Preferred shareholders feeling not-so-preferred after all

It wasn’t easy but two bad situations have been created from one.

That’s your affairs at Bermuda-based Brookfield Alternative energy Partners LP – as well as for investors in its offerings – in the aftermath of an exchange offer for a class of its preferred shares. The mess: Brookfield didn’t achieve its original goal while investors now have to deal with two thinly traded stocks.

Last November, Brookfield started the process by offering one preferred limited partnership unit for every Series 5 pref share. A greater distribution – 5.59 percent vs 5 per cent – would be 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] then it meant to effect a subsequent acquisition transaction on the same terms.

When that date rolled around, Brookfield extended the offer 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 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 because 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 percent of the shares stayed using what they had.

“The remaining original shares and the new shares are incredibly thinly traded as well as their prices are dismal,” lamented one holder, who is clearly hoping something, such as a higher coupon offering, will be done to deal with the situation. The shares, that 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 comment on how “ideal” the situation is currently. “We are fine using 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 how we are. The securities have been trading where we expected with the new [higher yielding] one trading confined towards the old shares,” said a spokesperson.

ANOTHER BATTLE OVER PREFERREDS

By now holders of Series 6 rate-reset preferred shares from RONA, will have received a notice about upcoming options. That news is probably the second surprise concerning the preferreds, which were issued at the begining of 2011 and that are up for reset at month’s end.

The first surprise was that Lowe’s, which has decided to purchase RONA subject to shareholder approval, was making an offer for the prefs at $20 a share – a $5 per share haircut. The Lowe’s board decided the offer was fair.

Now comes word the preferreds will not be redeemed. Instead holders can 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, that will pay 3.24 per cent.

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

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

bcritchley@nationalpost.com