BAM Issues 7-Year Notes at 5.2%

Brookfield Asset Management has announced:

an offering of C$300 million of medium term notes (unsecured) (“notes”) with a September 2016 maturity and a yield of 5.2%.

The notes have been assigned a credit rating of Baa2 (stable outlook) by Moody’s; A- (negative outlook) by Standard & Poor’s; BBB (stable outlook) by Fitch; and A low (stable outlook) by DBRS.

The notes are being offered through a syndicate of agents led by CIBC World Markets Inc. and RBC Capital Markets.

The net proceeds of the issue will be used to refinance US$200 million of notes that matured March 1, 2010 and for general corporate purposes.

This is useful data to have when evaluating BAM.PR.J, which is retractible on 2018-3-31 (presumed to trigger a call at $25 immediatly prior to exercise) which closed last night at 26.03-05 to yield 4.94-3%, equivalent to 6.90-1% interest at the standard equivalency factor of 1.4x. The interest-equivalent spread of about 170bp will be thought by many to more than adequately compensate for the seniority risk and slightly longer term. Note, however, that I have not yet reviewed the prospectus for the new bond issue – there may be terms and conditions peculiar to these notes which affect valuation.

Update: The Globe and Mail reports there is a credit-rating-linked put:

To give investors comfort, single-A-rated Brookfield agreed to buy back this paper at 101 cents on the dollar if its credit rating drops below investment grade, or if there is a change in control at the conglomerate.

That’s valuable – but in aggregate, that type of clause can leave credit quality on a knife-edge … as AIG found out.

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