Pembina Pipeline Corporation has announced:
that it has agreed with Kinder Morgan Canada Limited (TSX: KML) (“KML”) to amend and restate the previously announced arrangement agreement dated August 20, 2019 (the “Arrangement Agreement”) to include the preferred shares of KML in the arrangement transaction pursuant to which Pembina will acquire KML (the “Transaction”). If requisite approval by the holders of KML preferred shares is obtained, upon closing of the Transaction, each outstanding KML preferred share of a series will be exchanged for one preferred share of Pembina with the same commercial terms and conditions as that series of KML preferred shares. The inclusion of KML preferred shares in the Transaction is subject to approval by at least 66 2/3 percent of the votes cast by holders of KML preferred shares, voting together as a single class, present in person or represented by proxy at the special meeting of the holders of KML preferred shares to be held to approve the Transaction, but is not a condition to closing of the Transaction. If KML preferred shareholders do not approve the Transaction but all other conditions to closing are satisfied or waived by the applicable party, the KML preferred shares will remain outstanding as shares in the capital of KML, which will be part of the Pembina group following completion of the Transaction.
Further information regarding the Transaction will be contained in a proxy statement of KML that it will prepare, file and mail to its shareholders in due course in connection with KML voting and preferred special shareholders meetings.
A copy of the amended and restated Arrangement Agreement with respect to the Transaction will be filed under Pembina’s profile on SEDAR at www.sedar.com and on the Company’s website at www.pembina.com.
This follows news that PPL To Acquire KML Under Proposed Plan of Arrangement and that the two KML issues were on Review-Developing by DBRS due to uncertainty.
KML.PR.A is a FixedReset 5.25%+365M525 that commenced trading 2017-8-15 after being announced 2017-8-3. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.
KML.PR.C is a FixedReset, 5.20%+351M520, that commenced trading 2017-12-15 after being announced 2017-12-6. It is tracked by HIMIPref™ but relegated to the Scraps-FixedReset Discount subindex on credit concerns.
Hat tip to Assiduous Reader CanSiamCyp for ensuring I was aware of this development.
Update, 2019-09-12: The price movement left the PPL and VSN preferreds trading as equivalents:
Click for Big
The results of this Implied Volatility analysis are a little puzzling, if we look solely at those issues with a minimum reset guarantee.
| PPL / KML issues with Minimum Rate Guarantee |
|||||
| Ticker | Terms | GOC-5 Floor | Bid | Fair Value* | Rich (Cheap) |
| PPL.PF.A | +326M490 | 1.64% | 22.15 | 18.52 | 3.63 |
| KML.PR.C | +351M520 | 1.69% | 22.91 | 19.38 | 3.53 |
| KML.PR.A | +365M525 | 1.60% | 23.10 | 19.47 | 3.63 |
| PPL.PR.M | +496M575 | 0.79% | 25.80 | 22.23 | 3.59 |
| PPL.PR.K | +500M575 | 0.75% | 25.90 | 22.31 | 3.59 |
| "Fair Value" is calculated from the Implied Volatility curve derived using the non-floor issues only | |||||
It’s very strange. Each of the five issues has approximately the same unexplained value, which we may conjecture is equal to the market value of the Reset Floor, even though:
- The GOC-5 yields at which these guarantees become applicable varies widely, with three being in-the-money and two out.
- Two issues are trading at a premium to par, three at a discount
I’m not sure what to make of it. But I will say I’m glad I’m not the guy in the PPL treasury department who has to decide whether or not to call the two issues trading at a premium!