PrefBlog

Geez, it’s been a long time since I reported the first day of trading for a new issue!

Further to the information in the post Infrastructure Dividend Split Corp., Maybe?, Middlefield has announced (but not yet on their website):

Infrastructure Dividend Split Corp. (the “Company”), is pleased to announce that the Company has completed its initial public offering of 5,264,370 preferred shares for total gross proceeds of $52,643,700. The class A and preferred shares are listed on the Toronto Stock Exchange under the symbols IS and IS.PR.A, respectively.

The Company invests in a diversified, actively managed portfolio of dividend-paying securities of issuers operating in the infrastructure sector. The investment strategy of the Company is to initially invest in a portfolio of approximately 15 dividend-paying issuers operating in the infrastructure sector that Middlefield Capital Corporation (the “Advisor”), the investment advisor of the Company, believes offers investors the potential for both income through attractive dividend yields and capital appreciation and that it believes are undervalued and well-positioned to benefit from the Advisor’s outlook for a gradual reduction in interest rates, the continuation of global decarbonization, and favourable demographics (such as a growing middle class and urbanization).

The Company’s investment objectives for the:

Class A shares are to provide holders with:

(i) non-cumulative monthly cash distributions; and
(ii) the opportunity for capital appreciation through exposure to the portfolio

Preferred shares are to:

(i) provide holders with fixed cumulative preferential quarterly cash distributions; and
(ii) return the original issue price of $10.00 to holders upon maturity

The initial target distribution yield for the class A shares is 10.0% per annum based on the notional $15 issue price (or $0.125 per month or $1.50 per annum). On May 1, 2024, the Company announced that the first distribution on Class A shares will be payable to shareholders of record as at May 10th, 2024, and payable on or about May 15th, 2024.

The initial target distribution yield for the preferred shares is 7.2% per annum based on the original subscription price (or $0.18 per quarter or $0.72 per annum).

The syndicate of agents was co-led by CIBC Capital Markets, RBC Capital Markets, and Scotiabank, and included Canaccord Genuity Corp., National Bank Financial Inc., Hampton Securities Limited, BMO Capital Markets, iA Private Wealth Inc., Raymond James Ltd., Manulife Wealth Incorporated, Echelon Wealth Partners Inc., Wellington-Altus Private Wealth Inc., Desjardins Securities Inc. and Research Capital Corporation.

For further information, please visit our website at www.middlefield.com or contact Nancy Tham in our Sales and Marketing Department at 1.888.890.1868.

Fifty-two million is a nice size for a start-up SplitShare preferred, so it’s now been added to HIMIPref™

The prospectus is available on the fund’s main web page:

The Company intends that an equal number of Preferred Shares and Class A Shares will be outstanding at all material times. Following completion of the Offering, the Company may undertake further offerings of Preferred Shares or Class A Shares in order that an equal number of Preferred Shares and Class A Shares is outstanding at all material times.
…
The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return $10.00 to holders on April 30, 2029 (the “Maturity Date”), subject to extension for successive terms of up to five years each as determined by the Company’s board of directors (the “Board of Directors”). The quarterly cash distribution until April 30, 2029 will be $0.18 per Preferred Share $0.72 per annum), representing a yield of 7.2% per annum on the issue price of $10.00 per Preferred Share.
…
Holders of record of Preferred Shares on the last business day of each of April, July, October and January will be entitled to receive fixed, cumulative preferential quarterly cash distributions equal to $0.18 per Preferred Share until April 30, 2029. On an annualized basis, this would represent a yield on the $10.00 Preferred Share issue price of 7.2% per annum. Such quarterly distributions are expected to be paid by the Company before the last business day of the month following the period in respect of which the distribution was payable. Based on the expected closing date of the Offering, currently being May 8, 2024 (the “Closing Date”), the initial distribution is expected to be payable to the holders of Preferred Shares of record on July 31, 2024. The first distribution will be pro-rated to reflect the period from the Closing Date to July 31, 2024.
…
No distributions will be paid on the Class A Shares if (i) the distributions payable on the Preferred Shares are in arrears, or (ii) in respect of a cash distribution by the Company, the net asset value (“NAV” or “Net Asset Value”) per “Unit”, comprised of one Preferred Share and one Class A Share, would be less than $15.00 following the payment of such distributions.
…
…in order to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit, the Company will be required to generate an average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%. The Portfolio is currently expected to generate dividend income of approximately 6.73% per annum. Accordingly, the Portfolio would be required to generate an additional approximately 3.65% per annum, including from dividend growth and realized capital appreciation, in order for the Company to distribute the targeted amount on the Class A Shares.
…
The Preferred Shares have been provisionally rated Pfd-3 (high) by DBRS Limited.
…
Monthly: Preferred Shares may be surrendered at any time for retraction to TSX Trust Company (in such capacity, the “Registrar and Transfer Agent”), the Company’s registrar and transfer agent, but will be retracted only on the second last business day of a month (the “Retraction Date”). Preferred Shares surrendered for retraction by 5:00 p.m. (Toronto time) on or before the twentieth business day prior to the Retraction Date will be retracted on such Retraction Date and the holder will be paid on or before the last business day of the following month (the “Retraction Payment Date”).

