New Issue: Canadian Western Bank Fixed-Reset 7.25%+500

Canadian Western Bank has announced:

that it has entered into an agreement with a group of underwriters led by Genuity Capital Markets to issue 2,600,000 Preferred Units (the “Public Offering Preferred Units”) on a bought deal basis for total proceeds of $65 million. The Public Offering Preferred Units each consist of one Non-Cumulative 5-Year Rate Reset Preferred Share, Series 3 (the “Series 3 Preferred Shares”) in the capital of the Bank with an issue price of $25.00 per share and 1.78 common share purchase warrants (each whole warrant a “Warrant”). Each Warrant will be exercisable at a price of $14.00 to purchase one common share in the capital of the Bank for five years. The Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 390,000 Public Offering Preferred Units. This option is exercisable in whole or in part by the underwriters at any time up to 30 days following the closing of the offering. The maximum gross proceeds raised under the public offering would be $74.75 million should this option be exercised in full.

The Bank has also received commitments from institutional investors, including Fairfax Financial Holdings Limited and certain pension fund clients of Alberta Investment Management Corporation, to purchase 5,400,000 Preferred Units (the “Private Placement Preferred Units”) by way of a private placement for total proceeds of $135 million. The Private Placement Preferred Units will consist of one Series 3 Preferred Share and 1.7857 Warrants. The Warrants will have the same terms at those issued under the public offering.

The private and public offerings are subject to a number of conditions, including the concurrent closing of the other. The private placement is also subject to the approval of the Minister of Finance.

The Series 3 Preferred Shares yield 7.25% annually, payable quarterly, as and when declared by the Board of Directors of CWB for an initial period ending April 30, 2014. Thereafter, the dividend rate will reset every five years at a level of 500 basis points over the then five-year Government of Canada bond yield. Holders of Series 3 Preferred Shares will, subject to certain conditions, have the option to convert their shares to Non-Cumulative Floating Rate Preferred Shares, Series 4 (the “Series 4 Preferred Shares”) on April 30, 2014 and on April 30 every five years thereafter. Holders of the Series 4 Preferred Shares will be entitled to a floating quarterly dividend rate equal to the 90-day Canadian Treasury Bill Rate plus 500 basis points, as and when declared by the Board of Directors of CWB.

The Preferred Shares Series 3 and the Preferred Shares Series 4 are anticipated to qualify as Tier 1 capital for the Bank and the closing date will be subject to the timing of the approval from the Minister of Finance. CWB will make an application to list the warrants and the Series 3 Preferred Shares as of the closing date on the Toronto Stock Exchange. CWB’s Tier 1 capital ratio was 8.9% and its total capital ratio was 13.5% as of October 31, 2008. On the assumption that $200 million of preferred units are issued through these offerings, the pro forma Tier 1 and total capital ratios as of October 31, 2008 would be approximately 11.2% and 15.8%, respectively.

Well, there’s some things going on here that I don’t understand. Why are “certain pension fund clients of Alberta Investment Management Corporation” purchasing units? Is it for flipping? Regional Pride? A sweetheart deal? Stupidity? Why would a non-taxable investor buy these things? I want to know the answer. We’ve had quite enough market-rigging by regional government-sponsored pension funds and their allies in Canada recently, thank you very much.

I also want to know why there isn’t a credit rating on these things. CWB’s recent issue of sub-debt was not and is not rated. Why isn’t CWB lifting its skirts for the rating agencies? CWB certainly looks well capitalized at this point, but I want a little public pressure in bad times for the bank to clean itself up; and the most trustworthy sparkplug for this public pressure remains the credit rating agencies.

This issue will not be tracked by HIMIPref™.

3 Responses to “New Issue: Canadian Western Bank Fixed-Reset 7.25%+500”

  1. […] noted in the report of the new issue announcement, this issue will not be tracked by […]

  2. […] is a FixedReset, 7.25%+500 that commenced trading […]

  3. […] a rating, the issue will not be tracked by HIMIPref™, as was the case with RF.PR.A and CWB.PR.A, I’m not convinced that without a rating there will be much public pressure on the company to […]

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