PrefBlog

I must say, I find the recent trend of issuing LRCNs and OTC Preferreds at enormous spreads to be perplexing. The latest one is:

The Toronto-Dominion Bank (“TD”) (TSX: TD) (NYSE: TD) today announced the pricing of a Canadian public offering of C$1.5 billion of 7.283% Non-Viability Contingent Capital (“NVCC”) Additional Tier 1 (“AT1”) Limited Recourse Capital Notes Series 2 (the “LRCNs”).

The LRCNs will bear interest at a rate of 7.283 per cent annually, payable semi-annually, for the initial period ending on, but excluding, October 31, 2027. Thereafter, the interest rate on the LRCNs will reset every five years at a rate equal to the prevailing 5-year Government of Canada Yield plus 4.10 per cent. The LRCNs will mature on October 31, 2082. The expected closing date of the offering is September 14, 2022. TD Securities is acting as lead agent and sole bookrunner on the issue.

Concurrently with the issuance of the LRCNs, TD will issue 1,500,000 Non-Cumulative 5-Year Fixed Rate Reset NVCC Preferred Shares, Series 29 (“Preferred Shares Series 29”) to be held by Computershare Trust Company of Canada, as trustee for TD LRCN Limited Recourse Trust™ (the “Limited Recourse Trust”). In case of non-payment of interest on or principal of the LRCNs when due, the recourse of each LRCN holder will be limited to that holder’s proportionate share of the Limited Recourse Trust’s assets, which will consist of Preferred Shares Series 29 except in limited circumstances.

With the prior written approval of the Superintendent of Financial Institutions (Canada), TD may redeem the LRCNs commencing on October 1, 2027, and every five years thereafter, during the period from and including October 1 to and including October 31. TD may redeem the LRCNs in whole or in part on not less than 10 days’ and not more than 60 days’ prior notice to the LRCN holders.

The net proceeds from this transaction will be used for general corporate purposes.

Thanks to Assiduous Reader Yomgui for bringing this to my attention!

PerpetualDiscounts now yield 6.22%, equivalent to 8.09% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.94%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 315bp from the 310bp reported August 31.

This entry was posted on Wednesday, September 7th, 2022 at 8:57 pm and is filed under Market Action. 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.