The Toronto-Dominion Bank has announced (although not yet on their website):
a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”).
TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 10 million Series 24 Shares at a price of $25.00 per share to raise gross proceeds of $250 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 24 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.
The Series 24 Shares will yield 5.10% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending July 31, 2024. Thereafter, the dividend rate will reset every five years at a level of 3.56% over the then five-year Government of Canada bond yield.
Subject to regulatory approval, on July 31, 2024 and on July 31 every 5 years thereafter, TD may redeem the Series 24 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 24 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares (NVCC), Series 25 (the “Series 25 Shares”), on July 31, 2024, and on July 31 every five years thereafter. Holders of the Series 25 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury Bill yield plus 3.56%.
The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.
They later announced (not on their website either):
that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 24 (the “Series 24 Shares”), the size of the offering has been increased to 18 million Series 24 Shares. The gross proceeds of the offering will now be $450 million. The offering will be underwritten by a group of underwriters led by TD Securities Inc.
The expected closing date is June 4, 2019. TD will make an application to list the Series 24 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.
The new issue is somewhat expensive according to Implied Volatility Analysis:
Click for Big
According to this analysis, the fair price of the new issue is 24.27.
It is most interesting to compare this issue with TD.PF.L, a FixedReset, 5.20%+327, that commenced trading 2019-1-28 after being announced 2019-01-17. Alert Assiduous Readers will have noticed that although the initial dividends of the two issues are similar, the spreads are 29bp different, which is significant. The fair price of TD.PF.L according to the analysis above is only 23.23, yet the issue was down only $0.17 on the day to close at 25.01-24 on volume of 109,265. I am reminded of the BCE.PR.K Ridiculous Rip-off Wrinkle, in which BCE was able to reopen the issue since – presumably – the initial coupon rate was in-line with the market even though the spread to the Canada 5-year for the re-opened portion was 87bp lower than it should have been.
So I guess TD’s happy enough with the pricing of this issue – after all, given that the calculated spread for a notional perpetual non-callable annuity is 346bp and the spread on the issue is 356bp. They didn’t quite get their call options for free, but close!