Enbridge Inc. has announced:
that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series L (Series L Shares) (TSX: ENB.PF.U) on September 1, 2022. As a result, subject to certain conditions, the holders of the Series L Shares have the right to convert all or part of their Series L Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series M of Enbridge (Series M Shares) on September 1, 2022. Holders who do not exercise their right to convert their Series L Shares into Series M Shares will retain their Series L Shares.
The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series L Shares outstanding after September 1, 2022, then all remaining Series L Shares will automatically be converted into Series M Shares on a one-for-one basis on September 1, 2022; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series M Shares outstanding after September 1, 2022, no Series L Shares will be converted into Series M Shares. There are currently 16,000,000 Series L Shares outstanding.
With respect to any Series L Shares that remain outstanding after September 1, 2022, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series L Shares for the five-year period commencing on September 1, 2022 to, but excluding, September 1, 2027 will be 5.85790 percent, being equal to the five-year United States Government treasury bond yield of 2.70790 percent determined as of today plus 3.15 percent in accordance with the terms of the Series L Shares.
With respect to any Series M Shares that may be issued on September 1, 2022, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series M Shares for the three-month floating rate period commencing on September 1, 2022 to, but excluding, December 1, 2022 will be 1.41611 percent, based on the annual rate on three month United States Government treasury bills for the most recent treasury bills auction of 2.53 percent plus 3.15 percent in accordance with the terms of the Series M Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.
Beneficial holders of Series L Shares who wish to exercise their right of conversion during the conversion period, which runs from August 2, 2022 until 5:00 p.m. (EST) on August 17, 2022, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.
As ENB.PF.U is a US-Pay issue, it is not tracked by HIMIPref™.
Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!
Update, 2022-8-18: As noted by Assiduous Reader JoeBackyard in the comments, Enbridge has announced:
that none of its outstanding Cumulative Redeemable Preference Shares, Series L (Series L Shares) will be converted into Cumulative Redeemable Preference Shares, Series M of Enbridge (Series M Shares) on September 1, 2022.
After taking into account all conversion notices received from holders of its outstanding Series L Shares by the August 17, 2022 deadline for the conversion of the Series L Shares into Series M Shares, less than the 1,000,000 Series L Shares required to give effect to conversions into Series M Shares were tendered for conversion.
This extension is still a surprise given the enb.pr.u was redeemed in early May when the reset rate was only 15 bp higher than the 5.8579%.
It is somewhat of a surprise to me too. Maybe it has something to do with the capital requirements of this new venture https://www.enbridge.com/media-center/news/details?id=123730&lang=en.
As the shares trade at around 23.3 ex dividend, it also signals a pretty large gap on the spreads versus the spreads at issue. Is this wider spread warranted by a decrease in credit quality? I don’t think so, I think it is circumstancial given the drop in 5 year treasuries last week. Hence Enbridge assessment to keep this issue at that rate. Enb.pr.v is due in June 2023, with a similar spread at issue, will see what happens to this one.
In the mean time, the question is conversion to floaters or not?
I do not have too many .U preferred shares but just chose to convert it. My crystal bowl though a little fuzzy for years shows the interests will increase and stays higher than it was on Aug 1st (2.7% or so). After so many years of forced low interest it would be the time.
James, I know that situations like this you many time advise to sell the fixed preferred series and buy the floated series, but what would be the threshold for a maneuver like this to be worth it considering that you may be required to pay capital gains and the fact the preferred shares market is not very liquid. Thank you
I’m not a big fan of paying much attention to capital gains taxes in a fixed income portfolio.
Fixed Income is issued at par and generally is redeemed at par, though there are, of course, exceptions in both directions. Nothing too exciting though. Therefore, the expected long-term capital gain on a fixed income portfolio is zero.
In exchange, you’re freezing part of your portfolio and therefore not reacting to markiet conditions with optimization trades, all so that you can claim you’re getting a government loan of a finite number of dollars for a finite number of years.
Exceptions to this general rule exist, of course. If you realize a massive capital gain in one year, enough to move you up a couple of tax brackets for that year, then it becomes reasonable to pause gain crystallization in the rest of your portfolio until a new tax year. And one might want to take account of capital gains tax liability when determining whether a particular optimization trade is worthwhile, without making avoidance a hard-and-fast rule.
But really, unrealized capital gain accumulation as permanent component of portfolio strategy belongs in the equity portfolio, where long-term expected capital gains exceed zero.
It’s an interesting topic. I’m considering doing some math on it for PrefLetter. We’ll see!
Min. 1MM shares were not tendered for Series M floating. For some of us who did tender, I wonder why tender amounts are never disclosed.
https://www.enbridge.com/media-center/news/details?id=123734&lang=en