The Canadian Imperial Bank of Commerce has announced:
that it had entered into an agreement with a group of underwriters led by CIBC Capital Markets for an issue of 10 million Basel III-compliant Non-cumulative Rate Reset Class A Preferred Shares Series 49 (Non-Viability Contingent Capital (NVCC)) (the “Series 49 Shares”) priced at $25.00 per Series 49 Share to raise gross proceeds of $250 million.
CIBC has granted the underwriters an option to purchase up to an additional 2 million Series 49 Shares at the same offering price, exercisable at any time up to two days prior to closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the financing will be $300 million.
The Series 49 Shares will yield 5.20% per annum, payable quarterly, as and when declared by the Board of Directors of CIBC, for an initial period ending April 30, 2024. On April 30, 2024, and on April 30 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 3.31%.
Subject to regulatory approval and certain provisions of the Series 49 Shares, on April 30, 2024 and on April 30 every five years thereafter, CIBC may, at its option, redeem all or any part of the then outstanding Series 49 Shares at par.
Subject to the right of redemption, holders of the Series 49 Shares will have the right to convert their shares into Non-cumulative Floating Rate Class A Preferred Shares Series 50 (Non-Viability Contingent Capital (NVCC)) (the “Series 50 Shares”), subject to certain conditions, on April 30, 2024 and on April 30 every five years thereafter. Holders of the Series 50 Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of CIBC, equal to the three-month Government of Canada Treasury Bill yield plus 3.31%.
Holders of the Series 50 Shares may convert their Series 50 Shares into Series 49 Shares, subject to certain conditions, on April 30, 2029 and on April 30 every five years thereafter.
The expected closing date is January 22, 2019. CIBC will make an application to list the Series 49 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of this offering will be used for general purposes of CIBC.
The new issue is quite expensive according to Implied Volatility Analysis:
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According to this analysis, the fair value of the new issue on January 14 is 23.85. Note that CM.PR.R, a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-5-25, was quoted today at 23.34-55, after trading 69,809 shares in a range of 23.07-45. CM.PR.R resets 2022-7-31, so it has 14 dividend payments left to reset at 80bp less than the new issue, so 25 * 0.008 * 14 / 4 = 0.70, so it will receive $0.70 less total dividends than the new issue until it resets. I’m ignoring a ‘first-coupon effect’ for the new issue, but the currently payable dividend for CM.PR.R pays it up until 2019-1-30, so the effect is minimal.