Press Release

DBRS Downgrades R Split III Corp. Preferred Shares to Pfd-4 (low)

Split Shares & Funds
February 18, 2009

DBRS has today downgraded the Preferred Shares issued by R Split III Corp. (the Company) to Pfd-4 (low), with a Stable trend, from Pfd-2 (low). The rating has been removed from Under Review with Negative Implications, where it was placed on December 19, 2008.

In April 2007, the Company raised gross proceeds of $140 million by issuing 2.273 million Preferred Shares at $29.22 each and 4.546 million Capital Shares at $16.19 each, with a final redemption date of May 31, 2012 (the Redemption Date) for both classes of shares. The net proceeds from the offering were invested in a portfolio of common shares (the RBC Shares) of Royal Bank of Canada (RBC). The initial split share structure provided downside protection of approximately 50% to the Preferred Shares.

The holders of the Preferred Shares receive fixed cumulative quarterly distributions yielding 4.5% per annum. The current dividend income from the RBC Shares provides dividend coverage of approximately 1.4 times. The Company’s dividend policy is to pay holders of the Capital Shares the excess dividend income after paying Preferred Shares dividends and other Company expenses.

The NAV of the RBC Shares has declined significantly, dropping from $50.19 per share to $29.92 in the last year, a decline of more than 40%. The current downside protection available to the Preferred Shareholders is approximately 2% (as of February 13, 2009).

As a result of the large decline in asset coverage, DBRS has downgraded the rating of the Preferred Shares to Pfd-4 (low) with a Stable trend. A main constraint to the rating is that volatility of the common share price and changes in dividend policies of RBC may result in reductions in asset coverage or dividend coverage from time to time.

Notes:
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.

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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