Brookfield Renewable Partners L.P. has announced:
that it has agreed to issue 6,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 15 (the “Series 15 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, BMO Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc. for distribution to the public. The Series 15 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $150,000,000.
Holders of the Series 15 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution yielding 5.75% annually for the initial period ending April 30, 2024. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of (i) the 5-year Government of Canada bond yield plus 3.94%, and (ii) 5.75%. The Series 15 Preferred Units are redeemable on April 30, 2024 and on each Series 15 Reclassification Date (as defined below) thereafter.
Holders of the Series 15 Preferred Units will have the right, at their option, to reclassify their Series 15 Preferred Units into Cumulative Floating Rate Reset Class A Preferred Limited Partnership Units, Series 16 (“Series 16 Preferred Units”), subject to certain conditions, on April 30, 2024 and on April 30 every 5 years thereafter (each a “Series 15 Reclassification Date”). Holders of Series 16 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 3.94%.
Brookfield Renewable has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 15 Preferred Units which, if exercised, would increase the gross offering size to $200,000,000.
The Series 15 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Renewable’s existing Canadian short form base shelf prospectus. The Series 15 Preferred Units may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.
Brookfield Renewable intends to use the net proceeds of the issue of Series 15 Preferred Units to repay outstanding indebtedness and for general corporate purposes. The offering of Series 15 Preferred Units is expected to close on or about March 11, 2019.
The new issue is ridiculously expensive according to Implied Volatility Analysis:
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According to this analysis, the fair value of the new issue on January 19 is 23.34.
It’s interesting to note that the theoretical spread (on a notional non-callable perpetual resettable annuity) is 380bp, roughly the same as the actual issue spread of 394bp – which means that BEP is basically getting the call options on the issue for free.
Update, 2019-3-10: The underwriters’ option was partially exercised:
Brookfield Renewable Partners L.P. (TSX: BEP.UN; NYSE: BEP) (“Brookfield Renewable”) today announced that as a result of strong investor demand for its previously announced offering, the underwriters have partially exercised their option to increase the size of the offering to 7,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 15 (the “Series 15 Preferred Units”) to be offered on a bought deal basis to a syndicate of underwriters led by CIBC Capital Markets, BMO Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc. The Series 15 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $175,000,000.