RONA Inc. broke new ground Tuesday by launching its very first offering of rate reset preferred shares. The retailer is also a rare type of issuer for these shares, which are typically sold by larger companies with stable revenues, like utilities or conglomerates like Brookfield Asset Management.
Investors were not deterred by the sector. The deal had strong demand, according to people on the Street, and if anything, being a unique name probably helped because it gave the deal some novelty.
RONA’s pref shares pay 5.25 per cent annually, or a 260 basis point spread over 5-year Canada bonds. That yield is attractive because the company currently has some debt outstanding that currently yields around 4.6 per cent. On a tax-adjusted basis, which accounts for the lower tax rate on dividends, the rate reset offering pays about 240 basis points higher than the bonds.
But RONA isn’t the only first-time rate reset issuer that has come to market recently. RioCan REIT also tapped the market for $100-million of these securities. To do so the firm obtained a preferred share rating and RONA did the same. The new rate reset shares have been assigned a P-3 rating by S&P and a Pfd-3 rating by DBRS.
National Bank Financial and BMO Nesbitt Burns were joint bookrunners on the RONA offering.