PrefBlog

Partners Value Split Corp. has announced:

that it has entered into an agreement to sell 4,000,000 Class AA Preferred Shares, Series 7 (the “Series 7 Preferred Shares”) to a syndicate of underwriters led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc. on a bought deal basis.

The Series 7 Preferred Shares will be issued at a price of $25.00 per share, for gross proceeds of $100,000,000 . The Series 7 Preferred Shares will carry a fixed coupon of 5.50% and will have a final maturity of October 31, 2022. The Series 7 Preferred Shares have a provisional rating of Pfd-2 (low) from DBRS. The net proceeds of the offering will be used to redeem the Company’s outstanding Class AA Preferred Shares, Series 1 and to pay a special cash dividend to holders of the Company’s capital shares.

The Company has granted the underwriters an option, exercisable in whole or part prior to closing, to purchase up to an additional 2,000,000 Series 7 Preferred Shares, which, if exercised, would increase the gross offering size to $150,000,000. Closing of the offering is expected to occur on or about October 29, 2015.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares. Brookfield Asset Management Inc. (“Brookfield”) is a global alternative asset manager with over US$200 billion in assets under management and has over a 100-year history of owning and operating assets with a focus on property, renewable energy, infrastructure and private equity. Brookfield is co-listed on the New York and Toronto Stock Exchanges under the symbols BAM and BAM.A, respectively, and on NYSE Euronext under the symbol BAMA.

Series 1, for which this is a refunding issue, is PVS.PR.A, which has 2,074,420 shares outstanding a par value of $51.9-million. So it’s going to be a nice dividend on the capital shares! If we look at the PVS 15H1 Semi-Annual Report, we see that moving $100-million from Shareholders’ Equity to Liabilities (as will be the case, effectively, if they issue $150-million worth of the new shares and take out a dividend of $100-million) will result in an Asset Coverage ratio of 4.1-:1. This is a superb ratio and indicates that the constraint on the credit quality of the preferreds is not the financial status of the corporation but the credit rating of the underlying portfolio, BAM.A shares.

DBRS has assigned a provisional rating of Pfd-2(low) to the new issue, which is equal to that of the BAM preferreds:

The downside protection available to holders of the Class AA Preferred Shares is expected to be approximately 80%, following the issuance of the Series 7 Preferred Shares (assuming an issuance size of $150 million), and after the redemption of the Series 1 Preferred Shares, the payment of all issuance expenses and the distribution of the special dividend on the Capital Shares.

Holders of the Series 7 Preferred Shares are expected to receive fixed quarterly cumulative distributions, and the dividend coverage ratio is expected to be greater than 1.0 times. In the event of a shortfall, the Company may sell some of the BAM Shares or write covered call options on its BAM Shares to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends.

Many thanks to Assiduous Reader prefhound, who ensured I was aware of this issue!

This entry was posted on Tuesday, October 20th, 2015 at 6:41 pm 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.