The parallels between the everything is very striking. What’s decidedly different may be the way the scenarios – two about-to-be-maturing issues with rate-reset preferred shares – unfolded.
Prior for the announcements the two preferreds – similar to other pref issues – were exchanging a deep discount to their issue price and also to their maturity value. Following the announcements the cost of both rose sharply, indeed both traded over the price holders are increasingly being offered.
In one case, a U.S. company, Lowe’s – which recently struck an offer to buy Rona – decided to acquire all of the outstanding preferred shares for $20 cash. Yesterday that announcement, the prefs closed at $12.61.
In February 2011, Rona raised $172.5 million with the sale of 6.9 million pref shares each costing $25. The shares included a 5.25 per cent dividend. Offering $20 a share means a saving of virtually $35 million to Lowe’s – if it’s successful.
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Rona’s original offering featured basics rate (the five-year Canada bond rate of two.Sixty percent) plus a spread of 265 basis points. The prefs were trading at affordable prices because just in case they weren’t redeemed, holders might have then been offered a brand new rate reset pref security utilizing a set rate yield within the range 3.20 percent to 3.Forty percent. (Holders might be also offered a floating rate option.) In case Rona redeemed the prefs, holders would have received $25 per share.
According for the newest management circular, no directors own any preferred shares. Instead they own common shares, options, restricted stock units (RSU’s) and satisfaction share units (PSU’s.)
The second case concerns RioCan REIT, which announced this month it absolutely was redeeming a $125 million issue of rate reset preferred units if this matures the following month. RioCan, the first REIT to issue rate reset prefs, presented to give the full redemption cost of $25 a share – combined with distribution which will come due on March 31.
According to the newest management circular, (prepared April 20, 2015) one insider, Edward Sonshine, owns 15,700 preferred units. Sonshine, the founder and leader holds them with the Sonshine Family Trust. Sonshine also owns 400,000 trust units.
The market seemed surprised: yesterday what is the news the shares closed at $16.
Cynthia Devine, RioCan’s chief financial officer said the business redeemed because: It gets no equity credit for your security; it’s made debt reduction important; this means you will borrow in a lower rate laptop or computer might be essential to purchase extending the pref shares another Five years.
On Friday, Devine said RioCan “did observe that [a tender offer below $25] however, there is a chance that does not these could be taken off circulation. Some [investors] may not tender so you have a series outstanding.”
Devine said the situations are different: Given that Lowe’s didn’t issue the prefs “it is a lot more appropriate to make a deal in the marketplace. We did issue at $25 so from that standpoint there’s no event that can make an improvement,” she added that “we clearly wanted it in our structure.”
bcritchley@nationalpost.com
