The Bank of Nova Scotia has announced:
a domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 38 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 38”).
Scotiabank has agreed to sell 12 million of Preferred Shares Series 38 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. Scotiabank has granted the Underwriters an option, exercisable in whole or in part up to 48 hours before closing, to purchase up to an additional 2 million Preferred Shares Series 38 at the same offering price.
Scotiabank will issue Preferred Shares Series 38 priced at $25 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend, as and when declared by the Board of Directors of Scotiabank, for the initial period ending on and including January 26, 2022 at an annual rate of $1.2125 per share to yield 4.85% per cent annually.
On January 27, 2022 and on January 27 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 38 at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 38 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 39 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 39”) of Scotiabank on January 27, 2022 and on January 27 every five years thereafter.
Holders of the Preferred Shares Series 39 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 4.19%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 39 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 38 on January 27, 2027 and on January 27 every five years thereafter.
Closing is expected to occur on or after September 16, 2016. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure.
Net proceeds from this transaction will be added to Scotiabank’s funds and will be used for general business purposes.
They later announced:
that as a result of strong investor demand for its previously announced domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 38 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 38”), the size of the offering has been increased to 20 million shares. The gross proceeds of the offering will now be $500 million. The offering will be underwritten by a syndicate of investment dealers led by Scotia Capital Inc.
Closing is expected to occur on or after September 16, 2016. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure. Scotiabank intends to file a prospectus supplement to its July 7, 2016 base shelf prospectus in respect of this issue.
Net proceeds from this transaction will be added to Scotiabank’s funds and will be used for general business purposes.
This is Scotia’s third NVCC-compliant issue, so we can attempt some very cautious Implied Volatility Analysis:
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On the one hand, it appears to be fairly priced against the two other NVCC issues, with an Implied Volatility of 9%. However, most other series have Implied Volatility in excess of 20% and therefore show steeper curves when analyzed in this fashion, which suggests either than the new issue is cheap, or the other two issues (BNS.PR.E and BNS.PR.G) are rich. Take your pick! However, the NVCC non-compliant issues are very clearly differentiated from the compliant issues, so that’s something!