BEP.PR.O Falls In Line with Market on Decent Volume

BEP.PR.O is a FixedReset 5.75%+394M575 that was announced 2019-03-04 and closed today without a notice from the company. According to the prospectus (available on SEDAR with a search for “Brookfield Renewable Partners L.P. Mar 4 2019 21:17:51 ET Prospectus (non pricing) supplement – English PDF 542 K”, but I’m not allowed to link to it because the Canadian Securities Regulators don’t think prospectuses are for stupid investors; they’re only for smart people like Canadian Securities Regulators):

As shown in the table below, the historical 3 year average per unit Canadian dividends, ordinary income, return of capital (i.e., excess of distributions over allocated taxable income), and capital gains expressed as a percentage of the annual distributions in respect of units of the Partnership for the period 2016 through 2018 were approximately 47.84%, 14.06%, 36.16% and 1.94%, respectively. Management anticipates the 5 year average per unit Canadian dividend, ordinary income and return of capital will be 50%, 25%, and 25%, respectively, for the period between 2019 and 2024; however, no assurance can be provided this will occur.

  2016 2017 2018
Total Distributions C$2.34 C$2.40 C$2.58
Canadian Dividends C$1.28 C$1.09 C$1.12
Ordinary Income C$0.43 C$0.32 C$0.27
Return of Capital C$0.63 C$0.99 C$1.04
Capital Gains C$0.00 C$0.00 C$0.15
Canadian Dividends % 54.70% 45.42% 43.41%
Income % 18.38% 13.33% 10.47%
Return of Capital % 26.92% 41.25% 40.31%
Capital Gains % 0.00% 0.00% 5.81%

It will be tracked by HIMIPref™ and is assigned to the Scraps-FixedReset (Discount) subindex on credit concerns.

BEP.PR.O traded 319,809 shares today in a range of 24.60-83 before closing at 24.60-64. Vital statistics are:

Maturity Type : Limit Maturity
Maturity Date : 2049-03-11
Maturity Price : 23.01
Evaluated at bid price : 24.60
Bid-YTW : 5.80 %

The new issue is ridiculously expensive according to Implied Volatility Analysis:

Click for Big

According to this analysis, the fair value of the new issue on March 11 is 23.32, almost exactly the same as the announcement day fair value of 23.34.

It’s interesting to note that the theoretical spread (on a notional non-callable perpetual resettable annuity) is 432bp, more than the actual issue spread of 394bp – which means that BEP is basically getting the call options on the issue while having investors pay for the privilege!

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