PrefBlog

Royal Bank of Canada has announced:

it has completed the acquisition of City National Corporation (“City National”).
…
Based on the closing price on the New York Stock Exchange of RBC’s common shares on October 30, 2015 of US$ 56.83, the total transaction value is US$ 5.0 billion and will be paid with US$ 2.6 billion in cash and 41.6 million RBC common shares. In addition, RBC will issue US$ 275 million of RBC first preferred shares in exchange for all outstanding shares of City National preferred stock. The transaction is expected to reduce the Q1/2016 Common Equity Tier 1 ratio of RBC by approximately 70 basis points. RBC continues to forecast a strong capital position going forward.

There are two issues of City National preferreds that have been converted. The first is CYN.PRC, a 5.50% Straight Perpetual USD:

We will pay dividends on the Preferred Stock, when, as, and if declared by our board of directors or a duly authorized committee of the board. If declared, dividends will accrue and be payable on the liquidation preference amount, on a non-cumulative basis, from the date of issuance at a rate of 5.50% per annum, payable quarterly, in arrears. See also “Dividend Payment Dates” on page S-9. Upon the payment of any dividends on the Preferred Stock, holders of depositary shares will receive a related proportionate payment.

The second is CYN.PRD, a 6.75%+405.2 FixedFloater USD:

We will pay dividends on the Preferred Stock, when, as, and if declared by our board of directors or a duly authorized committee of the board, out of funds legally available to pay dividends, (i) from the date of issuance of the Preferred Stock to, but excluding November 7, 2023, at an annual rate of 6.750% on the liquidation preference amount of $1,000 per share of Preferred Stock, quarterly in arrears, on February 7, May 7, August 7 and November 7 of each year (each, a “dividend payment date”), beginning on February 7, 2014, and (ii) from, and including, November 7, 2023, at an annual rate equal to three-month LIBOR plus 4.052% on the liquidation preference amount of $1,000 per share of Preferred Stock, quarterly in arrears, on each dividend payment date, beginning on February 7, 2024. Upon the payment of any dividends on the Preferred Stock, holders of depositary shares will receive a related proportionate payment.

Neither new series is yet listed on RY’s preferred share page. If they are listed, they will be known as Series C-1 and Series C-2:

In addition, upon the consummation of the Merger, each outstanding share of City National’s 5.5% Non-Cumulative Perpetual Preferred Stock, Series C will be cancelled and RBC will issue to the former holder, in respect of each such outstanding share of preferred stock, one 5.50% Non-Cumulative Perpetual Preferred share, Series C-1 (“Series C-1 Preferred Share”) of RBC and each outstanding share of City National’s 6.75% Fixed Rate/Floating Rate Non-Cumulative Preferred Stock, Series D will be cancelled and RBC will issue to the former holder, in respect of each such outstanding share of preferred stock, one 6.75% Fixed Rate/Floating Rate Non-Cumulative Preferred Share, Series C-2 (“Series C-2 Preferred Share”) of RBC. In consideration for the issuance of Series C-1 Preferred Shares and Series C-2 Preferred Shares, Holdco will issue to RBC a number of shares in the capital stock of Holdco for each Series C-1 Preferred Share and Series C-2 Preferred Share, respectively, having a fair market value equal to the fair market value of a Series C-1 Preferred Share and a Series C-2 Preferred Share, respectively, on the date of issuance.

As is typical with take-overs, various matters of great pith and moment are not spelled out, but it appears that the new series C-1 and C-2 are not NVCC-compliant:

Conversion Rights. New RBC Preferred Shares are not convertible into or exchangeable for any other class or series of shares or securities of, or any other interests in, RBC.

In addition I can find no mention in RY’s definitive filing with the SEC a discussion of tax considerations for Canadian residents; there is no such description in any of the various attachments, either. However, given that DBRS has assigned a bond-style rating to these new series … :

DBRS Limited (DBRS) has today assigned a rating of A (low) with a Stable trend to Royal Bank of Canada’s (RBC or the Bank) 5.50% Non-Cumulative Perpetual First Preferred Shares, Series C-1 (Preferred Shares, Series C-1) and 6.750% Fixed Rate/Floating Rate Noncumulative Perpetual First Preferred Shares, Series C-2 (Preferred Shares, Series C-2).

RBC has closed its acquisition of City National Corporation (City National) and will issue $275 million of RBC First Preferred Shares in exchange for all outstanding shares of City National’s Preferred Stock. RBC will issue $175 million of Preferred Shares, Series C-1 and $100 million of Preferred Shares, Series C-2. These new RBC preferred shares rank pari passu with all existing preferred shares of the Bank.

… I strongly suspect that Canadian shareholders will not receive benefit of the Dividend Tax Credit and Gross-Up; i.e., that these things are preferred securities not, by my definition, preferred shares.

These things are listed on NASDAQ with the symbols RY.PRS and RY.PRT.

This entry was posted on Tuesday, November 3rd, 2015 at 9:09 pm and is filed under New Issues, US Pay. 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.