DBRS Rates NewGrowth Corp. Class B Preferred Shares, Series 2 Pfd-2

DBRS has today assigned a rating of Pfd-2 with a Stable trend to the Class B Preferred Shares, Series 2 (the Preferred Shares) issued by NewGrowth Corp. (the Company). The Company has issued approximately 2.2 million Preferred Shares at $13.70 each (for gross proceeds of about $30.7 million) and has maintained an equal number of Class A Capital Shares (the Capital Shares) at their current value, providing initial downside protection of approximately 60% to the Preferred Shares (net of expenses). The issuance of the Preferred Shares is the result of an approval on May 11, 2009, 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 of June 26, 2009 to June 26, 2014 (the Redemption Date). All outstanding Class B Preferred Shares, Series 1 were redeemed by the Company on June 26, 2009, at their original issue price of $18.25. As a result, DBRS has discontinued its rating on the Class B Preferred Shares, Series 1.

As part of the reorganization, the Company has completed a rebalancing of its portfolio (the Portfolio) to improve diversification and mitigate single issuer exposure. The Portfolio provides exposure to Canadian chartered banks, telecommunications, utility and pipeline companies, consisting of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, National Bank of Canada, BCE Inc., Rogers Communications Inc., TELUS Corporation, Manitoba Telecom Services Inc., Canadian Utilities Limited, Fortis Inc., TransAlta Corporation, Emera Inc., TransCanada Corporation, and Enbridge Inc. With the rebalancing, the Portfolio is approximately equally weighted among common shares of the sixteen 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 6.00% annually on the initial issue price of $13.70. 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 is primarily based on the initial downside protection and dividend coverage available to the Preferred Shares, 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 solely on the market values of the common shares held by the Portfolio, which will fluctuate over time.

(2) Changes in dividend policies of the companies included in the Portfolio may result in reductions in Preferred Shares dividend coverage.

(3) The Portfolio is entirely concentrated in equity securities of Canadian companies.

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.