New Issue: ECN FixedReset, 6.50%+544M650

ECN Capital Corp. has announced:

that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets, CIBC World Markets, National Bank Financial, RBC Capital Markets and TD Securities. The underwriters have agreed to buy 4,000,000 Cumulative 5-Year Minimum Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) at a price of $25.00 per share for aggregate gross proceeds of $100,000,000. The proceeds are expected to be used to originate and finance, directly and indirectly, finance assets and for general corporate purposes.

ECN Capital has granted the underwriters an option to purchase at the offering price up to an additional 2,000,000 Series A Preferred Shares exercisable, in whole or in part, at any time up to 48 hours prior to closing of the offering. Should the option be fully exercised, the total gross proceeds of the Series A Preferred Share offering will be $150,000,000.
The Series A Preferred Shares will be issued to the public at a price of $25.00 per share and holders will be entitled to receive fixed cumulative preferential cash dividends, payable by quarterly installments for an initial period of five years, as and when declared by the Board of Directors of the Corporation, at a rate of $1.625 per share per annum, to yield 6.50% annually. Thereafter, the dividend rate will reset every five years to the sum of the then current 5-Year Government of Canada Bond yield and 5.44%, provided that, in any event, such sum shall not be less than 6.50%. On December 31, 2021, and on December 31 of every fifth year thereafter, the Corporation may redeem the Series A Preferred Shares in whole or in part at par.

Holders will have the right to elect to convert all or any of their Series A Preferred Shares into an equal number of Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”) on December 31, 2021, and on December 31 of every fifth year thereafter. Holders of the Series B Preferred Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of the Corporation, equal to the sum of the then current 3-month Government of Canada Treasury Bill yield and 5.44%. On December 31, 2026 and on December 31, of every fifth year thereafter (a “Series B Redemption Date”), the Corporation may redeem the Series B Preferred Shares in whole or in part at par. On any other date that is not a Series B Redemption Date after December 31, 2021, the Corporation may redeem the Series B Preferred Shares in whole or in part by the payment of $25.50 for each share to be redeemed.

The offering is being made only in the provinces of Canada by means of a prospectus supplement to the Corporation’s base shelf prospectus. The closing date of the offering is expected to be on or about December 2, 2016.

“We see growth opportunities in the North American specialty finance market that we believe can offer very attractive returns for a non-bank participant with sector expertise and an investment-grade balance sheet,” said Steven Hudson, ECN Capital’s CEO. “The proceeds from this Offering bring these growth opportunities closer to hand by adding to the capacity, quality and depth of our current capital structure,” added Mr. Hudson.

ECN Capital was formed when Element Financial Corporation was partitioned into EFN (Element Fleet Management Corp.) and ECN. EFN was quickly upgraded to Pfd-3(high) by DBRS.

This new issue from ECN has been rated Pfd-3(low) by DBRS:

DBRS, Inc. (DBRS) has today assigned a rating of Pfd-3 (low) to the C$100 million Cumulative Five-Year Minimum Reset Preferred Shares, Series A (the Preferred Shares) issued by ECN Capital Corporation (ECN or the Company). The trend on the Preferred Shares is Stable. The proceeds from the Preferred Shares will be included in the general funds of ECN and available for general corporate purposes.

While near-term upward ratings migration is unlikely, over the medium-term, ratings could be positively impacted by a successful execution on the “asset-lite” strategy while maintaining asset quality within expectations and balance sheet leverage at current levels. Sustained earnings expansion that is supported by a more balanced mix of revenues would also be viewed positively by DBRS. A more balanced funding profile and lower asset encumbrance resulting in improved financial flexibility would be viewed favorably. Conversely, a noteworthy increase in leverage, sustained deterioration in operating performance, or indications of miss-steps in the execution of the “asset-lite” strategy evidenced by loss of key customers or operational-related charges could result in negative ratings pressure. Ratings could also be pressured by a material acquisition that DBRS views as outside of ECN’s core verticals and capabilities.

2 Responses to “New Issue: ECN FixedReset, 6.50%+544M650”

  1. klargenf says:

    Its IPO is still open and it looks like investors are not very interested…

    Can any comment about that?

  2. jiHymas says:

    I’ve seen some commentary suggesting that EFN.PR.C (6.50%+481), quoted at 24.73-99 and EFN.PR.G (6.50%+534) quoted at 25.00-10, are both preferable.

    You don’t get the minimum rate guarantee, but you get two notches worth of better credit.

    I can look at other operating issues rated Pfd-3(low):
    CF.PR.A, CF.PR.C

    and the 6.50% on this issue looks sort-of half-decent, but not compelling.

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