AIMCo joins list of funds issuing debt

For the second time in a week, Canadian pension funds have demonstrated that their debt offerings are more than welcome anywhere — even in markets where they haven’t been before.

Wednesday, AIMCo Realty Investors LP, a unit of AIMCo, an Alberta Crown corporation with almost $100 billion in assets, launched its initial debt offering in Canada. The unit hoped to raise $400 million by way of an offering of seven-year senior unsecured notes.

Before noon, the $400-million target was reached — and word is that because of strong demand, the issuer could have raised more — and AIMCo was required to pay 2.266 per cent. The notes, which could only be sold in Canada, were rated double-A-low by DBRS.

In an email, AIMCo said the “debt issuance is a highly cost-effective financing strategy that will provide a new source of funds and liquidity, as well as, enhance returns for AIMCo’s clients.”

It plans to use the proceeds to repay a revolving credit facility and for general corporate proceeds.

One week back, it was CPP Investment Board’s turn to branch into new markets. CPPIB Capital, a unit of CPPIB, launched its initial offering of euros and raised 2 billion euros ($3 billion) over a seven-year term at a coupon of 0.375 per cent. Given that the senior unsecured notes — rated tripleA by four rating agencies — were priced at a slight discount, the yield to maturity, at issue, was 0.465 per cent.

And as further proof that things go in threes, last Friday, Montreal-based PSP Capital Inc. priced a $1.75-billion five-year offering of senior unsecured notes. For that privilege, the borrower was required to pay 1.73 per cent. TD, BMO and CIBC were joint leads on the private placement.

These three recent offerings, two of which were in new markets, continue a trend that started in late 2001 when Ontrea Inc. a real estate, non-taxable company owned by Ontario Teachers’ Pension Plan Board, became the first pension fund to issue debt. It raised $600 million of triple-A-rated debt at 5.7 per cent with the interest payments and repayment of capital unconditionally and irrevocably guaranteed by the fund. Such a guarantee was possible because of provincial legislation.

One year later, OMERS, through OMERS Realty, entered the debt issuing game with its initial offering. In 2003, CDP Financial Inc., the funding arm for subsidiaries of the Caisse de dépôt, raised $750 million for five years in what was its inaugural issue. Those offerings were rated triple-A.

All those entities have continued to borrow — some in different form. Last March, Cadillac Fairview Properties Trust, a unit of Teachers, raised US$1 billion in its initial offering. The triple-Arated issuer was established to hold all of the shares and inter-corporate debt of Cadillac Fairview Corp. and Ontrea (In effect, the ownership, valued at $22.4 billion, was transferred to the trust from Teachers.)

bcIMC Realty Corp. OPB Finance Trust, and PSP Capital have also issued debt, not all of which was rated tripleA. But of all the pension funds, the CPPIB has been the most active borrower.

According to its latest annual report, for the 12 months ended March 31, it raises external debt under a global medium-term note program. It does that by selling unsecured senior notes by way of private placements. In all, when its Canadian borrowings are included, it has $8.8 billion of debt outstanding. It also has issued $11.1 billion of commercial paper via its Canadian and U.S. programs.