Emera Incorporated has announced:
that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative 5-Year Rate Reset First Preferred Shares, Series A of the Company (the “Series A Shares”) on August 15, 2015. There are currently 6,000,000 Series A Shares outstanding.
Subject to certain conditions set out in the prospectus supplement of the Company dated, May 26, 2010, to the short form base shelf prospectus, dated May 19, 2010 (collectively, the “Prospectus”) relating to the issuance of the Series A Shares, the holders of the Series A Shares have the right, at their option, to convert all or any of their Series A Shares, on a one-for-one basis, into Cumulative Floating Rate First Preferred Shares, Series B of the Company (the “Series B Shares”) on August 15, 2015 (the “Conversion Date”).
On such date, holders who do not exercise their right to convert their Series A Shares into Series B Shares will continue to hold their Series A Shares.
The foregoing conversion right is subject to the following:
1. if the Company determines that there would be less than 1,000,000 Series B Shares outstanding on the Conversion Date, then holders of Series A Shares will not be entitled to convert their shares into Series B Shares, and
2. alternatively, if the Company determines that there would remain outstanding less than 1,000,000 Series A Shares on the Conversion Date, then all remaining Series A Shares will automatically be converted into Series B Shares on a one-for-one basis on the Conversion Date.
In either case, Emera will give written notice to that effect to holders of Series A Shares no later than August 10, 2015.
The dividend rate applicable for the Series A Shares for the five-year period commencing on August 15, 2015 and ending on (and inclusive of) August 14, 2020, and the dividend rate applicable to the Series B Shares for the 3-month period commencing on August 15, 2015 and ending on (and inclusive of) November 14, 2015, will be determined on July 16, 2015 and notice of such dividend rates shall be provided to the holders of the Series A Shares on that day.
Beneficial owners of Series A Shares who wish to exercise their conversion right, should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from July 16, 2015 until 5:00 p.m. (EDT) on July 31, 2015.
Inquiries should be directed to Emera Investor Services, at 1-800-358-1995 or 902-428-6060, or by email to investors@emera.com.
EMA.PR.A is a FixedReset, 4.40%+184, announced 2010-5-25, which commenced trading 2010-6-2. If we assume that the July 3 GOC-5 yield of 0.80% remains the level at the time of reset, then the issue will reset at 2.64%, a 40% decline from the initial rate.
So, we shall learn the new rate on July 16, and can elect conversion until July 31 (or a day or two earlier when providing instructions via an intermediary). I’ll keep you posted!
I know you don’t really pay much attention to the U.S. pay preferreds but the ENB.PF.U or ENB.PR.V, for example, are fairly interesting because unlike most rate resets they are currently on track for a dividend increase of ~20% based on a U.S. 5-year treasury yield of 165bps. They are of course trading well under par partly on the credit downgrades but also it seems in sympathy with the weakness in the Canadian 5-year treasury yields! I’m curious if on reset they will trade with a significantly higher yield than their counterparts like ENB.PR.B or if there will be some relative capital appreciation. Any thoughts appreciated!
I’d say the Enbridge US issues look pretty good!
If we look at ENB.PF.U, for instance and calculate its yield using the Yield Calculator for FixedResets and using the issue information and current bid price of 20.06, we can determine the following:
Current Price 20.06 (bid from TSE – close was 20.32)
Call Price 20.06 (equal to current price)
Settlement Date: 2015-07-03
Call Date: 2045-07-03 (thirty years is forever!)
Quarterly Dividend: 0.25
Cycle: 3
Pay Date: 1
Include First Dividend: Yes
Reset Date: 2017-9-1
Reset Spread: 3.15%
GoC5 yield assumption: 1.63% (from Bloomberg)
… then we find the all-in yield is 5.84%, which is the equivalent of 7.59% interest for Canadian taxpayers who can use the 1.3x equivalency factor.
This compares with Long-Term US Corporates of 5.04%, so the spread for this issue is about 255bp over long corporate. This is approximately what we would expect for a Canadian denominated Straight Perpetual over long (Canadian) corporates, so you’re not paying anything for the reset feature, although you’re not accounting for the lower credit quality, either (the Canadian figure is investment-grade Straights over investment-grade corporates).