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Preferred shareholders feeling not-so-preferred after all

By now holders of Series 6 rate-reset preferred shares issued by RONA, will have received a notice about upcoming options.

It wasn’t easy but two bad situations happen to be made from one.

That’s your affairs at Bermuda-based Brookfield Alternative energy Partners LP – and for investors in the offerings – as a direct consequence of an 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 percent – was a key factor.

The original offer, including a 50 per cent 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 per cent of the shares – again extended the sale to Feb. 8.

For that second extension Brookfield waived the minimum tender condition saying, “any and all sorts of Series 5 preferred shares tendered is going to be adopted.” For many holders that change was viewed as a threat or an encouragement. “I tendered since i thought everyone 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 of the shares stayed with what they’d.

“The remaining original shares and also the new shares are incredibly thinly traded as well as their prices are dismal,” lamented one holder, who is clearly hoping something, like a higher coupon offering, will be performed to address the situation. The shares, which have a $25 face value, closed Friday in 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 original 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 happen to be 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 from RONA, may have received a notice about upcoming options. That news has become the second surprise concerning the preferreds, that were issued at the begining of 2011 and which are up for reset at month’s end.

The first surprise was that Lowe’s, which has agreed to purchase RONA subject to shareholder approval, was making an offer 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 have the option to convert “all or any” of them into Class A floating rate prefs. The first yield on those prefs will be 3.11 per cent. People who don’t convert, will keep the Series 6 prefs, which will pay 3.24 percent.

The procedure for converting to the Series 7 or staying with the Series 6’s is subject to at least one million shares both in series.

Holders have to decide by March 16 on their own course of action.

bcritchley@nationalpost.com

 

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