Mr. Jaeson Jaman reports

TRANSALTA CORPORATION ANNOUNCES PREFERRED SHARE EXCHANGE

TransAlta Corp.'s board of directors has approved a transaction pursuant to which all the currently outstanding first preferred shares in the capital of the corporation are proposed to be exchanged for shares in a single new series of cumulative redeemable minimum rate reset first preferred shares, Series 1, in the capital of the corporation, pursuant to a plan of arrangement. The terms of the new preferred shares will be substantially the same as the terms of the existing first preferred shares, with the exception of an adjustment to the reset spread to 5.29 per cent, a change to Dec. 31, 2021, for the next reset date, as well as the addition of a minimum reset coupon rate of 6.5 per cent.

The corporation currently has four series of cumulative redeemable rate-reset first preferred shares outstanding, being the Series A shares, Series C shares, Series E shares and Series G shares, and one series of cumulative redeemable floating-rate first preferred shares outstanding, being the Series B shares. Pursuant to the arrangement, the outstanding existing preferred shares will be exchanged for new preferred shares at an exchange ratio specific to each series of existing preferred shares.

The arrangement is expected to provide several benefits to holders of existing preferred shares, including:

• Dividend volatility will be minimized as a result of the downside protection provided under the terms of the new preferred shares, which will include a minimum-floor mechanism, pursuant to which holders of the new preferred shares will have certainty that the reset coupon rate will be no lower than 6.50 per cent.
• The dividends to be paid to holders of the new preferred shares are expected to be greater than the current dividends received by holders of the existing preferred shares over the initial five-year reset period based on current interest rate levels.
• Trading liquidity is expected to be enhanced, as the consolidation of the existing preferred shares into one series of new preferred shares is expected to provide holders of new preferred shares with more flexibility and depth in the market to buy and sell such new preferred shares.
• The exchange of existing preferred shares for new preferred shares will constitute an automatic tax-deferred exchange for Canadian income tax purposes. The arrangement will, however, provide holders of existing preferred shares with an option, at their election, to have the exchange occur in a manner which may allow a shareholder to realize a capital gain or a capital loss for Canadian income tax purposes.

The arrangement is also expected to benefit TransAlta by:

• Reducing the corporation's notional capital balance of preferred shares by approximately $300-million, which strengthens the balance sheet and improves certain financial ratios;
• Providing future preferred share issuance capacity based on the equity treatment guidelines of the corporation's credit rating agencies.

Pursuant to the arrangement: (i) holders of Series A shares will receive 0.503 of a new preferred share; (ii) holders of Series B shares will receive 0.550 of a new preferred share; (iii) holders of Series C shares will receive 0.705 of a new preferred share; (iv) holders of Series E shares will receive 0.790 of a new preferred share; and (v) holders of Series G shares will receive 0.820 of a new preferred share. The new preferred shares will pay fixed cumulative dividends of $1.625 per share per year, yielding 6.5 per cent per year, payable on the last business day of March, June, September and December of each year, as and when declared by the board of directors of TransAlta. The dividend rate will be reset on Dec. 31, 2021, and every five years thereafter at a rate equal to the sum of the then five-year government of Canada bond yield and 5.29 per cent, provided that, in any event, such calculated rate shall not be less than 6.5 per cent. The new preferred shares will be redeemable by TransAlta, at its option, on Dec. 31, 2021, and on Dec. 31 in every fifth year thereafter.

The corporation will deliver an information circular, describing the proposed arrangement in greater detail, to holders of existing preferred shares entitled to vote in connection with the arrangement, with a view to completing the arrangement in the first quarter of 2017. Holders of existing preferred shares are encouraged to review the information circular as it includes important information pertaining to the arrangement.

The closing of the arrangement will be subject to various conditions to be set out in the information circular, including: (i) the approval of not less than two-thirds of the votes cast in person or by proxy at a special meeting of holders of each series of existing preferred shares; (ii) approval of the arrangement by the Court of Queen's Bench of Alberta; and (iii) any required regulatory approvals, including the listing of the new preferred shares on the Toronto Stock Exchange.

PricewaterhouseCoopers LLP has provided its fairness opinion that the arrangement is fair, from a financial point of view, to holders of each series of existing preferred shares. Based on the fairness opinion and after consulting with its financial and legal advisers, among other considerations, the board of directors of the corporation (i) has unanimously determined that the arrangement is in the best interests of the corporation; (ii) has unanimously determined that the arrangement is fair to the holders of each series of existing preferred shares; and (iii) recommends that holders of each series of existing preferred shares vote in favour of the arrangement. In connection with the arrangement, CIBC World Markets Inc. acted as the financial adviser to the corporation and Norton Rose Fulbright Canada LLP acted as legal counsel to the corporation.

About TransAlta

TransAlta is a power generation and wholesale marketing company focused on creating long-term shareholder value. TransAlta maintains a low-to-moderate risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia.

We seek Safe Harbor.