CIBC World Markets is preparing to sell roughly $4 billion in so-called Income Deposit Securities, an innovative hybrid product comprised of an interest-paying subordinated note and a dividend-paying share. Just one such sale of IDS has been completed so far, a $277 million deal on behalf of Volume Services America that was priced in December.
Since then, the market has been stalled because of an extensive Securities and Exchange Commission review over concerns that investors would not fully understand the risk associated with the product, said Cheryl Richer, director in project and infrastructure at Standard & Poor's in New York. In response, CIBC tweaked the product's structure to address concerns about disclosure, according to a CIBC official who declined further comment. The firm is now moving forward with plans to bring several more deals and was expecting to reach pricing levels on a transaction for American Seafoods last week as BW went to press, said Ashley Johansen, spokeswoman for CIBC. The bank is the only one offering these products, according to outside industry professionals.
The product is being sold to both institutional and retail investors. "The investor has to understand that a portion of the yield is like an interest expense that would cause the company to default if it weren't paid, and the other part of the yield is a dividend stream that would not cause a default if it weren't met," Richer added. She noted the product is attractive because investors are getting high-yield returns in a low-yield environment. The yield for the product is expected to be between 8% and 11%, according to CIBC's Johansen. CIBC officials declined further comment on the American Seafoods transaction, citing a quiet period prior to pricing.
