PrefBlog

Brookfield Asset Management Inc. has announced:

that it has agreed to issue 6,000,000 Class A Preferred Shares, Series 44 on a bought deal basis to a syndicate of underwriters led by Scotiabank, CIBC, RBC Capital Markets and TD Securities Inc. for distribution to the public. The Preferred Shares, Series 44 will be issued at a price of C$25.00 per share, for gross proceeds of C$150,000,000. Holders of the Preferred Shares, Series 44 will be entitled to receive a cumulative quarterly fixed dividend yielding 5.00% annually for the initial period ending December 31, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.17%, and (ii) 5.00%.

Brookfield has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Preferred Shares, Series 44 which, if exercised, would increase the gross offering size to C$200,000,000. The Preferred Shares, Series 44 will be offered in all provinces of Canada by way of a supplement to Brookfield’s existing short form base shelf prospectus. The Preferred Shares, Series 44 may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

Brookfield intends to use the net proceeds of the issue of Preferred Shares, Series 44 for general corporate purposes. The offering of Preferred Shares, Series 44 is expected to close on or about October 2, 2015.

The rate floor seems to have made it a popular issue! They later announced:

that as a result of strong investor demand for its previously announced offering it has agreed to increase the size of the offering to 10,000,000 Class A Preferred Shares, Series 44. The Preferred Shares, Series 44 will be issued at a price of C$25.00 per share, for gross proceeds of C$250,000,000. There will not be an underwriters’ option as was previously granted. The Preferred Shares, Series 44 are being offered on a bought deal basis by a syndicate of underwriters led by Scotiabank, CIBC, RBC Capital Markets and TD Securities Inc.

The Rate-Floor provision was recently introduced with the announcement of the CU FixedReset, 4.50%+369M450, which settled firm today on good volume. It will be noted that there is no floor rate on the BAM issue’s Strong Pair FloatingReset counterpart, which is the same as the CU issue.

Implied Volatility analysis indicates that the issue is priced fairly at the close today, after all the carnage amongst the BAM FixedResets on the day. There are two major caveats to this conclusion, beyond the usual warnings about Implied Volatility analysis:

• At 13% the indicated Implied Volatility is higher than I would expect for truly perpetual FixedResets. A decline in this value would be correlated with underperformance by lower spread issues.
• No allowance is made in this analysis for the rate floor, either in terms of expected dividend or of value. I don’t think the floor has much value in this environment, but it surely must have some!

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However, the tentative conclusion that the new issue is fairly priced despite the day’s carnage suggests we might be back to the Credit Crunch new issue paradigm: new issues are offered with a concession, as usual, but instead of settling with a slight premium, as is the intent, they might be projected to settle at par with the rest of the market having gone down in price! This can be taken as an indication that it has become awfully difficult to attract new capital to the preferred share marketplace.

This entry was posted on Friday, September 25th, 2015 at 1:29 am 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.