Subordinated Debt

[Rockslinger]

Subordinated debts with a tenor of 5 years or longer issued by a Canadian chartered bank generally qualifies as Tier II capital. Using CIBC as an example, they currently have two outstanding sub-debts that carry a coupon in double digits. An 11.60% sub-debt was issued on January 7, 1991 and a 10.80% sub-debt was issued on May 15, 1991. It appears that CIBC did not issue any sub-debts in 2009 so I don't know if it would carry an interest rate in excess of 11.60%. CIBC and other major Canadian chartered banks are currently paying around 2.10% interest for 5 year GIC's so I would be surprised if any of them would issue a sub-debt for 13%.

On the other hand, a Canadian chartered bank that is lending money could very well be charging a 13% coupon if it is on the basis of a sub-debt issued by the borrower.

Note: This is simply a general discussion of sub-debts and is not applicable to any specific real life scenarios.

 

[WhaWhaWha]

This is way over my head. Where the hell have I been?

 

[Wild Wiglin Willie]

Always listen to an expert. If your pluming is clogged up, call a plumber. If your caught DWI, call a lawyer. If you have sores on your dick see a doctor. Why are you asking a bunch of guys with brains in their dicks for finacial advice?


wWw

 

[Nickelodeon]

This is way over my head. Where the hell have I been?

Agreed, this post tops the list of an esoteric topic directly linked to hobbying. Most of us have no clue what he's talking about until he pointed out that he wants the cash flow to hobby 4-5 time per day?

Now he's got my attention.

 

[adam_a]

Rockslinger seems fairly sophisticated. His words are true.

I'm amused that someone dropped the word "esoteric" on terb. Well done.

 

[Top Northerner]

Subordinated debt is generally unsecured.

As for the rate, regardless of whether it is subordinated debt or not, that is not what determines the rate. It is the creditworthiness of the issuer. The rate of the note indicates a high yield product meaning there is some risk involved.

I don't know enough about this deal to pass judgement, generally these private equity transactions are considered higher risk to begin with which is why this is the route taken.

Actually are secured but just rank behind others and so take cash flow risk with limited or no asset coverage.

 

[Top Northerner]

Ok, let's call them "High Yield" bonds. Was not referring to your company specially. Sub-debts issued by Canadian banks do not carry a 13% coupon. What is the credit agency rating of your particular sub-debt? Is it BB or higher?

Private subordinated debt is not rated. And CICB has a subordinated debt fund as do all the other. Roynat for instance at Scotia.

High yield/junk was a name used for subordinated debt however it tended to be used for publicly issued sub debt versus privately issued such as this case.

 

[fjdude]

Unless i've misunderstood...the loan is to the PE shop so that they can pay you. the Mez debt rate of 13% is dependent on the PE shop's current portfolio and track record to date. Would need more info but i would say that 13% sounds around the norm.

 

[Dutch Hobbyist]

Unless i've misunderstood...the loan is to the PE shop so that they can pay you. the Mez debt rate of 13% is dependent on the PE shop's current portfolio and track record to date. Would need more info but i would say that 13% sounds around the norm.

That is correct.

I believe the PE firm may be dealing with Roynat, but I may be wrong. Alot of major FI's bid on this deal, and I know Farm Credit and BDC put a proposal in front of them.

When this deal closes, I will be having the craziest hobbying experience of my life.

 

[jbar]

Agreed, this post tops the list of an esoteric topic directly linked to hobbying. Most of us have no clue what he's talking about until he pointed out that he wants the cash flow to hobby 4-5 time per day?

Now he's got my attention.

This is getting hilarious.

There is no way this kind of conversation should be centered on an escort board. It should be taking place on Bay Street or some finance-oriented forum. The whole hobbying angle of was just a way to sneak in the topic of his wealth. I think this is more about bragging rights than anything else. "Look at how much many I have". "I'm getting a new wine-chiller for my Aston Martin, and my wife Muffy is getting a new head-transplant for Christmas".

Tommorrow I'm going the TTC ticket booth at the Christie station, and discuss the my father's net worth circa 1984 with the ticket collector, just to glout over how many tokens I can now bought back in 1984.

No hate here, but the placement of this thread/topic is way out there.

 

[Nofah Kingway]

Hi.


Hoping you can steer me in the right direction, as I don't want to approach my CA, as he is not like "us", meaning, he is not a hobbyist.

