National Bank of Canada has announced:
that it does not intend to exercise its right to redeem all or part of the currently outstanding 14,000,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series 30, Non-Viability Contingent Capital (NVCC) (the “Series 30 Shares”) on May 15, 2024. As a result, subject to certain conditions, the holders of the Series 30 Shares will have the right to convert all or part of their Series 30 Shares on a one-for-one basis into Non-Cumulative Floating Rate First Preferred Shares, Series 31 (NVCC) (the “Series 31 Shares”) on May 15, 2024, in accordance with the terms of the Series 30 Shares described in the prospectus supplement dated January 31, 2014.
Holders who do not exercise their right to convert their Series 30 Shares into Series 31 Shares on May 15, 2024, will retain their Series 30 Shares.
The foregoing conversions are subject to the conditions that:
i. if the Bank determines that there would remain outstanding on May 15, 2024, less than 1,000,000 Series 31 Shares, after having taken into account all Series 30 Shares tendered for conversion into Series 31 Shares, then holders of Series 30 Shares will not be entitled to convert their shares into Series 31 Shares, or
ii. if the Bank determines that there would remain outstanding on May 15, 2024, less than 1,000,000 Series 30 Shares, after having taken into account all Series 30 Shares tendered for conversion into Series 31 Shares, then all remaining Series 30 Shares will automatically be converted into Series 31 Shares without the consent of the holders on May 15, 2024.
In either case, the Bank shall give a notice to that effect to all registered holders of Series 30 Shares no later than May 8, 2024.
Holders of Series 30 Shares, should any remain outstanding after May 15, 2024, will be entitled to receive fixed-rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the five-year period commencing on May 16, 2024, and ending on May 15, 2029, will be 6.191%, being equal to the sum of the five-year Government of Canada Bond yield (3.791%) plus 2.40%, as determined in accordance with the terms of the Series 30 Shares.
Holders of Series 31 Shares, should any be issued on May 15, 2024, will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the three-month period commencing on May 16, 2024, and ending on August 15, 2024, will be 7.380%, being equal to the sum of the 90-day Government of Canada Treasury Bill yield (4.98%) plus 2.40%, calculated on the basis of actual number of days elapsed in such quarterly floating rate period divided by 365, as determined in accordance with the terms of the Series 31 Shares.
Beneficial owners of Series 30 Shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which will run from April 15, 2024, until April 30, 2024, at 5:00 p.m. (EDT).
NA.PR.S is a NVCC-compliant FixedReset, 4.10%+240, that commenced trading 2014-2-7 after being announced 2014-1-29. It reset At 4.025% effective May 16, 2019. I recommended against conversion and there was no conversion. It is tracked by HIMIPref™ and assigned to the FixedResets-Discount subindex.
Thanks to Assiduous Reader niagara for bringing this to my attention!
I hold the floater TRP.PR.H. This is an EXISTING floater that has an existing sister FFR: TRP.PR.B. I am using the comparison above which does not mention the conversion of the FLOATER back into the FRR.
Both of these already exist and the wording of the prospectus indicates that they are upon reset date exchangeable into one or the other during the fifth anniversary month, May 2025, with a 1,000,000 share indication of interest.
I will WANT to exchange my floaters for the FRR, since I bot them cheap.
My questions are:
Have you seen this before? Is there any real history of success with this plot? Are these NEW conversions or are the existing counted?
Are my basic assumptions on track, but at the whims of the 1 million conversion at that time?
With no other prognostications, Thanks for the clarification on the mechanics, Joel A.
james,
correct me if i’m wrong but pretty sure in most all cases that the 1mm refers to the minimum amount that must be outstanding pro forma the conversion results for an issue to exist.
certainly for most pairs, floaters don’t exist as the hurdle was never met.
you will have no problem converting back to fixed rate and possibly even be forced to accept one if the floater count were to drop below 1mm
Have you seen this before? Is there any real history of success with this plot?
Sure. This happens all the time. It’s not seen so much with FixedReset / Floating Reset pairs because there have been relatively few times there have been any FloatingResets extant prior to an Exchange Date, but with the BCE FixedFloater / RatchetRate pairs you see back and forth conversion constantly.
Are these NEW conversions or are the existing counted?
The one-million figure refers to the amount that will be outstanding if everybody performs the conversion they want to do. If there will be less than one million outstanding, then the smaller issue of the pair will cease to exist, with conversions-in prohibited and conversions-out forced.
Are my basic assumptions on track, but at the whims of the 1 million conversion at that time?
I agree with DR and will be very surprised if there are ever any problems converting from a FloatingReset to a FixedReset. It’s conversions the other way that will generally be disallowed … see this example, and this one and this one.
For examples of partial conversions between elements of a pair, see here and here and here. There are other examples, but you’ll have to search for them yourself!
For an example of the analysis that can lead to taking a view on which element of a pair is cheaper, see here.