Brookfield Renewable Partners L.P. has announced (emphasis added):
the closing of the issuance of a series of $150 million of fixed rate green perpetual subordinated notes (the “sub notes”), which upon settling of a concurrently executed Canadian dollar swap have an effective coupon rate of 6.78%. The sub notes, which have a coupon of 7.25%, will be listed on the New York Stock Exchange under the symbol “BEPJ” and have the same accounting and rating treatment as our Preferred Limited Partnership (“LP”) Units.
The sub notes will represent Brookfield Renewable’s thirteenth green labelled corporate securities issuance and the second issuance under Brookfield Renewable’s 2024 Green Financing Framework. Brookfield Renewable will use the net proceeds from the sale of the sub notes to finance or refinance eligible investments under Brookfield Renewable’s 2024 Green Financing Framework, including the redemption of its Class A Preferred LP Units, Series 15 (the “Series 15 Preferred Units”), which were scheduled to reset in April at approximately 70 basis points higher than the newly issued sub notes.
Wells Fargo Securities, LLC, BofA Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBC Capital Markets, LLC acted as joint book-running managers for the offering.
BEP.PR.O was issued as a FixedReset 5.75%+394M575 that commenced trading 2019-3-11 after being announced 2019-03-04. It has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.
Thanks to Assiduous Reader IrateAR for bringing this to my attention!
Hi James. I’m a new commenter but an assuredly assiduous reader.
I’m hijacking this thread to point out that ZPR has not updated its NAV since March 21, which I find curious indeed.
I have read with interest your articles about ZPR and the, um, cavalier approach to its indexing mandate.
Could it be that change is afoot?
I followed your lead and sent a crisp email to BMO, which I expect is being printed out for the CEO as we speak.
Well it appears to be all of the BMO ETFs, not just ZPR. That seems like a very class-action-y failure to me.
sonoffergus, welcome to the board!
I understand that the ZPR Fiasco has attracted a bit of attention on the Street.
Re: Brookfield Renewable Partners
Can someone explain to me what is the meaning / relevance of the statement : “ which upon settling of a concurrently executed Canadian dollar swap have an effective coupon rate of 6.78%.”?
Will the new BEPJ bonds not actually distribute the stated 7.25% rate ?
Thanks!
the bonds issued are us$ pay.
given the canadian yield curve is below the us one, when one swaps from us pay to can pay, the swap has the effect of lowering the effective interest rate
swaps come in many forms, the most traditional or plain vanilla is a fixed/floating swap within the same currency. ie a borrower may issue a longer dated bond but wants floating rate exposure so swaps from fixed to floating.
this is an example of a cross currency swap and is a very active market. in this case the borrower issued us pay bonds as that was where the demand was but wanted canadian interest rate exposure so swapped from us pay to can pay to take advantage of our yield curve being dramatically thru the us.
happens all the time
Thanks DR. I think I got it.
According to text elsewhere in the same press release (linked by James, above), BEP.PR.O would have “reset in April at approximately 70 basis points higher than the newly issued sub notes.” The approximate BEP.PR.O reset rate would have been 394+ 5yCDN = 394 + 350 = 744bps (using the 5yCDN rate on the press release date of March 25). This is indeed approximately 70bps higher than the cited CDN swap value of 678bps (rather than being 70 bps higher than the USD coupon rate of 725bps). Is my understanding correct?
Oops. Please ignore the last parenthetical clause in the comment above: it is confusing.
that is correct, yes. but keep in mind that the newly issued us bond would be paid as interest and as such deductible whereas the pref coup is paid out after tax so the savings would be more substantial. in addition they could also be incurring a part VI tax on the pref distributions.
illustrates just how cheap canadian prefs are especially in context of our govt curve being so far thru the us.
expect more of these switches. maybe ta.j?
part IV that is…
[…] yields remain elevated well above those available on instruments with similar risk; for instance, Brookfield Renewable Partners L.P. recently noted they are refinancing BEP.PR.O on the “green perpetual subordinated notes” market at […]