Brookfield BIP Bermuda Holdings I Limited (BIP) will be selling a new issue of perpetual subordinated notes.
Interest payments will be quarterly. There will be a optionally available redemption period for the company starting in 2027.
These are perpetual subordinated notes so there will be no stated maturity date.
The issuer is a division of Brookfield Infrastructure Partners (BIP).
The issuer has the right to defer interest payments as shown below from the prospectus–
Interest which accrues during an Interest Period will be due and payable on the relevant Interest Payment Date, unless the Issuer elects, in its sole discretion, to defer the relevant payment of interest (in whole or in part). The Issuer may, at its discretion, elect to defer any payment of interest (in whole or in part) which is otherwise scheduled to be paid on an Interest Payment Date; provided that any such deferred interest shall become due and payable on the date the Issuer declares any distributions on any of the Issuer’s common shares or preferred shares. If the Issuer elects not to make all or part of any payment of interest on an Interest Payment Date, then neither the Issuer nor any Guarantor will have any obligation to pay such interest on the relevant Interest Payment Date. Deferred interest will accrue, compounding on each subsequent Interest Payment Date, until paid.
The preliminary prospectus can be found here.
Early Bird was on top of this one.
Deferral defines this issue as a NOT BOND.
Semantics do not matter in court…like a old oil trader I overheard on the phone years ago, who used to hedge on his real world deliveries of gasoline, “I hope you read the contract, I can tell you did not. If you didn’t ,I won’t wait more than five minutes for a call back.”
That’s a very friendly consideration from a counter-party.
This is a Bermuda shell issuing a perpetual bond.
So the deferral feature is the functional equivalent to a cumulative preferred stock, since under US law it pays dividends (qualified if it trades on a US exchange, non-qualified if it gets delisted) and not interest.
Interest as dividends – Here’s the language in the prospectus… I have no expertise here whatsoever, so I found it interesting that although they say they pay “interest” it’s not treated that way. I’m not sure if this is saying the same thing you are, Justin, but I guess it’s the same conclusion either way.
p S-34
Payments of Interest
In general, the gross amount of each payment of interest on the Notes will be included in your gross income as a dividend to the extent paid out of the Issuer’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Subject to the discussion below under “— Passive Foreign Investment Company Considerations,” to the extent that the amount of any such payment exceeds the Issuer’s current and accumulated earnings and profits, it will be treated first as a tax-free return of your tax basis in the Notes, and to the extent the amount of such payment exceeds your tax basis, the excess will be treated as capital gain. No assurance can be provided that the Issuer will calculate its earnings and profits under U.S. federal income tax principles. If the Issuer does not calculate earnings and profits, then interest payments on the Notes generally are expected to be reported as dividends.
Interest payments made with respect to the Notes that are treated as dividends for U.S. federal income tax purposes generally should be taxable to non-corporate U.S. Holders at the preferential rates applicable to long-term capital gains if the dividends constitute “qualified dividend income.” To be eligible for these reduced rates, such holders generally must hold the Notes for more than 60 days during the 121-day period beginning 60 days before the applicable interest payment date and meet other holding period requirements. Assuming such holding period requirements are met, a payment treated as a dividend generally will be qualified dividend income, provided that, in the taxable year the payment is received, the Notes are readily tradable on an established securities market in the United States, and the Issuer is not treated as a PFIC for such taxable year or for the preceding taxable year. See the discussion under “— Passive Foreign Investment Company Considerations.” The Issuer will apply to list the Notes on the NYSE, and therefore expects that payments with respect to the Notes that are treated as dividends will be qualified dividend income, but there can be no assurance that the Notes will be listed and actively traded on the NYSE. Interest payments made with respect to the Notes that are treated as dividends for U.S. federal income tax purposes generally will be treated as “passive category income” for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes. Such interest payments will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
I think BIPH is the Canadian sub and possibly subject to withholding. Would this not be subject to withholding given that it’s Bermuda?