Thanking you in advance,

DH

The quick answer is low teens seems to be in the right range. Now my bigger concern for DH, why did you not want to approach your CA on this topic? And what does he have to do with your hobbying? As a CA myself, I am deeply offended that you automatically assume CAs are not hobbyists, BS! As a matter of fact, my CA designation is a specialist designation, "CA-TERB".

Hope I have not pissed you off, if I can help you, please let me know, I am looking forward to a piece of that commission.

Any other CAs on TERB?

Nofah Kingway, CA

 

[out4fun]

I was just involved in a business buyout with subordinate debt at 12 and 18%. I don't think your rates are out of line at all.

 

[Carrie Moon]

yup.... wrong forum..

 

[C Dick]

I really enjoy these off-topic threads on Terb, I learn a lot, about things I would not have thought to look into elsewhere. If I am interested enough, I can always follow up somewhere more credible.

But the whole thread makes no sense, the OP could ask the CA any of the questions, there is no reason to tell the CA what the money is going for, it appears to be more of a "look how much money I have" thread. And there is nothing wrong with that, particularly in a case like this where he backs it up with come credible sounding details.

But is seems to me that if you have a company with $5M EBITDA, hundreds of employees, in business for 32 years, then this means two things:

- You are rich.
- You are old.

In which case your hobbying would already be limited by stamina, not cash. So I do not really understand the thread premise.

 

[Rockslinger]

I really enjoy these off-topic threads on Terb, I learn a lot, about things I would not have thought to look into elsewhere.

I completely agree. We TERBIES are more than just a bunch of sex maniacs. Many (but not all) can discuss a number of non-sexual subjects intelligently. The Lounge should be open to any and all subjects.

 

[Brill]

The lounge should be open to any topic except those that have their own categories.

The Common Bond would agree.

 

[Mia.Colpa]

Any other CAs on TERB?

I'm not, but I do know there are a lot of CA's that hobby, and not necessarily on this board. CA's are just as, if not more, hornier as other professions.

 

[HAMSTER INSPECTOR]

Pardon me, but does anyone in here have any Grey Poupon?

http://www.youtube.com/watch?v=NmannAYiwh0

 

[Barca]

I think you need some research. These are issued by CDN banks.

We (I) have been in business for over 32 years and am not levered, which is why a CDN bank is doing it in this economy.

My company employs hundreds of workers in the GTA. Shame on you for suggesting we are involved in something like junk bonds.

I am sorry for having to correct you, but according to your own statement, this is incorrect.

I am in the process of selling my business to a US Private Equity Firm and their lender (my source of cash) has provided a term sheet to them for $4 million of sub debt at 13%.

"Junk bonds" is not a deragatory term, it merely identifies a segment of the market, sort of like calling something a "penny stock". Rock's intention wasn't to insult you, but I do believe his characterization is correct. A sub-debt with an interest rate of 13% is indeed a high yield note, or to use a no-longer used term, "junk bond".

This is not being "issued" by a bank, it is being "underwritten" which is completely different. To "issue" a note, the bank would have to be that "private equity firm" that is buying your business, and I don't believe that is the case is it? I'd be surprised. Canadian banks don't normally take on equity positions like that in any run-of-the-mill company, unlike something like Maple Leaf Sports and Entertainment.

In your case, I am guessing that the bank is underwriting the note but it is the private equity firm that is guaranteeing it (meaning the bank has no obligation once the note is issued) hence making the equity firm (maybe a venture capitalist) the "issuer". Am I correct?

 

[Barca]

Actually are secured but just rank behind others and so take cash flow risk with limited or no asset coverage.

Not correct. I said "generally" because each note is different and subordinated only indicates rank, not collateralization.

That's why when issued, most notes have an additional classification such as "unsecured subordinated debt" but then the "unsecured" part generally gets dropped for the sake of expediency. But technically it's still there.

Bank sub-debt is generally unsecured FYI. Very few sub-debt issues are secured. That's usually why they are subordinated as opposed to senior debt.

High yield/junk was a name used for subordinated debt however it tended to be used for publicly issued sub debt versus privately issued such as this case.

Incorrrect again. Junk bonds does not take into account whether something is subordinated or note, it merely describes the credit rating and yield of a bond. You can have junk bonds that are senior ranked. Private or public issuance has nothing to do with it.