New Issue: CWB FixedReset, 6.25%+547, NVCC

Canadian Western Bank has announced (but not yet on their website):

its intent to issue $100 million non-cumulative 5-year rate reset First Preferred Shares Series 7 (Non-Viability Contingent Capital (NVCC)) (the “Series 7 Preferred Shares”). The offering will be underwritten on a bought deal basis by a syndicate led by National Bank Financial Inc. The expected closing date is on or about March 31, 2016.

Under the terms of the offering, CWB will issue 4,000,000 Series 7 Preferred Shares at a price of $25.00 per share. CWB has also granted the underwriters an over-allotment option, solely to cover over-allotments, if any, exercisable for a period of 30 days following the closing date of the offering, to purchase up to an additional 600,000 Series 7 Preferred Shares on the same terms. Should the underwriters choose to exercise this option in full, the maximum gross proceeds raised under the offering will be $115 million.

Holders of the Series 7 Preferred Shares will be entitled to receive a non-cumulative fixed dividend in the amount of $1.5625 annually, payable quarterly, as and when declared by the Board of Directors of CWB, for the initial period ending July 31, 2021. The quarterly dividend represents an annual yield of 6.25% based on the stated issue price per share. Thereafter, the dividend rate will reset every five years at a level of 547 basis points over the then 5-year Government of Canada bond yield. The first of such dividends, if declared, will be payable on July 31, 2016 and will be $0.5223 per Series 7 Preferred Share, based on the anticipated closing date of the offering of March 31, 2016. CWB maintains the right to redeem, subject to the approval of the Office of the Superintendent of Financial Institutions (“OSFI”), up to all of the then outstanding Series 7 Preferred Shares on July 31, 2021, and on July 31 every five years thereafter at a price of $25.00 per share.

Should CWB choose not to exercise its right to redeem the Series 7 Preferred Shares, holders of these shares will have the right to convert their shares into an equal number of non-cumulative floating rate First Preferred Shares Series 8 (Non-Viability Contingent Capital (NVCC)) (the “Series 8 Preferred Shares”), subject to certain conditions, on July 31, 2021, and on July 31 every five years thereafter. Holders of the Series 8 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of CWB, equal to the 90-day Government of Canada Treasury Bill rate plus 547 basis points.

Net proceeds from the offering will be added to CWB’s capital base and used for general corporate purposes and are expected to qualify as Tier 1 capital for CWB. The offering will be completed by way of short form prospectus to be filed in all provinces and territories of Canada.

This issue will be tracked by HIMIPref™ and assigned to the Scraps index on credit concerns.

This issue looks like it’s priced with a small concession. The bank’s extant FixedReset, CWB.PR.B, 4.40%+276 is currently bid at 16.35 to yield 5.66% to perpetuity, compared to 6.13% to perpetuity for the new issue (assuming a thirty year end-price of 23.14). Thus, the 271bp difference in Issue Reset Spread gives rise to a 47bp difference in yield, slightly above the norm.

One Response to “New Issue: CWB FixedReset, 6.25%+547, NVCC”

  1. Alan says:

    I believe you said you were going to report on TA.PR.D on Friday ??

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