New Issue: TD Fixed-Reset, 5.60%+274

TD Bank has announced:

that it has entered into an agreement with a group of underwriters led by TD Securities Inc. for an issue of 8 million non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AC (the Series AC Shares), carrying a face value of $25.00 per share, to raise gross proceeds of $200 million. TDBFG intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

TDBFG has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series AC 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 maximum gross proceeds raised under the offering will be $250 million should this option be exercised in full.

The Series AC Shares will yield 5.60% annually, payable quarterly, as and when declared by the Board of Directors of TDBFG, for the initial period ending January 31, 2014. Thereafter, the dividend rate will reset every five years at a level of 274 basis points over the then five-year Government of Canada bond yield.

Holders of the Series AC Shares will have the right to convert their shares into non-cumulative Floating Rate Class A Preferred Shares, Series AD (the Series AD Shares), subject to certain conditions, on January 31, 2014, and on January 31st every five years thereafter. Holders of the Series AD Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of TDBFG, equal to the three-month Government of Canada Treasury bill yield plus 274 basis points.

The issue is anticipated to qualify as Tier 1 capital for TDBFG and the expected closing date is November 5, 2008. TDBFG will make an application to list the Series AC Shares as of the closing date on the Toronto Stock Exchange.

The first dividend will be for $0.3337, payable January 31, based on anticipated closing November 5, 2008.

Well … if this doesn’t knock hell out of the Fixed-Reset market, I don’t know what will! I mentioned when reviewing the BoC Monetary Policy Report that we could see more at these levels …

Update, 2008-11-4 TD has announced:

that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 0.8 million non-cumulative 5-Year Reset Preferred Shares, Series AC (the Series AC Shares) carrying a face value of $25.00 per share. This brings the total issue announced on October 27, 2008, and expected to close November 5, 2008, to 8.8 million shares and gross proceeds raised under the offering to $220 million.

5 Responses to “New Issue: TD Fixed-Reset, 5.60%+274”

  1. Annette says:


    “Assiduous readers” like me are abusing from your knowledge and experience such that I feel ashamed asking you this freebie but my “greed” is probably greater than my decency. The truth is, and I hear loud saying that it is because I took undue risks, that I am losing my self control. I thought I was strong. I was wrong.

    My question to you and to the other pundits of this wonderful blog is: “What is your assessment of the probabilities of Canadian banks reducing their dividends on ordinary shares at their next round of results?” I know we would need to see the results first but, based upon your prior analysis, gut feeling and experience, are we there? While I don’t want to influence your call one way or theother stating you my motivations asking you the question, I confess that I would jump on those new reset prefs if I had the intellectual ressources to make that call by myself and come to the conclusion that the Canadian Banks will indeed have to reduce their ordinary share dividends. This would increase the probability of investor seeking a safer haven with prefs. I haven’t read anything on that yet insofar as Canadian banks are concerned. Thks in advance for you or everyone else taking the time on this one.

  2. jiHymas says:

    “What is your assessment of the probabilities of Canadian banks reducing their dividends on ordinary shares at their next round of results?”

    I’m very hesitant to give you an answer on this one. You are asking for equity analysis, and equity analysis is not what I do … I don’t have systems properly set up and test, I don’t have data to feed my non-existent systems and any theories I might have have not been tested.

    I am flattered that you consider my advice worth seeking, but I’m a fixed-income guy (mainly, anyway. I’ve done successful quantitative work on equities in the past – with a good budget and staff).

    I’ll go this far … I suspect that bank dividends will not actually be cut until things get very bad. The banks are too fond of referring to 100+ years without a dividend cut to take such a step lightly; a cut would crater their share price and make it hard to raise equity.

    “Very bad”, to me, would imply a write-off in excess of $500-million. We haven’t seen any warnings – yet – of a loss of this magnitude, so my nickel goes on dividend maintenance when the year’s earnings are announced. Mind you – things are changing very rapidly and I haven’t seen next week’s headlines yet. AND I’m a fixed income guy and my sole concern is whether they can keep paying on their prefs – I’m much more comfortable with saying that the preferred dividends are not currently at risk.

    For what it’s worth – and it isn’t worth much more than you paid – that’s my view of the immediate future.

  3. Louis says:

    Thks James and Annette,

    Dundee downgraded Canadian banks today… I hate credit rating agencies with their after the fact downgrades or upgrades. Should the current crisis forces me to do what I was educated to do to earn my bread, I will volunteer starting a class action against them.

    On the other hand, while it mostly went unnoticed, RY announced ten days ago or so that they were renewing their share buy back program. So, I would agree with James that banks ordinary share dividends are probably still safe.

  4. Louis says:

    Woops! Sorry for the duplicated post. Please delete the first one I thought I could correct. I also note that the new TD reset, despite its higher resetting rate, is not selling as well as the earlier Royals. Could it be because of TDs involvement in the BCE’s buyout?

  5. jiHymas says:

    Note that Dundee’s downgrade was a change of that brokerage’s recommendation on their equity, based on a difficult business environment and lack of prospect for significant dividend increases; it was not intended to be a recommendation on the banks’ credit.

    The Royal Bank’s announcement of the issuer bid gives them the authority to buy back shares; it does not commit them to do so. As they state:

    The bank currently has a normal course issuer bid under way through which approximately 1.1 million of an allowed 20 million common shares have been repurchased as of October 15, 2008. This bid will expire October 31, 2008.

    The bank has about 1.3-billion shares out, which pay $2 p.a.; total $2.6-billion in regular common dividends. The 1.1-million shares purchased under the current plan, represents about $50-million returned to shareholders. Appreciated, certainly, but not a big deal.

    I suspect that any slowness in selling the TD issue is due to market saturation rather than credit analysis … but who knows?

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