PrefBlog

Pembina Pipeline Corporation has announced (on December 16):

it has completed its previously announced acquisition of Kinder Morgan Canada Limited (“KML”) (the “Corporate Acquisition”) and the U.S. portion of the Cochin Pipeline system (the “Cochin US Acquisition” and together with the Corporate Acquisition, the “Kinder Morgan Transaction”). The Company is further pleased to affirm its previously announced dividend increase, announce its 2020 financial guidance and provide an end-of-year business update.

Closing of the Kinder Morgan Transaction

“We are pleased to have closed the highly strategic Kinder Morgan Transaction earlier than originally expected, which will allow us to realize a full year of contribution from these assets in 2020. The newly acquired assets provide enhanced integration within our existing franchise, entrance into exciting new businesses and clear visibility to creating long-term value for our shareholders,” said Mick Dilger, Pembina’s President and Chief Executive Officer. “Our teams will now focus on completing the integration activities and pursuing the $100 million of additional run-rate adjusted EBITDA we expect to realize over the coming years,” added Mr. Dilger.

The Corporate Acquisition was completed pursuant to a plan of arrangement under Section 193 of the Business Corporations Act (Alberta) (the “Arrangement”) pursuant to which KML acquired all of the issued and outstanding class B limited partnership units of Kinder Morgan Canada Limited Partnership (“Class B Units”), Pembina acquired all of the issued and outstanding special voting shares of KML (“KML Special Voting Shares”) and PKM Canada Limited (“Pembina SubCo”), a wholly-owned subsidiary of Pembina, amalgamated with KML and continued under the name “PKM Canada Limited” (“Amalco”). Pursuant to such amalgamation, each restricted voting share of KML (“KML Restricted Voting Shares”) was cancelled, each cumulative redeemable minimum rate reset preferred share, series 1 of KML (“KML Series 1 Shares”) was cancelled, each cumulative redeemable minimum rate reset preferred share, series 3 of KML (“KML Series 3 Shares”) was cancelled, each KML Special Voting Share was cancelled and each common share of Pembina SubCo was converted into one common share of Amalco. Pursuant to the Arrangement:

(a) holders of KML Restricted Voting Shares, for each KML Restricted Voting Share held, received 0.3068 of a common share of Pembina (a “Pembina Common Share”);

(b) holders of KML Special Voting Shares, and associated Class B Units received: (i) for each KML Special Voting Share held, a cash payment of $0.000001; and (ii) for each associated Class B Unit held, 0.3068 of a Pembina Common Share;

(c) holders of KML Series 1 Shares, for each KML Series 1 Share held, received one cumulative redeemable rate reset class A preferred share, series 23 of Pembina (PPL.PF.C) (“PPL Series 23 Shares”) with substantially the same terms and conditions as the KML Series 1 Shares; and

(d) holders of KML Series 3 Shares, for each KML Series 3 Share held, received one cumulative redeemable rate reset class A preferred share, series 25 of Pembina (PPL.PF.E) (“PPL Series 25 Shares”) with substantially the same terms and conditions as the KML Series 3 Shares.

Following completion of the Arrangement, Pembina is the owner of all of the issued and outstanding securities of Amalco. The Arrangement was approved by the holders of KML Restricted Voting Shares and KML Special Voting Shares, voting together as a single class, and the holders of KML Series 1 Shares and KML Series 3 Shares, voting together as a single class, at special meetings held on December 10, 2019 and by the Court of Queen’s Bench of Alberta on December 10, 2019. Immediately before the Arrangement, Pembina did not own or control any KML Restricted Voting Shares, KML Special Voting Shares, Class B Units, KML Series 1 Shares, KML Series 3 Shares or common shares of Amalco.

Dividends on the PPL Series 23 Shares and the PPL Series 25 Shares will continue to be paid on the 15th day of February, May, August and November in each year if, as and when declared by the board of directors of Pembina. Former holders of KML Series 1 Shares receiving PPL Series 23 Shares will receive a full quarterly dividend of $0.328125 on February 15, 2020, when declared, and former holders of KML Series 3 Shares receiving PPL Series 25 Shares will receive a full quarterly dividend of $0.3250 on February 15, 2020, when declared. The KML Restricted Voting Shares, the KML Series 1 Shares and the KML Series 3 Shares will be delisted from the TSX within a few trading days following closing of the Kinder Morgan Transaction.

…

KML.PR.A is now PPL.PF.C.

KML.PR.C is now PPL.PF.E

KML.PR.A is a FixedReset 5.25%+365M525, that commenced trading 2017-8-15 after being announced 2019-8-3. A Plan of Arrangement was announced in August 2019 and a vote by preferred shareholders was made explicit in September 2019

KML.PR.C is a FixedReset, 5.20%+351M520, that commenced trading 2017-12-15 after being announced 2017-12-6. A Plan of Arrangement was announced in August 2019 and a vote by preferred shareholders was made explicit in September 2019

PPL now has a series of FixedResets that dwarfs many much larger companies, Implied Volatility analysis yields the following chart:

Click for Big

There is the familar extreme richness for three issues that have a floor: PPL.PF.A (+326bp, Min 4.90%) is $5.16 rich; PPL.PF.C (+365bp, Min 5.25%) is $3.95 rich; and PPL.PF.E (+351bp, Min 5.20%) is $4.12 rich. However, the two issues with a floor that are trading at a premium are actually fairly priced: PPL.PR.K (+500bp, Min 5.75%) is $0.03 rich; and PPL.PR.M (+496bp, Min 5.75%) is $0.21 rich. It is very common, however, for the calculated value of the floor guarantee to drop when the issue trades at a premium, as people start assuming redemption at the next opportunity is assured.

This entry was posted on Friday, December 20th, 2019 at 1:15 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.