Brookfield Infrastructure has announced:
that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 5 (“Series 5 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets, and Scotiabank. The Series 5 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 5 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.35% annually for the initial period ending September 30, 2021. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.64%, and (ii) 5.35%. The Series 5 Preferred Units are redeemable on or after September 30, 2021.
Holders of the Series 5 Preferred Units will have the right, at their option, to reclassify their Series 5 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 6 (“Series 6 Preferred Units”), subject to certain conditions, on September 30, 2021 and on September 30 every five years thereafter. Holders of Series 6 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.64%.
Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 5 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.
The Series 5 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure’s existing short form base shelf prospectus.
Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 5 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 5 Preferred Units is expected to close on or about August 2, 2016.
Note that this issue has an unusual tax status on its distributions: like BIP.PR.A and BIP.PR.B, the distributions will be comprised of a mixture of ordinary income and return of capital, in what are expected to be approximately equal proportions, but with no guarantees on just what the proportions will be, either for any particular year or in total!
It will be interesting to see how this issue trades relative to BIP.PR.B, which is a FixedReset, 5.50%+453M550 (Interest + ROC). Readers will note that BIP.PR.B has a lower Issue Reset Spread (453bp vs 464bp) than the new issue, but a higher Minimum Reset Rate (5.50% vs. 5.35%). BIP.PR.B closed today at 25.85-96, 2×5.