F-10: EUSHI Finance Launches Exchange Offer for Subordinated Notes

EUSHI Finance, Inc. is offering to exchange its outstanding subordinated notes for new, registered notes with identical terms, except for transfer restrictions.

Summary

• EUSHI Finance, Inc. is conducting an exchange offer to swap its existing US$500 million 7.625% Fixed-to-Fixed Reset Rate Junior Subordinated Notes due 2054 for new, registered notes with the same terms.
• The new notes will be fully and unconditionally guaranteed by Emera Incorporated and Emera US Holdings Inc. on a joint, several, and subordinated basis.
• The exchange offer is intended to satisfy obligations under a registration rights agreement related to the initial placement of the outstanding notes.
• The terms of the new notes are substantially identical to the old notes, except that the new notes will be freely tradable in the United States and will not have transfer restrictions.
• The exchange offer will expire at 11:59 p.m., New York City time, on a date in 2024, unless extended, but the company does not currently intend to extend the expiration date.
• The exchange of old notes for new notes will not be a taxable event for U.S. federal income tax purposes.
• The new notes will bear interest at 7.625% per annum until December 15, 2029, and then at a rate equal to the five-year U.S. Treasury rate plus 3.136%, reset every five years.
• The Issuer has the option to defer interest payments for up to 20 consecutive semi-annual interest payment periods, with interest continuing to accrue on deferred amounts.
• The notes and guarantees are subordinated to all existing and future senior indebtedness of the Issuer and the Guarantors.
• The Issuer may redeem the notes at 100% of principal plus accrued interest on certain dates, or at 102% of principal plus accrued interest following a Rating Agency Event.

Sentiment

Score: 7

Explanation: The document is a standard exchange offer, which is generally a neutral event. The terms of the new notes are substantially identical to the old notes, so there is no significant positive or negative impact. The risks are clearly disclosed, which is a positive sign.

Positives

• The exchange offer provides holders of the old notes with new notes that are freely tradable in the United States.
• The exchange of old notes for new notes is not a taxable event for U.S. federal income tax purposes.
• The new notes will have the same terms as the old notes, including the interest rate and maturity date.
• The new notes will be guaranteed by Emera Incorporated and Emera US Holdings Inc.

Negatives

• The notes and guarantees are subordinated to all existing and future senior indebtedness of the Issuer and the Guarantors.
• The Issuer has the option to defer interest payments for up to 10 years, which may affect the market price of the notes.
• There is no established trading market for the new notes, and a market may not develop.
• The notes are structurally subordinated to the debt of Emera's subsidiaries.

Risks

• If holders choose not to exchange their old notes, the transfer restrictions will remain in force and the market price of the old notes could decline.
• The Issuer can defer interest payments on the notes for up to 10 years, which may affect the market price of the notes.
• The notes are subordinated to all existing and future senior indebtedness of the Issuer and the Guarantors.
• The notes are structurally subordinated to the debt of Emera's subsidiaries.
• There is no established trading market for the new notes, and a market may not develop.
• The guarantees of the notes could be voided or subordinated by applicable bankruptcy laws.
• The Issuers cash flow is dependent on the operating cash flows of Emera and its other subsidiaries and their ability to pay cash to the Issuer.
• An increase in interest rates could result in a decrease in the relative value of the notes.

Future Outlook

The document includes forward-looking statements regarding Emera's future growth, results of operations, performance, and business prospects, but cautions that actual results could differ materially due to various risks and uncertainties.

Management Comments

• Emeras strategic focus continues to be safely delivering cleaner, affordable and reliable energy to its customers.

Industry Context

The announcement is related to the financing activities of a geographically diverse energy and services company, which is consistent with the capital-intensive nature of the utility industry.

Comparison to Industry Standards

• The exchange offer is a common practice for companies that have issued debt in private placements and are seeking to provide liquidity to their investors.
• The subordination of the notes is typical for junior subordinated debt instruments.
• The interest rate reset mechanism is a common feature of hybrid securities.
• The option to defer interest payments is a feature that is sometimes included in subordinated debt instruments to provide flexibility to the issuer.

Stakeholder Impact

• Shareholders: The exchange offer is not expected to have a significant impact on shareholders.
• Employees: The exchange offer is not expected to have a significant impact on employees.
• Customers: The exchange offer is not expected to have a significant impact on customers.
• Suppliers: The exchange offer is not expected to have a significant impact on suppliers.
• Creditors: The exchange offer is not expected to have a significant impact on creditors.

Next Steps

• Holders of the Outstanding Notes must decide whether to tender their notes in the Exchange Offer.
• The Exchange Agent will process the tenders and issue the Exchange Notes.
• The Issuer will monitor the market for the Exchange Notes and may take further action as needed.

Key Dates

Keywords

exchange offer, subordinated notes, fixed-to-fixed reset rate, junior subordinated notes, Emera, EUSHI Finance, Emera US Holdings, debt securities, registration rights, senior indebtedness