BAM.PR.P, the Brookfield Asset Management FixedReset 7.00%+445 announced on May 27, has commenced trading.
The issue traded 947,772 shares in a range of 25.05-30 before closing at 25.25-28, 9×19.
Vital statistics are:
| BAM.PR.P | FixedReset | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-04 Maturity Price : 25.20 Evaluated at bid price : 25.25 Bid-YTW : 6.78 % |
BAM.PR.P has been added to the HIMIPref™ FixedReset subindex.
It is of interest that Brookfield issued CAD 500-million in five-year notes almost simultaneously with this issue. The debentures carry a coupon of 8.95%, with the following highlighted in the prospectus:
We may redeem some or all of the notes at any time at 100% of the principal amount plus a make-whole premium. We will be required to make an offer to purchase the notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase upon the occurrence of a Change of Control Triggering Event (as defined herein).
The “make-whole” provision is simply a Canada call at +162bp. The Change of Control Triggering Event means not just a change in control, but also a downgrade of the debs to below investment grade by three out of the four main rating agencies.
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Why would you not treat BAM and BPP issues with the same credit worthiness? Are the parents not thought to be responsible for the children’s well being?
The difference in credit quality between parent and subsidiary is a variable thing.
In favour of the subsidiary is the idea that it is closer to the money: it can’t make payments to the parent until other claims have been paid.
In favour of the parent is the idea that there is diversification: if one of the subsidiaries becomes a burden, it can be cast aside like a soiled glove without further harming the parent, which may then continue with its other activities.
For instance, BCE was able to dispose of Telesat: creditors of Telesat were most unhappy, but BCE just kept on going. However, BCE is no longer so well diversified and its subsidiary, Bell Canada, has higher credit quality than the parent. Nowadays, for BCE / Bell, it is proximity to the revenue that has the edge.
With the PWF / GWO relationship, proxmity to revenue is judged to be equivalent to diversification; parent and sub are rated equally. However, the POW / PWF relationship is considered to be more favourable to PWF, which enjoys a higher rating than its parent.
With respect to BAM / BPP … a total collapse of BPP would hurt BAM, certainly, but BAM has lots of other things going on.
Sorry, not BCE / Telesat … should have said BCE / Teleglobe.
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