Pembina Expects To Redeem Or Repurchase PPL.PR.K & PPL.PR.M

Further to their previous announcement that they were considering the deal, Pembina Pipeline Corporation has announced:

that it has priced an offering of $600 million of 4.80% Fixed-to-Fixed Rate Subordinated Notes, Series 1 due January 25, 2081 (the “Offering”).

The Offering is expected to close on or about January 25, 2021, subject to customary closing conditions. Pembina expects to use the net proceeds of the Offering to redeem or repurchase its outstanding cumulative redeemable minimum rate reset Class A Preferred Shares, Series 11 (TSX: PPL.PR.K) and its cumulative redeemable minimum rate reset Class A Preferred Shares, Series 13 (TSX: PPL.PR.M), to repay other outstanding indebtedness, as well as for general corporate purposes.

The subordinated notes are being offered through a syndicate of underwriters, co-led by RBC Capital Markets, CIBC Capital Markets, Scotiabank and TD Securities, under Pembina’s short form base shelf prospectus dated December 30, 2020, as supplemented by a prospectus supplement dated January 12, 2021.

These Notes are provisionally rated BB(high) by DBRS and BB+ by S&P which notes:

S&P Global Ratings said today that it assigned its ‘BB+’ rating to Pembina Pipeline Corp.’s (Pembina) $600 million, 4.8% fixed-to-fixed rate subordinated notes series 1 due Jan. 25, 2081. The company intends to use the net proceeds of this offering to repay approximately $420 million of preferred shares outstanding maturing in the first half of 2021, repay some of the borrowings under the Pembina’s credit facilities ($1.64 billion outstanding as of Sept. 30, 2020), and for other general corporate purposes.

We classify the notes as having intermediate equity content because of their subordination, permanence, and optional deferability features, in line with our hybrid capital criteria. As a result, the proposed notes will receive 50% equity treatment for the calculation of credit metrics.

While the subordinated notes are due in 60 years, the interest margins will increase by 25 basis points (bps) in 2031 (year 10) and a further 75 bps (total of 100 bps from initial spread) in 2051 (year 30). We consider this cumulative 100 bps increase as a material step-up, which, in our opinion, could provide an incentive for Pembina to redeem the instruments on that call date. Therefore, we consider 2051 as the effective maturity date for the notes.

In line with our criteria, the notes will receive minimal equity content after the first call date in 2031 because the remaining period until their effective maturity will be less than 20 years.

4 Responses to “Pembina Expects To Redeem Or Repurchase PPL.PR.K & PPL.PR.M”

  1. stusclues says:

    Saving 95 bps on $420M is $4.0M less all of the advisor and internal costs is probably “worth it” but not stellar.

  2. jiHymas says:

    But the preferred dividends are paid with after tax money …

  3. stusclues says:

    Very true, so better than first blush.

  4. AltaRed says:

    Plus an opportunity to get out of those minimum rate resets in what could be a long term low GoC5 yield environment. I seem to recall a comment you made some years back calling these things ‘5 year money’.

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