{"id":31413,"date":"2015-12-02T01:27:48","date_gmt":"2015-12-02T06:27:48","guid":{"rendered":"http:\/\/prefblog.com\/?p=31413"},"modified":"2015-12-02T01:27:48","modified_gmt":"2015-12-02T06:27:48","slug":"new-issue-bip-fixedreset-5-50453m550-interest-roc","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=31413","title":{"rendered":"New Issue: BIP FixedReset, 5.50%+453M550 (Interest + ROC)"},"content":{"rendered":"

Brookfield Infrastructure has announced<\/a>:<\/p>\n

that it has agreed to issue 5,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 3 (\u201cSeries 3 Preferred Units\u201d) on a bought deal basis to a syndicate of underwriters led by RBC Capital Markets, CIBC, Scotiabank and TD Securities Inc. The Series 3 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $125,000,000. Holders of the Series 3 Preferred Units will be entitled to receive a cumulative quarterly fixed distribution at a rate of 5.50% annually for the initial period ending December 31, 2020. Thereafter, the distribution rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.53%, and (ii) 5.50%. The Series 3 Preferred Units are redeemable on or after December 31, 2020.<\/p>\n

Holders of the Series 3 Preferred Units will have the right, at their option, to reclassify their Series 3 Preferred Units into Cumulative Class A Preferred Limited Partnership Units, Series 4 (\u201cSeries 4 Preferred Units\u201d), subject to certain conditions, on December 31, 2020 and on December 31 every 5 years thereafter. Holders of Series 4 Preferred Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the 90-day Canadian Treasury Bill yield plus 4.53%.<\/p>\n

Brookfield Infrastructure has granted the underwriters an option, exercisable until 48 hours prior to closing, to purchase up to an additional 2,000,000 Series 3 Preferred Units which, if exercised, would increase the gross offering size to $175,000,000. The Series 3 Preferred Units will be offered in all provinces and territories of Canada by way of a supplement to Brookfield Infrastructure\u2019s existing short form base shelf prospectus.<\/p>\n

Brookfield Infrastructure intends to use the net proceeds of the issue of the Series 3 Preferred Units for investment opportunities, working capital and other general corporate purposes. The offering of Series 3 Preferred Units is expected to close on or about December 8, 2015.<\/p><\/blockquote>\n

The sentence “The Series 3 Preferred Units are redeemable on or after December 31, 2020.” is, from what I’ve seen, poorly phrased. My understanding is that it is redeemable at par on every Exchange Date, in line with the accepted structure.<\/p>\n

Investors should be aware that the distributions are expected to be a mixture of ordinary income and return of capital for tax purposes; no Eligible Dividends are expected. The company expects a 50-50 split of the two types of income over the next five years, but of course there are no guarantees! I have been supplied with the following characterization of the past five years:<\/p>\n

\n\n\n\n\n\n\n\n\n
Past Composition of BIP Distributions<\/td>\n<\/tr>\n
 <\/td>\n2014<\/td>\n2013<\/td>\n2012<\/td>\n2011<\/td>\n2010<\/td>\n<\/tr>\n
Total distribution<\/td>\n$2.1378<\/td>\n$1.7883<\/td>\n$1.4988<\/td>\n$1.3198<\/td>\n$1.1277<\/td>\n<\/tr>\n
Total taxable income<\/td>\n$2.1035<\/td>\n$0.4131<\/td>\n$0.7939<\/td>\n$0.4825<\/td>\n$0.2368<\/td>\n<\/tr>\n
Return of capital<\/td>\n$0.0343<\/td>\n$1.3752<\/td>\n$0.7049<\/td>\n$0.8372<\/td>\n$0.8909<\/td>\n<\/tr>\n
Income %<\/td>\n98.40%<\/td>\n23.10%<\/td>\n52.97%<\/td>\n36.56%<\/td>\n21.00%<\/td>\n<\/tr>\n
Return of capital %<\/td>\n1.60%<\/td>\n76.90%<\/td>\n47.03%<\/td>\n63.44%<\/td>\n79.00%<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

Sure bounces around a lot, doesn’t it?<\/p>\n

BIP.PR.A was bid at 20.40 today to yield 5.50% to perpetuity … so call these issues more-or-less even yield. This suggests that the new issue is grossly expensive, unless you place a high value on the “dividend floor” feature, which I don’t.<\/p>\n","protected":false},"excerpt":{"rendered":"

Brookfield Infrastructure has announced: that it has agreed to issue 5,000,000 Cumulative Class A Preferred Limited Partnership Units, Series 3 (\u201cSeries 3 Preferred Units\u201d) on a bought deal basis to a syndicate of underwriters led …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,26],"tags":[],"class_list":["post-31413","post","type-post","status-publish","format-standard","hentry","category-new-issues","category-return-of-capital"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31413","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=31413"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31413\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31413"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31413"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31413"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}