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Great-West prefs come with big coupon cut Add to ...

Great-West Lifeco Inc. was in the market with a new preferred share offering Monday morning, but the pricing on this series looks much different than the last one.

Monday's issue yields 3.65 per cent, a spread of 130 basis points over the 5-year Government of Canada bonds. In February, the company brought a series of preferred shares that yielded 5.8 per cent. That's a 215 basis point gap, which new investors may not be aware of.

The difference likely stems from the types of preferred shares offered. The February issue, Series M, were non-cumulative preferred shares, while Monday's issue, Series N, were non-cumulative rate reset preferred shares.

That matters because regular preferred shares, that is non-rate reset offerings, can get priced off of the 30-year government bond, which typically has a higher yield. However, Great-West's February issue also included call provisions that allow the company to buy the shares back after five years, which can drastically affect how they are priced.

Moreover, government bond yields have also fallen over the course of 2010, which also contribued to the big pricing difference between the February and November issues.

BMO Nesbitt Burns, RBC Dominion Securities and Scotia Capital co-led Monday's offering.

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