The C$1 billion ($900 million) deal, which priced at a 35-basis point premium over the company’s senior debt, will be used to refinance the C$3.9 billion acquisition of Putnam, which took place in February. "Domestic issuance in Canada’s fixed-income market is scarce," says Susan Rimmer, co-head of debt origination for Merrill Lynch in Canada, which led the deal alongside Bank of Montreal and Scotia Capital. "It is exciting for Canadian investors to see the first leg of the Putnam acquisition." Ordinarily, refinancing deals for large acquisitions of US companies would be distributed to US investors.
The deal was well oversubscribed, and there are 46 institutional Canadian investors in the book. Notably, Standard & Poor’s gave the issue 100% equity credit, a first for tax-deductible structures in the Canadian market. Other key features of the deal include a restricted alternative payment mechanism, and a protective feature that requires GWL to sell certain assets to pay accrued interest, should the need arise.
The success of the issue could well prompt more Canadian companies to consider structuring similar deals, especially given the issue’s 100% equity credit, and all the financial benefits that entails. "This deal has opened up the Canadian market to D-basket hybrid capital products," says Jill Schildkraut-Katz, global head of issuer product development at Merrill Lynch.