PrefBlog

Power Corporation has announced:

that it has priced the issuance of an aggregate principal amount of $400 million debentures (the “Debentures”) consisting of $250 million principal amount of 7.57% debentures due April 22, 2019 (the “10 Year Debentures”) and $150 million principal amount of 8.57% debentures due April 22, 2039 (the “30 Year Debentures”). The Debentures will be offered through a group of agents to be led by BMO Nesbitt Burns Inc. and Scotia Capital Inc.
…
The 30 Year Debentures will be dated April 20, 2009 and will mature on April 22, 2039. Interest on the 30 Year Debentures at the rate of 8.57% per annum will be payable semi-annually in arrears in April and October in each year, commencing October 22, 2009, until April 22, 2039. The 30 Year Debentures have been priced to provide a yield to maturity of 8.577%.

The credit rating for senior unsecured Power debentures assigned by S&P is A and by DBRS is A(High)

The offering of Debentures is expected to close on or about April 20, 2009. The net proceeds will be used to supplement the Corporation’s financial resources and for general corporate purposes.

IIROC has not yet issued a ruling regarding whether or not this price is fair, so investors of all kinds will just have to guess … if they’re allowed to buy it at all.

At the close last night, Power’s PerpetualDiscounts were quoted at:

So let’s say that the indicative bid-side YTW for a generic POW PerpetualDiscount is 7% … at the standard equivalency factor of 1.4x, this is equivalent to 9.80% as interest, implying a pre-tax interest-equivalent spread of a mere 122bp. These bonds look cheap to me. Relative to the Preferreds, anyway, even after giving the Prefs a bonus for their capital gains potential!

Update, 2009-4-19: Note that this issue has a Canada Call:

“Canada Yield Price” for any Debentures, means a price equal to the price of such Debentures calculated to provide an annual yield from the date of redemption to April 22, 2019 in the case of the 2019 Debentures and April 22, 2039 in the case of the 2039 Debentures, equal to the Government of Canada Yield plus 116 basis points for the 2019 Debentures and 122.5 basis points for the 2039 Debentures, compounded semi-annually and calculated in accordance with generally accepted financial practice on the business day preceding the date on which the Corporation gives notice of redemption pursuant to the Trust Indentures.
…
“Government of Canada Yield” on any date means the yield to maturity on such date, compounded semiannually and calculated in accordance with generally accepted financial practice, which a non-callable Government of Canada Bond would carry if issued, in Canadian dollars in Canada, at 100% of its principal amount on such date with a term to maturity equal to the remaining term to April 22, 2019, in the case of the 2019 Debentures and April 22, 2039, in the case of the 2039 Debentures. In calculating the Government of Canada Yield for purposes of a redemption of the Debentures, the Corporation will use the average of the yields provided by two major Canadian investment dealers selected by the Corporation.
…
Power may, at its option, redeem the Debentures in whole or in part from time to time, on not less than 30 nor more
than 60 days’ prior notice to the registered holder, at a redemption price which is equal to the greater of the Canada Yield Price (as defined herein) and par, together in each case with accrued and unpaid interest to the date fixed for redemption. In cases of partial redemption, the Debentures to be redeemed will be selected by the Trustee (as defined herein) pro rata or in such other manner as it shall deem appropriate. Any Debentures that are redeemed by the Corporation will be cancelled and will not be reissued.

There is also Change of Control protection:

The Trust Indentures will each contain provisions to the effect that if a Change of Control Triggering Event (as defined below) occurs, unless the Corporation has exercised its optional right to redeem all of the Debentures, the Corporation will be required to make an offer to repurchase all or, at the option of each Debentureholder, any part (equal to $1,000 or an integral multiple thereof) of each Debentureholder’s Debentures pursuant to the offer described below (the “Change of Control Offer”), at a purchase price payable in cash equal to 101% of the outstanding principal amount of Debentures together with accrued and unpaid interest, if any, to the date of purchase.

There is also credit rating protection:

“Rating Event” means the rating on the Debentures is lowered to below an Investment Grade Rating by each of the Specified Rating Agencies, if there are less than three Specified Rating Agencies, or by two out of three of the Specified Rating Agencies, if there are three Specified Rating Agencies (the “Required Threshold”), on any day within the 60-day period (which 60-day period will be extended so long as the rating of the Debentures is under publicly announced consideration for a possible downgrade by such number of the Specified Rating Agencies which, together with Specified Rating Agencies which have already lowered their ratings on the Debentures as aforesaid, would aggregate in number the Required Threshold, but only to the extent that, and for so long as, a Change of Control Triggering Event would result if such downgrade were to occur) after the earlier of (a) the occurrence of a Change of Control and (b) public notice of the occurrence of a Change of Control or of the Corporation’s intention or agreement to effect a Change of Control.

Update, 2009-4-20: Closed on schedule.

This entry was posted on Friday, April 17th, 2009 at 4:13 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.