Global Dividend Growth Split Corp, which commenced marketing in late April has released its final prospectus on SEDAR (as usual, the Canadian Securities Administrators will not allow me to link to this public document. Search for “Global Dividend Growth Split Corp. May 23 2018 22:26:01 ET Final long form prospectus – English PDF 832 K”)”):
The investment objectives for the Preferred Shares are to provide their holders with fixed cumulative preferential quarterly cash
distributions and to return the original issue price of $10.00 to holders on June 30, 2021 (the ‘‘Maturity Date’’), subject to extension for successive terms of up to five years as determined by the board of directors of the Company. See ‘‘Investment Objectives’’. The quarterly cash distribution will be $0.1250 per Preferred Share ($0.50 per annum or 5.0% per annum) on the issue price of $10.00 per Preferred Share until June 30, 2021. See ‘‘Distribution Policy’’.
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Closing of the Offering is expected to occur on or about June 15, 2018, but no later than 90 days after a receipt for this prospectus has been issued (the ‘‘Closing Date’’).
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No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution by the Company, the NAV per Unit would be less than $15.00.
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Assuming that the gross proceeds of the Offering are $75 million and fees and expenses are as presented in this prospectus, in order to achieve the Company’s targeted annual distributions for the Class A Shares and the Preferred Shares while maintaining a stable NAV per Unit, the Company will be required to generate an average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 9.2%. The Portfolio currently generates dividend income of 3.2% per annum net of withholding taxes and would be required to generate an additional 6.1% per annum from other sources to return and distribute such amounts.
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The Preferred Shares will be redeemed by the Company on the Maturity Date. The redemption price payable by the Company for a Preferred Share on that date will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions thereon and (ii) the NAV of the Company on that date divided by the total number of Preferred Shares then outstanding.
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Holders of Preferred Shares whose Preferred Shares are surrendered for [monthly] retraction will be entitled to receive a retraction price per Preferred Share (the “Preferred Share Retraction Price”) equal to 96% of the lesser of (i) the Net Asset Value per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00.
There is also a press release (link address adjusted 2018-6-15).
Those familiar with Split Share Credit Quality will recognize that the computed return of 9.2% required to meet the portfolio objectives is highly optimistic. The significant cash drag on the portfolio introduces material sequence of return risk and the long-term results will be highly dependent upon the variation of returns as well as their time-weighted average value.
And some will remember my views on Split Share Capital Units … although some will point out that special circumstances can alter cases.