Shareholders feel not-so-preferred

I TENDERED BECAUSE I THOUGHT EVERYONE ELSE WOULD.

It wasn’t easy, but two bad situations have been created from one. That’s the state of affairs at Bermuda- based Brookfield Renewable Energy Partners LP — and for investors in its offerings — in t he 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 contend with two thinly traded stocks.

Last November, Brookfield started the process by offering one preferred limited partnership unit for each Series 5 pref share. A higher distribution — 5.59 per cent vs. five per cent — was a key element.

The original offer, which included a 50- per- cent mini mum t ender condition, was open to Dec. 18. If the issuer was successful then it intended 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 offer to Feb. 8.

For that second extension Brookfield waived the minimum tender condition saying, “any and all Series 5 preferred shares tendered will be taken up.” For some 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 i t received the support of 41.22 per cent of the shares, meaning holders of 58.78 per cent of the shares stayed with what they had.

“The remaining original shares and the newly created shares are extremely t hinly t raded and t heir prices are dismal,” lamented one holder, who is clearly hoping something, such as a higher coupon offering, will be done to address the situation. The shares, which have a $25 face value, closed Friday in the $ 18-19 dollar range.

But not any time soon is the word from Brookfield, which declined to comment on how “ideal” the situation is currently. “We are fine with the outcome,” it said, when noting that the issues — the original larger one and the two smaller ones — aren’t big traders because investors view them as fixed income.

“This is where we are. The securities have been trading where we expected with t he new one t radi ng at a premium to the old shares,” said a spokesperson.

ANOTHER BATTLE OVER PREFERREDS

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

The first surprise was t hat Lowe’s, which has agreed 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 won’t be redeemed. Instead holders have the option to convert “all or any” of them into Class A floating rate prefs. The initial yield on those prefs will be 3.11 per cent. Those who don’t convert will maintain the Series 6 prefs, which will pay 3.24 per cent.

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

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