It took two attempts, but The Bank of Nova Scotia has announced:
that it has completed the domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 36 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 36”).
Scotiabank sold 20 million Preferred Shares Series 36 at a price of $25.00 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending July 25, 2021 yielding 5.50% per annum, as and when declared by the Board of Directors of Scotiabank. The gross proceeds of the offering were $500 million.
The offering was made through a syndicate of underwriters led by Scotia Capital Inc. The Preferred Shares Series 36 commenced trading on the Toronto Stock Exchange today under the symbol BNS.PR.G.
On July 26, 2021 and on July 26 every five years thereafter, Scotiabank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem all or any number of the then outstanding Preferred Shares Series 36 at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.72% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 36 will, subject to certain conditions, have the right to convert all or any part of their shares to Non-cumulative Floating Rate Preferred Shares Series 37 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 37”) of Scotiabank on July 26, 2021 and on July 26 every five years thereafter.
Holders of the Preferred Shares Series 37 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.72%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 37 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 36 on July 26, 2026 and on July 26 every five years thereafter.
On their first attempt they had the symbol, given at the end of the third paragraph, as “[NTD]”. The second attempt was labelled an “Update” because “Correction” would imply that the Holy Bank had made a mistake, which is of course impossible.
BNS.PR.G is a FixedReset, 5.50%+472, announced 2016-3-3. It will be tracked by HIMIPref™ and is assigned to the FixedReset subindex.
The issue traded 955,584 shares today in a range of 25.20-29 before closing at 25.26-28, 98×49. Vital Statistics are:
| BNS.PR.G | FixedReset | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-07-25 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 5.31 % |
Implied Volatility analysis is not very useful for the BNS series, but when performed anyway yields the following chart:
Click for Big
The reason this analysis is not particularly useful is that the five lower-spread issues are NVCC Non-Compliant while the two higher-spread issues are compliant (the new issue is one of these). So there are really two separate series, with not enough data to examine the compliant issues only.
However, this new issue appears to be quite cheap relative to BNS.PR.E, which is a FixedReset, 5.50%+451, that commenced trading 2016-12-17 after being announced 2015-12-8. At today’s closing bid of 25.60, BNS.PR.E has an Expected Future Current Yield (EFCY) of 5.17%, compared to 5.44% for the new issue at its bid of 25.26. So the 21bp of extra spread are resulting in an expected EFCY pick-up of 27bp compared to a normally expected (as of the February PrefLetter, Table FR-11, Charts FR-31 and FR-58) pick-up of 2-8bp.
To make the EFCY pick-up for the new issue equal to 5bp – to strike a happy medium – its price would have to be about 26.35 (given a price of 25.60 for BNS.PR.E) so I suspect we’ll see a certain amount of price adjustment between the two issues!
Regrettably, BNS does not have any NVCC-compliant Straight Perpetuals trading, so it is impossible to compute Break Even Rate Shock.
Could this be added to PrefInfo?