The preferred share market was very busy yesterday with TD Bank and BMO raising $800 million in new issues. TD started the day, issuing a 5 year rate/reset preferred with a spread of 227 basis points and a 3.80% dividend (a new low yield in NVCC preferreds). Investor demand was over $800 million, and TD increased the deal from $300 million to $500 million. A few hours later, BMO launched a similar deal with a 3.80% dividend and a 222 basis point spread. Demand was significantly lower for the BMO deal, most likely because the market was still digesting the TD issue, and BMO was not able to up-size the $300 million issue. The NexGen preferred share fund did not participate in either issue, as the 3.8% dividend yield appears low when compared to current holdings (the average yield of the preferred shares held in the fund is 5.2%).
In other news, BCE announced this morning that they will be acquiring Bell Aliant. The majority of the transaction, $3 billion of the approximate $4 billion, will be financed through the issuance of BCE common shares. As part of the deal, BCE will offer holders of Bell Aliant preferred shares, the opportunity to exchange their existing Bell Aliant preferreds into new BCE preferreds with the same financial terms. We view this as a positive development for Bell Aliant preferred shareholders, as BCE is a stronger, more diversified telecom company. This is confirmed by both S&P and DBRS, who have BCE preferred shares rated higher than Bell Aliant preferred shares. We anticipate tendering the NexGen Preferred Share Fund’s Bell Aliant holdings into the new BCE preferred shares upon competition of the transaction.