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AltaGas Ltd. has announced (confusing bits bolded):

that it does not intend to exercise its right to redeem any or all of its currently outstanding Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series G (the “Series G Shares”) (TSX: ALA.PR.G) or the Cumulative Redeemable Floating Rate Preferred Shares, Series H (the “Series H Shares”) (TSX: ALA.PR.H) on September 30, 2024 (the “Conversion Date”).

As a result, subject to certain conditions, the holders of the Series G Shares have the right to convert all or part of their Series G Shares on a one-for-one basis into Series H Shares on the Conversion Date. Holders who do not exercise their right to convert their Series G Shares into Series H Shares will, subject to automatic conversion in the circumstances described below, retain their Series G Shares.

In addition, on the Conversion Date the holders of the Series H Shares have the right to convert all or part of their Series H Shares on a one-for-one basis into Series G Shares. Holders who do not exercise their right to convert their Series H Shares into Series G Shares will, subject to automatic conversion in the circumstances described below, retain their Series H Shares.

The foregoing conversion rights are subject to the conditions that: (i) if AltaGas determines that after giving effect to all conversions there would be less than 1,000,000 Series G Shares outstanding after the Conversion Date, then all remaining Series G Shares will automatically be converted into Series H Shares on a one-for-one basis on the Conversion Date; and (ii) if AltaGas determines that after giving effect to all conversions there would be less than 1,000,000 Series H Shares outstanding after the Conversion Date, then all remaining Series H Shares will automatically be converted into Series G Shares on a one-for-one basis on the Conversion Date. There are currently 6,885,823 Series G Shares and 1,114,177 Series H Shares outstanding.

With respect to any Series G Shares that are outstanding after the Conversion Date, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, fixed cumulative preferential cash dividends, payable quarterly. The new annual dividend rate applicable to the Series G Shares for the five-year period commencing on and including September 30, 2024 to, but excluding, September 30, 2029 will be 3.025 percent, being equal to the sum of the five-year Government of Canada bond yield determined as of today plus 3.060 percent.

With respect to any Series H Shares that are outstanding after the Conversion Date, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, quarterly floating rate cumulative preferential cash dividends. The dividend rate applicable to the Series H Shares for the three-month floating rate period commencing on and including September 30, 2024 to, but excluding, December 31, 2024 will be 4.205 percent, being equal to the sum of the annual rate of interest for the most recent auction of 90 day Government of Canada treasury bills plus 3.060 percent (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series G Shares and Series H Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right during the conversion period, which runs from August 31, 2024 until 5:00 p.m. (Toronto time) on September 15, 2024. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. Any notices received after this deadline will not be valid.

Subject to the terms and conditions of the Series G Shares and Series H Shares and AltaGas’ right to redeem such shares, holders of the Series G Shares and the Series H Shares will have the opportunity to convert their shares again on September 30, 2029, and every five years thereafter as long as the Series G Shares and Series H Shares remain outstanding.

The bolded parts of this press release are confusing: they don’t add up and as far as I can tell the reset rates will be set on Tuesday. To come to this conclusion, take a deep breath and go to the incredibly shitty SEDAR+ website, swear a lot and eventually find the document: “AltaGas Ltd. / AltaGas Ltd. (000050274) Prospectus (non pricing) supplement – English.pdf 25 Jun 2014 17:41 EDTJune 25 2014 at 17:41:08 Eastern Daylight Time Alberta 430 KB Generate URL”

Therein, we find:

“Fixed Rate Calculation Date” means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

and

“Subsequent Fixed Rate Period” means, for the initial Subsequent Fixed Rate Period, the period from and including September 30, 2019 to, but excluding, September 30, 2024, and for each succeeding Subsequent Fixed Rate Period means the period from and including the day immediately following the last day of the immediately preceding Subsequent Fixed Rate Period to, but excluding, September 30 in the fifth year thereafter.

and

Business Day
If any day on which any dividend on the Series G Shares is payable by AltaGas or on or by which any other action is required to be taken by AltaGas is not a Business Day, then such dividend shall be payable and such other action may be taken on or by the next succeeding day that is a Business Day.

So the first day of the next “Subsequent Fixed Rate Period” is September 30, 2024. The “Fixed Rate Calculation Date” is thirty days prior to that, which is September 0, expressed more conventionally as August 31. August 31 is Saturday, hence not a business day, so the calculation is performed on the next business day, September 3.

So I believe the rate will be calculated Tuesday, after the long weekend, when we may hope that people at AltaGas have resumed thinking about what they’re doing.

