Royal Bank of Canada has announced:
that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-Viability Contingent Capital (NVCC) Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series BO (the “Series BO shares”) on February 24, 2024. There are currently 14,000,000 Series BO shares outstanding.
Subject to certain conditions set out in the prospectus supplement dated October 29, 2018 (the “Prospectus”) relating to the issuance of the Series BO shares, the holders of the Series BO shares have the right to convert all or part of their Series BO shares, on a one-for-one basis, into NVCC Non-Cumulative Floating Rate First Preferred Shares Series BP (the “Series BP shares”) on February 24, 2024. On such date, holders who do not exercise their right to convert their Series BO shares into Series BP shares will continue to hold their Series BO shares. The conversion will occur on February 26 being the first business day following the conversion date of February 24 as identified in the Prospectus, which falls on a Saturday. The foregoing conversion rights are subject to the following:
if Royal Bank of Canada determines that there would be less than 1,000,000 Series BP shares outstanding after taking into account all shares tendered for conversion on February 24, 2024, then holders of Series BO shares will not be entitled to convert their shares into Series BP shares, and
alternatively, if Royal Bank of Canada determines that there would remain outstanding less than 1,000,000 Series BO shares after February 24, 2024, then all remaining Series BO shares will automatically be converted into Series BP shares on a one-for-one basis on February 24, 2024.
In either case, Royal Bank of Canada will give written notice to that effect to holders of Series BO shares no later than February 17, 2024.The dividend rate applicable for the Series BO shares for the 5-year period from and including February 24, 2024 to, but excluding, February 24, 2029, and the dividend rate applicable to the Series BP shares for the 3-month period from and including February 24, 2024 to, but excluding, May 24, 2024, will be determined and announced by way of a press release on January 25, 2024.
Beneficial owners of Series BO shares who wish to exercise their conversion rights should instruct their broker or other nominee to exercise such rights during the conversion period, which runs from January 25, 2024 until 5:00 p.m. (EST) on February 9, 2024.
RY.PR.S was issued as a FixedReset, 4.80+238, that commenced trading 2018-11-2 after being announced 2018-10-25. It is tracked by HIMIPref™ and is assigned to the Fixed-Resets (Discount) subindex.
Thanks to Assiduous Reader IrateAR for bringing this to my attention!
and then a day later: “Royal Bank of Canada will issue to certain institutional investors 750 thousand Preferred Shares Series BU priced at $1,000 per share to raise gross proceeds of $750 million.”
https://www.rbc.com/newsroom/news/article.html?article=125864
It’s interesting to note that these don’t appear to be LRCNs. If these are actually paid as eligible dividends, then 7.408% seems quite good compared to RY.PR.S
Agreed, the 7.408% fixed rate for 5yrs and the reset spread of 390bp is significantly above what they would likely issue in public market. By way of comparison, BMO.PR.E is trading fairly close to par ($24.77 last trade), with a current yield of 6.88% until Nov 2028 and a reset of 268bp. RY (nd TD) prefs tend to trade with lower yield than BMO and CM….I think that they could issue in the public market with a 6.7% fixed rate and 300bp spread and it would easily sell and would initially trade at par or above.
I recall BMO did a similar private issue several years ago. Why issue at rates above what they could issue in the public market? With a reset spread of 390bp, they clearly intend this to only be outstanding for 5yrs.
I have a vague sense that what they really want is more LCRNs but they need a certain amount of institutional prefs to exist to demonstrate a market for the prefs embedded in the LCRNs… low confidence here though.
Hi a question: will these “bu” shares trade on the exchanges ?
“I have a vague sense that what they really want is more LCRNs but they need a certain amount of institutional prefs to exist to demonstrate a market …”
IrateER, your sense is right. That seemed to be part of the thinking back in 2021 when these OTC institutional prefs first came out. James also did a post back in July 2022 where he referred to the November 2021 article from Addenda that floated this idea.
https://prefblog.com/?p=43886
Still on that topic, there was also the view expressed (at the time of the TD issue of another OTC Institutional Investor offering in March 2022) that these new issues reflected a preference on the part of OSFI to reduce the Banks’ reliance on retail investors for capital raises.
“There were three new issues in March. By far the most impactful was the second ever institutional preferred share issue from TD Bank that followed the first such issue by the Royal Bank last fall. Institutional preferred shares are a structure that the Office of the Superintendent of Financial Institutions (OSFI) wants to become prevalent for banks and insurance companies so that retail investors will be precluded from investing in financial institutions. …”
Perhaps somewhat overstated, but here is the link:
https://jzechner.com/march-2022-preferred-share-commentary/
5.885% https://www.rbc.com/newsroom/news/article.html?article=125865