DBRS Rates Big 8 Split Inc. Class B Preferred Shares, Series 1 Pfd-2

DBRS has today assigned a rating of Pfd-2 with a Stable trend to the Class B Preferred Shares, Series 1 (the Preferred Shares) issued by Big 8 Split Inc. (the Company). The Company has issued approximately 1.2 million Preferred Shares at $12 each (for gross proceeds of $14.4 million) and has maintained an equal number of Class A Shares (the Capital Shares) at their current value, providing initial downside protection of approximately 60% to the Preferred Shares (after expenses). The issuance of the Preferred Shares is the result of an approval on November 21, 2008, by those holders of the Capital Shares who elected to reorganize the Company’s share capital and to extend the investment in the Company beyond the original redemption date (December 15, 2008) to December 15, 2013 (the Redemption Date). All outstanding Class A Preferred Shares were redeemed by the Company on December 15, 2008, at their original issue price of $25. As a result, DBRS has discontinued its rating on the Class A Preferred Shares.

In conjunction with the reorganization, the Company has completed a one-time rebalancing of the portfolio, which consists of common shares of Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation and Sun Life Financial Inc. (the Portfolio). With the rebalancing, the Portfolio is approximately equally weighted among common shares of the eight companies listed above.

The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares, yielding 7.00% annually on the initial issue price of $12. The Capital Shares are expected to receive all excess dividend income after Preferred Shares distributions and other Company expenses have been paid. Based on the current dividend yield on the Portfolio, the initial Preferred Shares dividend coverage is approximately 1.9 times.

The Pfd-2 rating of the Preferred Shares is primarily based on the downside protection and dividend coverage available, as well as on the credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

(1) The downside protection available to holders of the Preferred Shares depends on the value of the common shares held by the Portfolio.

(2) The Portfolio is entirely concentrated in the Canadian financial industry.

(3) Volatility of price and changes in dividend policies of the banks and insurance companies included in the Portfolio may result in reductions in dividend coverage and downside protection from time to time.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Split Share Issuers: A Performance Overview, which can be found on our website under Methodologies.

This is a Structured Finance rating.