Brookfield Finance to Sell Baby Bonds

Brookfield Finance, an arm of Brookfield Asset Management (BAM) will be selling new $25 subordinated notes.

The notes will carry a coupon of 4.625%

The notes will be rated Baa3 by Moodys, BBB by S&P and BBB by Fitch–investment grade.

Potential investors should note that under certain circumstances the company can force conversion of shares into common shares of BAM and additionally can defer interest for up to 5 years one or more times. Make sure to read the prospectus before any investment.

The ticker for this new issue has not been announced as of yet.

The preliminary prospectus can be read here.

The pricing term sheet can be read here.

Bob-in-DE was right on top of this one.

17 thoughts on “Brookfield Finance to Sell Baby Bonds”

  1. What’s the CUSIP on this baby bond. Can’t pull up the ticker BFI on Fidelity. What’s the price this morning?

    1. Believe holders of this note will be paid interest which will be reported on a 1099.
      No K-1.
      Also, no Canadian income tax withheld for a non Canadian holder of the notes- i.e. U.S. citizen.
      Bottom line – should be a “clean” 4.625% coupon yield @ par.

      However, if at some point in the future holders of these notes receive preferred shares to replace these notes – not probable but remotely possible, tax ramifications would change.

      1. Thanks razorback.

        Filled at $25.30, no fee, under symbol #BFI. Thanks to all for the heads-up on this offering.

        Diversifying within Brookfield, with 2x BIP-A, 2x BPYPN, 1x BFI, along with BEPC common. Slightly overweighted so hope they’re not the ‘smartest in the room.’

        Had BPYUP for 10 days, took a quick 2.10% profit. I’m tempted in its place by the REIT senior secured (BB+/B1) 5.75% 2026. I’m not convinced BAM would want/allow this bond to default. Is anyone knowledgeable on the capacity BAM would have to prevent default within the REIT covenant of this senior secured?

          1. Dick W,
            Vanguard – had to call it in through fixed income. No foreign fee nor telephone execution fee since the issue shows up under the cusip but isn’t active for customer trading.
            The placeholder ticker used was #BFI.

    1. Dick,
      I did not. The only “indicator of demand” I guess is that it priced @ 4.625 which was lower than the price talk b4 ticketing started.

      FWIW, I believe in diversification so I bought shares @ IPO. I like IG securities and I try to stick with them.

      Doesn’t mean I’m right, but that’s how I approach preferreds.

      1. How can retail investors buy into this at IPO?
        Is there a Cusip# or ticker to buy it OTC or by calling bond desk at broker?

        1. Hi mSquare – I just bought via Schwab’s fixed income desk (877-906-4670) and I just gave them the CUSIP. They charge a $25 commission. I’ve tried to do the same through Fidelity and they have not helped me.

          I don’t have experience trying to do this with any other brokerages. I’m curious if others have though. I’m curious if IBKR will let you buy these with just the CUSIP.

  2. Tim I would only add that the issue was also rated BBB by DBRS (Dominion Bond Rating Service). Where it comes to issues tied to Canada they are the go-to outfit. DBRS was acquired not long ago by Morningstar and will be a growing presence in the credit rating business in the U.S.

    The 5-year deferral for long-term sub notes has become standard and I don’t see that changing.

    The forced conversion feature is actually into a preferred issue, not that it’s going to matter much. European issues have had this feature for some time and Canadian financials were essentially forced to incorporate the feature about 5 years ago. It’s coming to the U.S., I pretty much promise, just as 5-year resets have.

    Neither the deferral nor conversion provisions is positive for investors but for highly rated companies has very little impact on valuation.

    1. Bob-in-DE/anyone: If a company defers for 5 years, I assume at a point (60 months out) they must repay all (? or just a part?) of the deferred amount . How soon can they re-enter deferral again?
      (Disregarding the “pay prefs in full before divs on commons can resume” condition.)

      1. Yes, absent bankruptcy the interest must eventually be paid.

        For this issue not to be paid BAM (the mother ship) would have to suspend dividends on its common and its preferred shares. This is an inconceivable act unless the company was on the verge of bankruptcy, in which case you wouldn’t see any money any way.

        1. The worst part of the income deferral is that you could still be taxed on the income if you are holding it in a taxable account.

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