The Toronto-Dominion Bank has announced (on July 5):
a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 16 (the “Series 16 Shares”).
TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 12 million Series 16 Shares at a price of $25.00 per share to raise gross proceeds of $300 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 16 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.
The Series 16 Shares will yield 4.50% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending October 31, 2022. Thereafter, the dividend rate will reset every five years at a level of 3.01% over the then five-year Government of Canada bond yield.
Subject to regulatory approval, on October 31, 2022 and on October 31 every 5 years thereafter, TD may redeem the Series 16 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 16 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares (NVCC), Series 17 (the “Series 17 Shares”), on October 31, 2022, and on October 31 every five years thereafter. Holders of the Series 17 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury Bill yield plus 3.01%.
The expected closing date is July 14, 2017. TD will make an application to list the Series 16 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.
They later announced:
that, in connection with its previously announced domestic public offering of 12 million 4.50% Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 16 (the “Series 16 Shares”), the underwriters have exercised their option (the “Underwriters’ Option”) to purchase an additional 2 million Series 16 Shares at a price of $25.00 per share. TD will receive additional gross proceeds of $50 million from the exercise of the Underwriters’ Option, increasing the total size of the offering to $350 million. Closing of the Underwriters’ Option is expected to occur concurrently with the closing of the public offering on July 14, 2017.
This issue has much the same problem as most other new issues: it’s expensive – at least, according to Implied Volatility for FixedResets analysis:
Click for Big
The theoretical price of the new issue according to this analysis is 24.30.
As you have pointed out several times, too many people look at the first headline number, 4.50% (or its updated cousin, current yield) and skip over the second one, 301 bps reset spread (or its more distant cousin, YTW).
Maybe it’s time to get an update on the Bozo spread, after some 5 years?
http://prefblog.com/?p=18854
Movement in the Bozo Spread has been awesome lately, moving from 56bp on June 9 to 89bp on July 10. That’s been helped a little by resets taking effect in the interim, but not much.
Over the same period the spread in YTW has narrowed from 95bp to 87bp; the difference between the two measures clearly shows the effect of a 70bp increase in government five-year yields.