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Canadian Pacific bond group swells to near 50%; holders claim COC event

A group of Canadian Pacific Railway Limited bondholders has organized and hired Paul Hastings as legal counsel to assist in getting an early payout of their debt at the 101 change of control premium, two sources familiar with the situation told Debtwire. The group is growing rapidly and moving towards the 50% threshold that would allow the bondholders to direct trustee Computershare Trust Company to enforce the early redemption, the sources noted.

The holders of roughly USD 2.4bn in low-coupon debt split between two bond tranches that mature in 2031 and 2041 argue that a special mandatory redemption event was triggered when Canadian Pacific Railway’s federal regulatory approval of its acquisition of Kansas City Southern (KCS) didn’t go into effect on 25 March. The Surface Transportation Board approved the USD 31bn deal on 15 March, but the decision will only go effective as soon as 14 April. The deal paves for the creation of the first single-line railroad linking the United States, Mexico and Canada.

For its part, the issuer is working with Sullivan & Cromwell as legal counsel, the sources said. The law firm also offered advice on the acquisition of Kansas City Southern.

The USD 1bn 3% senior unsecured notes due 2041 traded at 83.5 on 11 April, to yield 4.29%, up from 79 to yield 4.7% on 14 March, while the USD 1.4bn 2.45% senior unsecured notes due 2031 traded at 88.5 to yield 4%, versus 85 to yield 4.5% on 14 March, before federal authorities approved the deal, according to MarketAxess. The two tranches of notes, along with other debt, were issued in December 2021 to fund in part the cash portion required for the acquisition of Kansas City Southern, according to a company press release.

“Canadian Pacific determined that the US Surface Transportation Board’s decision, issued on 15 March 2023, satisfies the requirements of the indenture and that it is not obligated to redeem the two series of notes held by this bondholder group.  Any assertion to the contrary is wrong, and ignores the language of the indenture, which leaves the determination to Canadian Pacific,” said a company spokesperson in an emailed response to Debtwire.

However, bondholders argue that the approval the company received on 15 March is not sufficient since it won’t go effective until 14 April, said one of the sources.

The situation is analogous to the merger of Canadian telecom giants Rogers Communications and Shaw Communication, a deal which was stuck in a lengthy regulatory review process after Rogers had raised financing to fund the transaction, noted a sellside analyst.

Rogers faced a 31 December 2022 deadline to consummate the deal, but agreed in August to pay consent fees to bondholders in exchange for extending the date by one year to provide Rogers more time to secure regulatory approvals. Regulators signed off on the deal in late March.

Paul Hastings declined to comment.