Judging by some recent actions, it seems that preferred shareholders are preferred in name only.
The latest example is set to experience in early March when holders of securities issued by Capstone Infrastructure Corp. gather to vote on the takeover from British-based ICON Infrastructure Partners C a transaction valued at $480 million. (Specifically, Irving Infrastructure Corp., one of ICON, is making buying.)
All owners have been invited towards the vote: Capstone’s common shareholders and holders of their Class B exchangeable units have been inspired to turn up, as have holders of two plenty of convertible debentures. Those investors come with an incentive to attend and vote: All been offered whether premium towards the stock’s recent trading price or a payment that reflects the modification of control.
But the invitation towards the holders of rate-reset preferred shares must have been lost within the mail. Or, to be accurate, it had been never sent. “Quarterly dividends are expected to be declared to preferred shareholders on a continuing basis and people shares will still be listed and trade on the Toronto Stock Exchange following closing of the Arrangement,” said the release announcing ICON’s planned acquisition that came a few months after Capstone hired two firms to help management and the board to experience a strategic review.
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Holders of the rate-reset preferreds would have liked to have been invited. Given their recent trading price – during the past year the prefs have traded within the range of $9.50 to $15.30 and closed Tuesday at $12.46 C they’d have gladly accepted a small premium and dicated to support the offer.
In July 2011, holders anted up $75 million to buy three million shares at $25. The prefs came with a five percent coupon. Under normal circumstances, this July, Capstone would have either redeemed the issue (and paid $25 per share) or offered holders either another fixed rate pref or a floating rate pref. The yield around the new prefs could be set at 271 basis points over either five-year Canada bonds or 91-day treasury bill rate. When the prefs remain outstanding, holders will get a much lower coupon.
The non-invite towards the meeting and the decision to leave the prefs outstanding has upset some holders.
“It’s unfair. Preferred shareholders are becoming the short end,” noted one investor, who isn’t enamored with the prospect of owning a public peace of mind in what’s going to essentially be considered a private company.
“In a takeover you’d think they’d deal with you like a preferred shareholder,” added the investor, who isn’t excited of owing a burglar that will don’t have any analyst coverage and is susceptible to a change in credit score. In 2012, S&P cut the rating to P-4 (high) from P-3.
“We are stuck with a piece of paper where we do not know where the credit rating will go where the coupon will be reset in July. There’s more uncertainty.”
Another observer noted “these securities are perpetual,” meaning the customer is under no obligation to redeem and the holders don’t have any capability to demand repayment. Instead the customer have a supply of inexpensive permanent capital.
ICON said, “the rights of preferred shareholders won’t be impacted by the transaction, because the preferred shares will stay outstanding on their own current terms. The constant maintenance of a public listing leaves open the potential for future capital raisings from the public entity.”
bcritchley@nationalpost.com
