Pembina Pipeline Corporation has announced:
that it does not intend to exercise its right to redeem the currently outstanding Cumulative Redeemable Minimum Rate Reset Class A Preferred Shares, Series 25 (“Series 25 Shares”) (TSX: PPL.PF.E) on February 15, 2023. The Company also announced that its Board of Directors has declared quarterly dividends for the Company’s preferred shares, Series 1, 3, 5, 7, 9, 15, 17, 19, 21 and 25.
Series 25 Preferred Share Conversion Right and Reset Dividend Rates
As a result of the decision not to redeem the Series 25 Shares, and subject to certain terms of the Series 25 Shares, the holders of the Series 25 Shares will have the right to elect to convert all or part of their Series 25 Shares on a one-for-one basis into Cumulative Redeemable Floating Rate Class A Preferred Shares, Series 26 of Pembina (“Series 26 Shares”) on February 15, 2023 (the “Conversion Date”). Holders who do not exercise their right to convert their Series 25 Shares into Series 26 Shares will retain their Series 25 Shares.As provided in the terms of the Series 25 Shares: (i) if Pembina determines that there would remain outstanding immediately following the conversion less than 1,000,000 Series 25 Shares, then all remaining Series 25 Shares will be automatically converted into Series 26 Shares on a one-for-one basis effective as of the Conversion Date; or (ii) if Pembina determines that there would be less than 1,000,000 Series 26 Shares outstanding immediately following the conversion, no Series 25 Shares will be converted into Series 26 Shares on the Conversion Date. There are currently 10,000,000 Series 25 Shares outstanding.
With respect to any Series 25 Shares that remain outstanding after the Conversion Date, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate for the Series 25 Shares for the five-year period from and including February 15, 2023, to, but excluding, February 15, 2028, will be 6.481 percent, being equal to the five-year Government of Canada bond yield of 2.971 percent determined as of today plus 3.51 percent, in accordance with the terms of the Series 25 Shares.
With respect to any Series 26 Shares that may be issued on the Conversion Date, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Pembina. The annual dividend rate applicable to the Series 26 Shares for the three-month floating rate period from and including February 15, 2023, to, but excluding, May 15, 2023, will be 7.866 percent, being equal to the annual rate of interest for the most recent auction of 90-day Government of Canada treasury bills of 4.356 percent plus 3.51 percent, in accordance with the terms of the Series 26 Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset on the 15th day of February, May, August and November in each year.
Beneficial holders of Series 25 Shares who wish to exercise their right of conversion during the conversion period, which runs from January 16, 2023, until 3:00 pm (MT) / 5:00 pm (ET) on January 31, 2023, 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 with the time to complete the necessary steps. Any notices received after this deadline will not be valid.
As announced below, the dividend payable on February 15, 2023, to holders of the Series 25 Shares of record on January 31, 2023, will be $0.3250 per Series 25 Share, consistent with the dividend rate in effect since the issuance of the Series 25 Shares. For more information on the terms of the Series 25 Shares and the Series 26 Shares, please see Pembina’s articles of amendment dated December 16, 2019, relating to the creation of the Series 25 Shares and the Series 26 Shares, which can be found on SEDAR at www.sedar.com.
PPL.PF.E was issued as KML.PR.C, 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. The ticker changed in late 2019.
Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!
I’m speculating that there was speculation over the past couple weeks that this would get called out at $25. Would not be surprised to see this trade down a dollar on Tuesday.
Contrast this with the nearest previous rate reset PPL.PR.O (6.164%, +292bps and reset 29-Sep-2027) at $22/share, the minimum rate reset does still appear to be quite expensive.
Here’s a philosophical question:
Are the minimum rate resets, resets with a floor?
Or are they perpetuals with a built in rate reset feature, available under certain conditions?
I like to view them as the latter and hence come with a different
Valuation model than considering them as mere resets.
The minimum tests of course don’t have the sliding scale call back price schedule of the perpetuals, but other than that, they are identical in offering a guaranteed minimum rate.
Different perspectives is what makes a market.
Interesting question! We never did find out what would happen with a negative rate — would all rate-resets get a floor of 0? Does this make all rate-resets perpetuals?
My answer would be no, as they all have different amounts of 5year-torque; instead I see it as a rate-reset with an embeded (perpetual) call option on long-duration bonds.
PPL.PF.E had a minimum rate of 5.2% on reset so this was not in question, but philosophically speaking it would indeed be quite interesting if 5yr GoC rates fell below -1.28% and TRP.PR.B (June 30, 2025) reset…
My earlier comments, however, were at the seemingly high premium investors place on the 5.2% minimum rate floor for PPL.PF.E in relation to the cousin of PPL.PR.O, which has no floor. The minimum rate reset would kick in with a GoC 5yr rate of less than +1.69%.
PPL.PF.E traded down about 40 cents on the non-redemption news.
There is no North American precedent for calculated negative rates that I know of, but there is a European one: floor of zero. This was last discussed on August 14, 2020.
there was a similar situation 25 yrs ago or so. it was called the instalment receipt.
can’t recall the issuer in question but the value of the stock fell quite a bit below the value of the second instalment which was listed.
in theory, the owner of the instalments were to pay more than the stock was worth. many large pension funds who had bought them in the original issue felt contractually obligated to pay the full instalment price.
however, when the instalments started trading deeply negative, some individuals in the secondary market did not feel so obligated.
some were being paid millions$ to take the instalment receipts off of original purchasers and then went on to not pay the instalment (and receive the common) and in one case, moved out of the country just in case.
company vowed to track the delinquents down but never led to anything.
there was a similar situation 25 yrs ago or so. it was called the instalment receipt.
can’t recall the issuer in question but the value of the stock fell quite a bit below the value of the second instalment which was listed.
Husky Energy. Every now and then I try to find a comprehensive report on what happened and how everything played out, only to become extremely frustrated. It happened in ancient, pre-internet times, so there’s nothing!
A rather shy Assiduous Reader who would rather not correct me publicly points out that the company was, in fact, Fracmaster Ltd..