It wasn’t easy but two bad situations happen to be created from one.
That’s the state of affairs at Bermuda-based Brookfield Renewable Energy Partners LP – as well as for investors in its offerings – in the aftermath of the exchange offer for any class of its preferred shares. The mess: Brookfield didn’t achieve its original goal while investors are in possession of to deal with two thinly traded stocks.
Last November, Brookfield started the process by providing one preferred limited partnership unit for every Series 5 pref share. A greater distribution – 5.59 per cent vs 5 per cent – was a key element.
The original offer, including a Half minimum tender condition, was open to Dec. 18. If the issuer was successful [meaning above 90 percent support] it intended to effect a subsequent acquisition transaction on a single terms.
When that date rolled around, Brookfield extended the sale to Jan.20. Come that date, Brookfield – which received support from holders of 40.08 percent from the shares – again extended the offer to Feb. 8.
For that second extension Brookfield waived the minimum tender condition saying, “any and all Series 5 preferred shares tendered will be taken up.” For many holders that change was considered a threat or an encouragement. “I tendered because I thought everybody else would,” said one holder.
But others stayed away in droves: on Feb. 8 Brookfield said hello received the support of 41.22 per cent from the shares, meaning holders of 58.78 per cent from the shares stayed using what they had.
“The remaining original shares and also the new shares are incredibly thinly traded as well as their costs are dismal,” lamented one holder, who is clearly hoping something, like a higher coupon offering, will be done to deal with the situation. The shares, that have a $25 face value, closed Friday within the $18-19 dollar range.
But not any time soon may be the word from Brookfield, which declined to discuss how “ideal” the situation is currently. “We are fine with the outcome,” it said, when noting that the issues – the initial larger one and also the two smaller ones – aren’t big traders because investors view them as fixed income.
“This is where we’re. The securities have been trading where we expected using the new [higher yielding] one trading at a premium towards the old shares,” said a spokesperson.
ANOTHER BATTLE OVER PREFERREDS
By now holders of Series 6 rate-reset preferred shares issued by RONA, will have received a notice about upcoming options. That news is probably the second surprise about the preferreds, which were issued in early 2011 and which are up for reset at month’s end.
The first surprise was that Lowe’s, which has decided to purchase RONA susceptible to shareholder approval, was making a deal for that prefs at $20 a share – a $5 per share haircut. The Lowe’s board decided the sale was fair.
Now comes word the preferreds won’t be redeemed. Instead holders can convert “all or any” of these into Class A floating rate prefs. The initial yield on those prefs is going to be 3.11 percent. Those who don’t convert, will maintain the Series 6 prefs, which will pay 3.24 percent.
The procedure for converting to the Series 7 or sticking with the Series 6’s is subject to at least one million shares in both series.
Holders need to decide by March 16 on their own plan of action.
bcritchley@nationalpost.com