Holders of Preferred Shares whose Preferred Shares are surrendered for retraction will be entitled to receive a retraction price per Preferred Share equal to 96% of the lesser of (i) the NAV per Unit determined as of such Retraction Date, less the cost to the Company of the purchase of a Class A Share for cancellation; and (ii) $10.00. For this purpose, the cost of the purchase of a Class A Share will include the purchase price of the Class A Share, and commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of the Class A Share. Any declared and unpaid distributions payable on or before a Retraction Date in respect of Preferred Shares tendered for retraction on such Retraction Date will also be paid on the Retraction Payment Date. Subject to the terms of the Recirculation Agreement (as defined under “Redemptions and Retractions”), on any monthly retraction of Preferred Shares the Company will purchase or cause to be purchased for cancellation an equal number of Class A Shares in the market so that there will be an equal number of Preferred Shares and Class A Shares outstanding at all material times.
…
Annual management fee of 1.10% of the NAV of the Company calculated and payable monthly, based on the average NAV for that month, plus applicable taxes, provided that the management fee payable to the Manager shall not be paid in respect of the NAV attributable to any assets invested in the securities of any investment funds (including mutual funds) managed by the Manager or an affiliate of the Manager.
…
As the distributions to holders of Preferred Shares are expected to qualify as eligible dividends, the pre-tax equivalent yield for an individual in Ontario subject to the highest marginal tax rate (53.53%) on an annualized basis would be approximately 9.4% per annum.

How can one not love the bit about “to achieve the Company’s targeted annual distributions for the Class A Shares and fixed annual distributions on the Preferred Shares while maintaining a stable NAV per Unit … average annual total return (comprised of net realized capital gains, option premiums and dividends) on the Portfolio of approximately 10.38%.” Afficionados of SplitShare Credit Quality will knpw that given the presence of a cash drag, this requirement is highly sensitive to the price volatility of the underlying portfolio. Innumerate idiots, such as Capital Unit buyers and regulators, will remain blissfully ignorant of such high-school level math. But whatever, as long as the preferreds have a nice chunk of first-loss protection courtesy of the Capital Unitholders’ savings and the ‘minimum NAVPU rule’, this is not a major concern here.

DBRS has not yet confirmed its provisional Pfd-3(high) rating, but I can’t imagine any kind of problem with it.

The issue closed today on excellent volume of 839,091 shares. Vital Statistics are:

Update, 2024-05-09: DBRS has announced:

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of Pfd-3 (high) assigned to the Preferred Shares issued by Infrastructure Dividend Split Corp. (the Company), managed by Middlefield Limited (the Manager).
…
Based on the initial asset coverage of 2.5x, the initial downside protection available to holders of the Preferred Shares is approximately 59% (after issuance fee and offering expenses). Downside protection available to the Preferred Shares consists of the NAV of the Class A Shares. The fixed distributions of dividends on the Preferred Shares will be funded from the dividends received on the securities in the Portfolio, which are expected to cover more than 1x the annual Preferred Shares distributions. The payment of regular monthly distributions to the holders of the Class A Shares, totalling $1.50 per annum, may reduce the downside protection over time. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 4.9% per year over the next five years. The grind in the portfolio is mitigated by a 1.5x NAV test.

This entry was posted on Wednesday, May 8th, 2024 at 8:53 pm and is filed under Issue Comments. 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.