GMP.PR.B To Reset At 3.611%

GMP Capital Inc. has announced:

the applicable dividend rates for its Cumulative 5-Year Rate Reset Preferred Shares, Series B (the Series B Shares) and its Cumulative Floating Rate Preferred Shares, Series C (the Series C Shares), further to its press release dated February 23, 2016, announcing that it does not intend to exercise its right to redeem all or any part of the currently outstanding Series B Shares and, as a result of which, subject to certain conditions, the holders of the Series B Shares have the right to convert all or any part of their Series B Shares into Series C Shares on a one-for-one basis.

With respect to any Series B Shares that remain outstanding after March 31, 2016, holders thereof will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Corporation, subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the five-year period commencing on April 1, 2016 and ending on and including March 31, 2021 will be 3.611% per annum or $0.22569 per share per quarter, being equal to the sum of the Government of Canada bond yield determined as of today, plus 2.89%, in accordance with the terms of the Series B Shares.

With respect to any Series C Shares that may be issued on March 31, 2016, holders thereof will be entitled to receive quarterly floating rate, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Corporation, subject to the provisions of the Business Corporations Act (Ontario). The dividend rate for the three-month period commencing on April 1, 2016 and ending on and including June 30, 2016 will be 3.352% per annum or $0.20893 per share for the quarter, being equal to the sum of the three-month Government of Canada Treasury Bill yield determined as of today, plus 2.89% (calculated on the basis of the actual number of days elapsed during such quarterly period divided by 365), in accordance with the terms of the Series C Shares. The quarterly floating dividend rate will be reset every quarter.

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

GMP.PR.B is a FixedReset 5.50%+289, which commenced trading 2011-2-22 after being announced 2011-2-1. The notice of extension was previously reported on PrefBlog. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns. It is rated Pfd-3(low) by DBRS; this rating is now on Review-Negative.

The new rate represents a cut of 34% 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.

Update, 2016-3-11: Interesting bit in the 15Q4 Report:

Bond forward: On March 2, 2016, we announced that the dividend rate on the Series B Preferred Shares will reset to 3.611% per annum, being the rate equal to the sum of the then current five-year Government of Canada (GOC) bond yield plus 2.89%, for the five-year period commencing on April 1, 2016 and ending on and including March 31, 2021. In order to partially hedge against a potential rise in GOC bond yields, GMP had entered into bond forward agreements with a Schedule I Canadian chartered bank in fourth quarter 2014 and first quarter 2015. In 2015, we recorded $3.6 million in pre-tax unrealized losses in connection with the bond forward (2014 – $0.4 million). For more information refer to “Financial Instruments – Derivative Financial Instruments”.

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