Brookfield Infrastructure has announced:
that it has agreed to issue 8,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc. The Series 7 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000. Holders of the Series 7 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.00% annually for the initial period ending March 31, 2022. 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 3.78%, and (ii) 5.00%. The Series 7 Preferred Units are redeemable on or after March 31, 2022.
Holders of the Series 7 Preferred Units will have the right, at their option, to reclassify their Series 7 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 8 (“Series 8 Preferred Units”), subject to certain conditions, on March 31, 2022 and on March 31 every five years thereafter. Holders of Series 8 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 3.78%.
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 7 Preferred Units which, if exercised, would increase the gross offering size to $250,000,000.
The Series 7 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 7 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 7 Preferred Units is expected to close on or about January 26, 2017.
They later announced:
that as a result of strong investor demand for its previously announced offering it has agreed to increase the size of the offering to 12,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Preferred Units”) to be offered on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, RBC Capital Markets, Scotiabank, and TD Securities Inc. The Series 7 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $300,000,000.
I understand that the Return of Capital percentage of distributions is forecast – but by no means guaranteed! – to be about 50% over the next five years. See the discussion of BIP.PR.A for some sample calculations regarding the implications of this.
Implied Volatility analysis suggests that this issue is expensive:
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However, this conclusion rests to a large degree on the question of how much the minimum reset guarantee is worth. I’m not inclined to assign a particularly high value on it; but others might be more generous.