New Issue: GWO Fixed Reset 6.00%+307

Great-West Lifeco has announced a new issue.

Issue: Great West Lifeco Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series J

Size: 8-million shares (=$200-million); greenshoe for 30 days following closing of 1.2-million shares (=$30-million)

Initial Dividend: 6.00% p.a. until first Reset-Date. First dividend payable 2009-3-31 for $0.50959 based on a November 27 close.

Reset Dates: December 31, 2013 and every five years thereafter.

Convertible: Every reset date at holders’ option to and from Series K [Floater] (subject to a minimum outstanding in each series).

Reset Dividend: Series J [Reset] 5-Year Canadas +307bp. Series K [Floater] 3-month bills +307bp, reset quarterly.

Redeemable: Series J [Reset] every Reset Date at $25.00. Series K [Floater] every Reset Date at $25.00 and at all other times $25.50.

Closing: November 27, 2008

It’s very nice to see a new GWO issue – the last one was GWO.PR.I, which started trading 2006-4-12. It’s also nice to see such a good coupon on a fixed reset – the GWO perps closed last night bid to yield in the range 6.53%-6.85% … so the give-up for the reset feature is narrowing.

7 Responses to “New Issue: GWO Fixed Reset 6.00%+307”

  1. lafontaine says:

    Is it only me or is not the reset mecanism ( +274/267/168/193/196/160 canada 5 years- canada 3 months ….!!) confusing and being different with each issue a source of price ajustment relative to each issue in 5 years?


  2. jiHymas says:

    Yes, it’s confusing all right.

    Isn’t it wonderful?

    I forsee increased sales of PrefLetter, increased hits on PrefInfo and hugely profitable trades within the sector in the coming years.

    Seriously, though, the reason for the variance is that they have to make the resets close to the current levels (that is: reset spread = initial coupon – current five-year) in order to convince OSFI that it really is Tier 1 capital.

  3. Annette says:

    “so the give-up for the reset feature is narrowing” What would be in your opinion the proper give up for the reset feature of such an issue (Pfd-1 (low) I think)?

    Another very basic concern I have with the resets which I should have thought about before is what is meant by the “5-Year Canadas +” part to start with. The last two prospectus I looked at were making a reference to a 5-years Canada rate as published on Morningstar (I think). I did find it on the internet at the time. Is the definition clear enough such that there will be no dispute on the actual reset rate if and when the resets will occur? What about if the base reference is no longer there in say 10 years from now?

  4. jiHymas says:

    The recent prospectus for TD.PR.C (available on SEDAR) has the following language:

    “Government of Canada Yield” on any date shall mean the yield to maturity on such date (assuming semiannual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and which appears on the Bloomberg Screen GCAN5YR Page on such date; provided that, if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, the Government of Canada Yield will mean the arithmetic average of the yields quoted to the Bank by two registered Canadian investment dealers selected by the Bank as being the annual yield to maturity on such date, compounded semi-annually, which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100% of its principal amount on such date with a term to maturity of five years.

    I have no quibbles with the definition. To track the 5-year yield in a manner that doesn’t cost you $2,000 / month, see the Bank of Canada.

    In the comments to September 17, I suggested that a give-up of 30-50bp was appropriate for the fixed-reset feature, based largely on a Canada 5-30 spread of 105bp. The curve has steepened since then and the spread is now 150bp.

    The Fixed-Reset give-up (yield on PerpetualDiscounts less perpetual yield on Fixed-Resets) is now about 90bp for GWO, 175bp for CM, 190bp for BMO, 75bp for RY and 80bp for TD … I calculate the perpetual yield for Fixed Resets by assuming that on all following reset-dates the issue (i) is not called and (ii) is reset to today’s 5-year Canada + the defined spread. I’d estimate fair value for the Fixed-Reset give-up is now about 60-80bp

  5. […] from announcing a new issue for their GWO subsidiary (Fixed Reset, 6.00%+307), Power Financial Corporation has announced a new issue with similar […]

  6. […] greenshoe noted in the initial announcement was therefore fully […]

  7. […] is a FixedReset, 6.00%+307, which was announced in early November, 2008 and closed with the greenshoe fully exercised. It is tracked by HIMIPref™ and is a member of […]

Leave a Reply

You must be logged in to post a comment.