PrefBlog

RONA Inc. has announced (although not yet on its website):

that it does not intend to exercise its right to redeem all or any part of its currently outstanding 6,900,000 Cumulative 5-Year Rate Reset Series 6 Class A Preferred Shares (the “Series 6 Shares”) on March 31, 2016. As a result and subject to certain conditions set out in the short form prospectus dated February 11, 2011 relating to the issuance of the Series 6 Shares, the holders of the Series 6 Shares have the right, at their option, to convert all or any of their Series 6 Shares into Cumulative Floating Rate Series 7 Class A Preferred Shares of RONA (the “Series 7 Shares”) on March 31, 2016, on the basis of one Series 7 Share for each Series 6 Share. Holders who do not exercise their right to convert their Series 6 Shares into Series 7 Shares on such date will continue to hold their Series 6 Shares.

The foregoing conversion right is subject to the conditions that: (i) if RONA determines that there would be less than 1,000,000 Series 7 Shares outstanding after March 31, 2016, then holders of Series 6 Shares will not be entitled to convert their shares into Series 7 Shares, and (ii) alternatively, if RONA determines that there would remain outstanding less than 1,000,000 Series 6 Shares after March 31, 2016, then all remaining Series 6 Shares will automatically be converted into Series 7 Shares on March 31, 2016, on the basis of one Series 7 Share for each Series 6 Share. In either case, RONA will give written notice to that effect to registered holders of Series 6 Shares no later than March 24, 2016.

With respect to any Series 6 Shares that remain outstanding after March 31, 2016, holders of the Series 6 Shares will be entitled to receive fixed, cumulative, preferential cash dividends, as and when declared by the Board of Directors of RONA, payable quarterly on the last business day of each of March, June, September and December each year and subject to the provisions of the Business Corporations Act (Québec). The dividend rate for the five-year period from and including March 31, 2016 to but excluding March 31, 2021 will be 3.324% per annum or $0.20775 per share per quarter, being 2.65% over the five-year Government of Canada bond yield, as determined in accordance with the terms of the Series 6 Shares.

With respect to any Series 7 Shares that may be issued on March 31, 2016, holders of the Series 7 Shares will be entitled to receive floating rate, cumulative, preferential cash dividends, as and when declared by the Board of Directors of RONA, payable quarterly on the last business day of each of March, June, September and December each year and subject to the provisions of the Business Corporations Act (Québec). The dividend rate for the floating rate period from and including March 31, 2016 to but excluding June 30, 2016 will be 3.110% per annum or $0.19384 per share, being 2.65% over the 90-day Government of Canada Treasury Bill yield (calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365), as determined in accordance with the terms of the Series 7 Shares.

An application will be made to list the Series 7 Shares on the Toronto Stock Exchange (“TSX”).

Beneficial owners of Series 6 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Montreal time) on March 16, 2016.

On February 3, 2016, RONA announced that it had entered into an arrangement agreement with Lowe’s Companies, Inc. and its wholly-owned subsidiary Lowe’s Companies Canada, ULC under which Lowe’s has agreed to acquire all of the issued and outstanding common shares of RONA at a price of $24.00 per share in cash by way of a statutory plan of arrangement under the Business Corporations Act (Québec) (the “Arrangement”). Under the terms of the arrangement agreement, Lowe’s has also agreed to acquire all of the outstanding Series 6 Shares and any then outstanding Series 7 Shares for $20 per share in cash (plus any accrued but unpaid dividends thereon at closing), which represents a premium of approximately 59% to the closing price of the Series 6 Shares on the TSX on February 2, 2016 and a premium of approximately 58% to the 20 trading day volume weighted average price of the Series 6 Shares on the TSX up to and including February 2, 2016. RONA’s board of directors has unanimously approved the arrangement agreement.

Completion of the Arrangement is conditional upon approval of at least 66 2/3% of the votes cast by the common shareholders at the special meeting to be held on March 31, 2016 for such purpose (the “Meeting”) and satisfaction of other customary conditions including regulatory approvals in Canada and the issuance of a final order by the Québec Superior Court. Preferred shareholders will vote on the Arrangement as a separate class of securities and their participation in the Arrangement will require the approval of 66 2/3% of the votes cast by holders of preferred shares represented in person or by proxy at the Meeting. However, completion of the Arrangement is not conditional on approval by the preferred shareholders and, if the requisite approval of the preferred shareholders is not obtained, the Series 6 Shares and Series 7 Shares will be excluded from the Arrangement and will remain outstanding in accordance with their terms. It is expected that the Arrangement will be completed in the second half of 2016.

A copy of the arrangement agreement, the information circular and related documents have been filed with Canadian securities regulators and are available on RONA’s profile at www.sedar.com.

RON.PR.A was issued as a FixedReset, 5.25%+265, , which commenced trading 2011-2-22 after being announced February 1. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. The proposed acquisition, via Plan of Arrangement, by Lowe’s was reported on PrefBlog.

The new rate represents a cut of 37% in the dividend rate.

As noted in the press release, the deadline for notification of intent to convert to the FloatingReset is March 16. I will post a recommendation on March 11.

This entry was posted on Tuesday, March 1st, 2016 at 11:51 pm and is filed under Issue Comments. 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.