CPX.PR.K Firm on Adequate Volume

Capital Power Corporation has announced:

that it has closed its previously announced offering of 6,000,000 Cumulative Minimum Rate Reset Preference Shares, Series 11 (the “Series 11 Shares”) at a price of $25.00 per Series 11 Share for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters, co-led by TD Securities Inc. and RBC Capital Markets.

The Series 11 Shares will pay fixed cumulative dividends of $1.4375 per share per annum, yielding 5.75% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the board of directors of Capital Power, for the initial period ending June 30, 2024. With an issue date of May 16, 2019, the first quarterly dividend of $0.1772 per share is expected to be paid on June 30, 2019 (with actual payment to be made on June 28, 2019, being the last business day of June 2019). The dividend rate will be reset on June 30, 2024 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.15%, provided that, in any event, such rate shall not be less than 5.75%. The Series 11 Shares are redeemable by Capital Power, at its option, on June 30, 2024 and on June 30 of every fifth year thereafter.

Holders of Series 11 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 12 (the “Series 12 Shares”), subject to certain conditions, on June 30, 2024 and every five years thereafter. Holders of Series 12 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.15%, as and when declared by the Board of Directors of Capital Power.

S&P Global Ratings has assigned a rating of P-3 for the Series 11 Shares and DBRS Limited has assigned a rating of Pfd-3 (low) for the Series 11 Shares.

The Series 11 Shares will begin trading today on the TSX under the symbol CPX.PR.K.

CPX.PR.K is a FixedReset 5.75%+415M575 issue announced May 7. It will be tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

The issue traded 364,660 shares today in a range of 24.76-97 before closing at 24.97-98. Vital statistics are:

CPX.PR.K FixedReset Disc YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-05-16
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 5.71 %

Given that CPX has six FixedReset issues, including this one, of which three have no floor (CPX.PR.A, CPX.PR.C and CPX.PR.E) and three do (CPX.PR.G, CPX.PR.I and CPX.PR.K), it is difficult to obtain any meaning from a volatility analysis. However, I will note that CPX.PR.I, a FixedReset, 5.75%+412M575, that commenced trading 2017-8-9 after being announced 2017-7-27, has near-identical terms and closed today at 25.04-07 to yield 5.74%-5.74%, while CPX.PR.A, a FixedReset, 3.06%+217, that commenced trading 2010-12-16 with a 4.60% dividend after being announced 2010-12-1, and reset to 3.06% effective 2015-12-31, is now quoted at 13.77-80 to yield 6.81-6.79%. I find it very difficult to believe that the dividend floor is worth a full point of yield, even before considering the additional call risk of the new issue.

One Response to “CPX.PR.K Firm on Adequate Volume”

  1. […] was issued as a FixedReset 5.75%+415M575 issue that commenced trading 2019-5-16 after being announced 2019-5-7. It has been tracked by HIMIPref™ but relegated to the Scraps […]

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