When in doubt, offer some yield.
That might as well be Bay Street's mantra for the past five years. In a world with rock bottom yields, and in an investment landscape that lacks income trusts, Canadian retail investors have clamoured for yield of any sort.
Seeing the trend, Husky Energy Inc. opted to sell new preferred shares on Monday, pouncing on a rare chance to raise funds in an ugly energy market. Husky's common shares, by contrast, have fallen to a price last seen half way through 2012, scaring off investors of all stripes.
Asked about the decision to offer the preferreds now, a spokesperson said management saw this as an "opportune time, as the market for preferred shares has been good."
That's an understatement. It had been blazing. Since January, the Canadian banks have sold nearly $5-billion worth of preferred shares as they refinance old issues that no longer meet global rules for capital treatment. Many of these offerings have been upsized after they were initially launched, just as Manulife Financial Corp.'s own deal was increased to $250-million last week.
In order to sell $200-million of new preferred shares, Husky agreed to pay a 4.5 per cent annual coupon to investors. (Scotia Capital and TD Securities and co-led the offering; CIBC World Markets, RBC Dominion Securities and BMO Nesbitt Burns co-led Husky's only other preferred share deal in 2011.) 4.5 per cent may seem cheap considering the risk in the underlying energy market, but Husky is still paying up in order to be able to finance. A portion of the proceeds will be used to repay outstanding bonds that offer investors a 3.75 per cent annual yield and come due in 2015.
The deal is Husky's second financing this year. The first was a $750-million (U.S.) debt deal issued out of the U.S.