BAM.PF.H Firm On Good Volume

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 44 issue in the amount of C$250,000,000. The offering was underwritten by a syndicate led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc.

Brookfield issued 10,000,000 Series 44 Shares at a price of C$25.00 per share, for total gross proceeds of C$250,000,000. Holders of the Series 44 Shares 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%. The Series 44 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.H.

BAM.PF.H is a FixedReset, 5.00%+417M500, announced September 24. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,304,995 shares today (consolidated exchanges) in a range of 24.95-03 before closing at 24.96-99, 14×57. Vital statistics are:

Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 23.13
Evaluated at bid price : 24.96
Bid-YTW : 4.93 %

Implied Volatility analysis for the BAM FixedResets is difficult to take seriously, since the fit is so poor – but it is interesting to compare the following chart with the chart published on the announcement day. The issue’s siblings have been very weak in the intervening time, with the low Expected Future Current Yield moving from about 4.40% to 4.60% and several issues moving to have an EFCY of about 5%, on a level with the new issue. I will point out that this equivalence makes no sense – lower-spread issues should trade with a lower yield as compensation for their lower risk of call. Mind you, all this ignores the rate floor on the new issue!

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