Brookfield Asset Management Inc has announced it has:
determined the fixed dividend on its Cumulative Class A Preference Shares, Series 46 (“Series 46 Shares”) (TSX: BAM.PF.I) for the five years commencing April 1, 2022 and ending March 31, 2027.
…
Series 46 Shares and Series 47 SharesIf declared, the fixed quarterly dividends on the Series 46 Shares during the five years commencing April 1, 2022 will be paid at an annual rate of 5.386% ($0.336625 per share per quarter).
Holders of Series 46 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on March 16, 2022, to convert all or part of their Series 46 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 47 (the “Series 47 Shares”), effective March 31, 2022. The quarterly floating rate dividends on the Series 47 Shares will be paid at an annual rate, calculated for each quarter, of 3.85% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the April 1, 2022 to June 30, 2022 dividend period for the Series 47 Shares will be 1.11319% (4.465% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.2782975 per share, payable on June 30, 2022.
Holders of Series 46 Shares are not required to elect to convert all or any part of their Series 46 Shares into Series 47 Shares.
As provided in the share conditions of the Series 46 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 46 Shares outstanding after March 31, 2022, all remaining Series 46 Shares will be automatically converted into Series 47 Shares on a one-for-one basis effective March 31, 2022; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 47 Shares outstanding after March 31, 2022, no Series 46 Shares will be permitted to be converted into Series 47 Shares. There are currently 11,740,797 Series 46 Shares outstanding.
The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 47 Shares effective upon conversion. Listing of the Series 47 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX.
BAM.PF.I was issued as a FixedReset, 4.80%+385M480 that commenced trading 2016-11-18 after being announced 2016-11-10. It is tracked by HIMIPref™ and is been assigned to the FixedReset (premium) subindex.
Seems odd that BAM didn’t call this issue. The market didn’t seem to expect it either as this pref has jumped in price from about $25.30 (par value 25.00 + the 30 cent dividend ) prior to reset announcement (Mar 02) to 26.43 at the Mar 04 close.
Care to surmise why BAM has decided to let this minimum rate reset (4.80%) +385 bps run at 5.386% when other corporations are redeeming their issues?
Alphabeta, I would like to give you my thoughts on your question.
IFC has just offered a new issue which is a perpetual with at a rate of 5.25%. I doubt that BAM could do better in the market with a new issue yielding less than the 5.386% announce when it extended BAM.PF.I. I think the market would view BAM as less worthy than IFC.
On July 1, 2020 there were 40 FRR issues with a floor. By May 31, 2022 there will be 27 issues left after the planned redemption of TRP.PR.K. In that time period there have been 14 redemtions announced (or planned) and 1 new issue (EMA.PR.J). There also have been 7 issues extended. These issues are BAM.PF.H, BAM.PF.I, BIP.PR.B, CU.PR.I, BEP.PR.G, BPO.PR.C and BPO.PR.E. So Brookfield has a history of extending these issues. Again, I guess it is because they cannot do better elsewhere. Brookfield has also redeemed 3 FRR reset issues with a floor, namely, BIP.PR.C, BIP.PR.D and BEP.PR.I.
I have a different question.
Since the wave of redemptions started in 2020 with the $1.5B of RY redemptions there has only been one FRR reset new issue, EMA.PR.J, as mentioned above. There have been two PVS preferred share issues with a fixed redemtion date. The rest of the new preferred share issues have been perpetuals. The issues have received a good reception. Many of them trade below the issue price now. Why are buyers keen to buy these perpetuals in a rising interest rate environment?
Preferred are offered in the best interest of the issuer. Always.
If by some chance, the investors get a good deal, the company’s mistake is rectified within 5 years. All the redemptions you noted are a testament to that.
The rising rates story has been making appearance for more than 13 years now. This time the possibilities are better that the rates will rise because of inflation, but then out of nowhere the war pops out and changes the equation yet again. Bond investors may have full faith in the inflation fighting credentials of central banks but retail investors don’t. Waiting for Godot has been painful for those who expected a semblance of reasonable central bank policies. How much can they raise rates before crashing the condo based economy of Canada or Ultra long duration tech stocks in the US? We are about to find out.
Till then, the preferred investors are happy to take an assured dividend now and in future rather than the promises of rate resets or floaters. And then if the rates do rise for a little while, the central banks would drop rates faster than, (choose your favourite NSFW phrase) as soon as the first hint of recession or stock market crash appears. And then the preferred holders end up as the baggies again.
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