{"id":31983,"date":"2016-01-14T05:58:45","date_gmt":"2016-01-14T10:58:45","guid":{"rendered":"http:\/\/prefblog.com\/?p=31983"},"modified":"2016-01-14T05:58:45","modified_gmt":"2016-01-14T10:58:45","slug":"new-issue-na-fixedreset-5-60490","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=31983","title":{"rendered":"New Issue: NA FixedReset, 5.60%+490"},"content":{"rendered":"

National Bank of Canada has announced<\/a>:<\/p>\n

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for the issuance on a bought deal basis of 10 million non-cumulative 5-year rate reset first preferred shares series 34 (non-viability contingent capital (NVCC)) (the \u201cSeries 34 Preferred Shares\u201d) at a price of $25.00 per share, to raise gross proceeds of $250 million.<\/p>\n

National Bank has granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 34 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The gross proceeds raised under the offering will be $300 million should this option be exercised in full.<\/p>\n

The Series 34 Preferred Shares will yield 5.60% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending May 15, 2021. The first of such dividends, if declared, shall be payable on May 15, 2016. Thereafter, the dividend rate will reset every five years at a level of 490 basis points over the then 5-year Government of Canada bond yield. Subject to regulatory approval, National Bank may redeem the Series 34 Preferred Shares in whole or in part at par on May 15, 2021 and on May 15 every five years thereafter.<\/p>\n

Holders of the Series 34 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 35 (non-viability contingent capital (NVCC)) (the \u201cSeries 35 Preferred Shares\u201d), subject to certain conditions, on May 15, 2021, and on May 15 every five years thereafter. Holders of the Series 35 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 490 basis points.<\/p>\n

The net proceeds of the offering will be used for general corporate purposes and added to National Bank\u2019s capital base. The expected closing date is on or about January 22, 2016. National Bank intends to file in Canada a prospectus supplement to its December 1, 2014 base shelf prospectus in respect of this issue.<\/p><\/blockquote>\n

They later announced<\/a>:<\/p>\n

that as a result of strong investor demand for its previously announced domestic public offering of non-cumulative 5-year rate reset first preferred shares series 34 (non-viability contingent capital (NVCC)) (the \u201cSeries 34 Preferred Shares\u201d), the size of the offering has been increased to 16 million shares. The gross proceeds of the offering will now be $400 million. The offering will be underwritten by a syndicate led by National Bank Financial Inc. The expected closing date is on or about January 22, 2016. National Bank will make an application to list the Series 34 Preferred Shares as of the closing date on the Toronto Stock Exchange.<\/p>\n

The net proceeds of the offering will be used for general corporate purposes and added to National Bank\u2019s capital base.<\/p><\/blockquote>\n

Implied Volatility analysis is not possible for the NA issues, since there are only three of them including the new issue. However, comparison to today’s analysis for TD shows that the issue is attractively priced. The very high level of Implied Volatility leads to the conclusion that there is a very high degree of directional bias in the pricing of TD\u2019s NVCC-compliant FixedResets. As this bias recedes (assuming that it ever does!), Implied Volatility will decline, the curve will flatten and the higher-spread issues (most notably the new issues) will significantly outperform the lower-spread issues.<\/p>\n

The NA issues are priced very close to the TD curve, with perhaps a slight premium.<\/p>\n

Note that the NVCC non-compliant issues are so obviously differentiated from the NVCC-compliant ones that they are not included in the calculation, although they are shown in the chart.<\/p>\n

On the other hand, the directional bias could be quite right! There will be many among us who think that +490 is an utterly ridiculous spread for solid bank \u2013 NVCC or no NVCC \u2013 and that spreads will narrow once memories of 2015 fade. Given this particular scenario, the lower-spread issues will shine: a calculation based on projected calculated values of 250bp Spread and 10% Implied Volatility implies that the extant TD NVCC-compliant preferreds will enjoy total capital gains in the area of 35% which, if achieved in a reasonable timeframe, will dwarf the yield advantage of the new issue for which capital gains will be a big fat zero.<\/p>\n

So pays yer money and takes yer chances, gents, roll up, roll up! If you think current market conditions are the new normal, you\u2019ll like the new issue. If you think this is a transitory crash, you won\u2019t.<\/p>\n

\"impVol_TD_NA_160113\"<\/a>
Click for Big<\/i><\/div>\n","protected":false},"excerpt":{"rendered":"

National Bank of Canada has announced: that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for the issuance on a bought deal basis of 10 million …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17],"tags":[],"class_list":["post-31983","post","type-post","status-publish","format-standard","hentry","category-new-issues"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31983","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=31983"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31983\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}