18 July 2007
CPR Bond Buyers Enjoy Takeover Protection
U.S. investors who demanded a change-of-control
clause as quid pro quo for buying Canadian Pacific Railway's $450-million (U.S.) of 30-year notes that went
on sale in May are going to be mighty happy they stood on principle, with word that CPR may end up in the arms of a private equity
group made up of Brookfield Asset Management, Goldman Sachs, and the Caisse de depot et placement du Quebec.
The clause, designed to protect bondholders in the event of a buyout that shatters the company's credit rating, enables CPR bondholders
to put the debt back to the company in the event of a takeover.
The protection is becoming increasingly important to bond investors.
The fixed income crowd faces big losses on their BCE bond holdings if the planned takeover by the Ontario Teachers Pension Plan moves
forward, as bond prices fall when debt-heavy buyouts increase the risk of defaults. Bell Canada bond holders are
threatening to sue if the company doesn't buy back its debt. "In many sectors you basically can't get a deal done without a
change-of-control clause now, especially sectors that are viewed as prone to privatizations," said one bond investor.
Morgan Stanley and RBC Dominion Securities led the recent CPR debt offering.
The general consensus is that including the protection saves the issuer about 15 basis points (15/100ths of a percentage point) off the
interest rate, a big deal when you're looking out over 30 years of payments.
Ironically, the other major Canadian company that has included a change-of-control clause in a bond deal recently?
Brookfield.
|
