Brookfield Properties Corp. came to market Wednesday morning with $200-million of rate reset preferred shares that yield 5.15 per cent annually. The deal makes sense given that a week ago Fairfax Financial Holdings Ltd. exercised its preferred offering's over-allotment option after upsizing the deal, bringing total proceeds to $300-million.
But BPO's offering has a slight twist: its first coupon period lasts for 6.5 years, after which investors can choose between a floating coupon or stay invested for five more years at a spread of 3 per cent over five-year Government of Canada Bonds.
By contrast, Fairfax had a five-year first coupon period, which was the norm for the slew of bank rate reset offerings that came out during the financial crisis.
By extending the first coupon, BPO gets a little more bang for its buck. If interest rates rise, the firm will be able to pay the current 5.15 per cent fixed rate for a year and a half longer than normal. That isn't too much extra time, but the first coupon period is the longest to date and it could mean more issuers will consider doing the same, considering some have already come to market with six-year first coupon periods.