.B has paid 4.00% over the past five years, so the change in dividend represents a cut of 46%. Ouch! +128 is a pretty skinny spread!

TRP.PR.B was announced 2010-3-4 and commenced trading 2010-3-11. It is tracked by HIMIPref™ and is assigned to the FixedReset subindex.

Note that holders of TRP.PR.B have the right, until 5:00 p.m. (ET) on Monday, June 15, 2015, to notify the company that they wish to convert to the new FloatingReset series – the two series will be interconvertible every five years for as long as they exist. Note that brokers will have earlier internal deadlines.

I will post regarding my opinion on whether to retain or convert TRP.PR.B closer to the deadline; until then, contemplate today’s graph of FixedReset/FloatingReset Strong Pairs:

Click for Big

The Investment Grade pairs are very well-behaved today, with implied break-even 3-Month T-Bill rates in a nice cluster between 0.31% and 0.63%, with an average of 0.48%.

Estimate of TRP.PR.? FloatingReset Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 0.30% +0.45% +0.60%
TRP.PR.B 14.71 128bp 14.10 14.26 14.42

So at this point, it appears that holders of TRP.PR.B who wish to own the FloatingReset issue would be better advised not to convert, but to swap on the market; this will result in a small cash take-out provided that the new pair trades in line with extant pairs, which is by no means guaranteed.

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