National Bank of Canada is issuing 5 million preferred shares to raise gross proceeds of $125 million, the bank announced on Monday.

National Bank entered into an agreement with a group of underwriters led by National Bank Financial Inc. for the issue on a bought deal basis. The non-cumulative five-year rate reset first preferred shares Series 24 will be issued at a price of $25.00 per share.

National Bank also granted the underwriters an option to purchase up to an additional 3 million shares up to two business days prior to closing. If this option is exercised, the maximum gross proceeds raised under the offering will be $200 million.

The shares will yield 6.6% annually, payable quarterly, when declared by the bank’s board of directors for the initial period ending Feb. 15, 2014. The first of such dividends, if declared, will be payable on May 15, 2009.

Thereafter, the dividend rate will reset every five years at a level of 463 basis points over the five-year Government of Canada bond yield.

Holders of the shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 25, subject to certain conditions, on Feb. 15, 2014, and on Feb. 15 every five years thereafter.

Holders of the Series 25 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 463 basis points.

The net proceeds of the offering will be used for general corporate purposes and are expected to qualify as Tier 1 capital for National Bank. The expected closing date is Jan. 14.

National Bank intends to file in Canada a prospectus supplement to its Dec. 5, 2008 base shelf prospectus in respect of this issue.

National Bank will make an application to list the Series 24 Preferred Shares and the Series 25 Preferred Shares as of the closing date on the Toronto Stock Exchange.

IE