I have sent the following eMail to Investor Relations:

Your press release at https://www.altagas.ca/newsroom/news-releases/altagas-provides-notice-series-g-and-series-h-preferred-shares-conversion contains the following sentence: “The new annual dividend rate applicable to the Series G Shares for the five-year period commencing on and including September 30, 2024 to, but excluding, September 30, 2029 will be 3.025 percent, being equal to the sum of the five-year Government of Canada bond yield determined as of today plus 3.060 percent.”

As the five-year Government of Canada bond yield is nowhere near -0.035%, I believe this to be an error. Further, I believe that the reset is actually to be calculated on Tuesday September 3, this being the business day following the 30th day prior to the reset date of September 30 – that is, August 31, a non-business day.

Please advise whether this is correct.

ALA.PR.G was issued as a FixedReset, 4.75%+306, that commenced trading 2014-7-3 after being announced 2014-6-23. Notice of extension was announced 2019-8-29. The issue reset at 4.242% effective 2019-9-30. I recommended against conversion. News that some were converted was reported on 2019-9-24; there was, in fact a 14% conversion. The issue is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns. In December, 2018, the issue was downgraded to Pfd-3(low) by DBRS and to P-3 by S&P. DBRS withdrew its rating in November 2021. S&P continues to rate the ALA preferreds at P-3.

ALA.PR.H is a FloatingReset, Bills+306, that arose through a 14% conversion from ALA.PR.G in September, 2019.

Thanks to Assiduous Reader IrateAR for bringing this to my attention, and to Niagara for pointing out arithmetic errors.

Update, 2024-9-3: I have received the following communication from TA:

Apologies for the confusion, the rate applicable for the Series G shares is equal to the Government of Canada 5-year bond which is currently quoted at 3.025% plus the applicable spread of 3.06%. This would deliver a total rate of 6.085%.

The rate applicable for the Series H shares, is determined by adding the currently quoted Government of Canada 90-day T-bill rate of 4.205% plus the applicable spread of 3.06% for a total rate of 7.265%.

Further, to your question regarding the reset date, anything later than Aug 30 would be outside the minimum 30 day notice period. Hope this helps.

Please let us know if you have any further questions.

I have responded with the following query:

I refer you to the prospectus for ALA.PR.G, issued in June, 2014.

‘Subsequent Fixed Rate Period’ is a defined term:
“Subsequent Fixed Rate Period” means, for the initial Subsequent Fixed Rate Period, the period from and including September 30, 2019 to, but excluding, September 30, 2024, and for each succeeding Subsequent Fixed Rate Period means the period from and including the day immediately following the last day of the immediately preceding Subsequent Fixed Rate Period to, but excluding, September 30 in the fifth year thereafter.
Therefore, the first day of the next ‘Subsequent Fixed Rate Period’ is September 30, 2024.

‘Fixed Rate Calculation Date’ is also a defined term:
“Fixed Rate Calculation Date” means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

Therefore the Fixed Rate Calculation Date applicable to the upcoming Subsequent Fixed Rate Period is August 31, 2024 – a Saturday and therefore not a business day.

There is also a specification of what happens when a scheduled action falls on a non-business day:
Business Day
If any day on which any dividend on the Series G Shares is payable by AltaGas or on or by which any other action is required to be taken by AltaGas is not a Business Day, then such dividend shall be payable and such other action may be taken on or by the next succeeding day that is a Business Day.

Therefore the action taken – calculating the rate applicable to the upcoming Subsequent Fixed Rate period is the next succeeding day that is a Business Day, which is today, September 3.

Can you please advise how your interpretation of the prospectus differs from the above?

I have not yet received an answer to my eMail. With respect to their claim about a 30 day notice period, the following paragraphs are in the prospectus:

AltaGas shall, not more than 60 days and not less than 30 days prior to the applicable Series G Conversion Date, give notice to the then registered holders of the Series G Shares of the conversion right. On the 30th day prior to each Series G Conversion Date, AltaGas shall give notice to the then registered holders of the Series G Shares of the Annual Fixed Dividend Rate for the Series G Shares for the next succeeding Subsequent Fixed Rate Period and the Floating Quarterly Dividend Rate for the Series H Shares for the next succeeding Quarterly Floating Rate Period.

…
Notice of any redemption of Series G Shares will be given by AltaGas not more than 60 days and not less than 30 days prior to the date fixed for redemption. If less than all of the outstanding Series G Shares are at any time to be redeemed, the shares so to be redeemed shall be redeemed pro rata (disregarding fractions).

So there has to be 30 days notice of the conversion right and 30 days notice of redemption; as far as I can tell, there is no notice period required for the announcement of the reset rates.

In 2019, they handled the situation by notifying of extension in late August and announcing the reset rate in September. It is not clear to me why they did not repeat this procedure last year; I will ask tomorrow if I have not received an answer to today’s query.

This entry was posted on Friday, August 30th, 2024 at 10:27 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.