DBRS Rates BNS Split Corp. II Class B Preferred Shares, Series 1 Pfd-2 (low)

DBRS has today assigned a rating of Pfd-2 (low) to the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) issued by BNS Split Corp. II (the Company) and discontinued the rating assigned to the Class A Preferred Shares, which have been repaid. The Class B Preferred Shares have been issued as part of a share reorganization, whereby all of the Class A Preferred Shares were redeemed and a portion of the Class A Capital Shares were redeemed on September 22, 2010. The Class B Preferred Shares were issued to maintain the leveraged split share structure of the Company, so that the amount of issued and outstanding Class A Capital Shares is twice the amount of issued and outstanding Class B Preferred Shares.

The Company used the proceeds from the initial issuance of the Class A Preferred Shares and Class A Capital Shares to purchase a portfolio (the Portfolio) of common shares in the Bank of Nova Scotia (the BNS Shares). The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution of $0.2003 to holders of the Class B Preferred Shares, yielding 4.25% annually on the initial issue price of $18.85. The Class A Capital Shares are expected to receive all excess dividend income after the Class B Preferred Share distributions and other expenses of the Company have been paid. As of September 14, 2010, the downside protection available to the holders of the Class B Preferred Shares was 62%. Based on the current dividend yield on the Portfolio, the initial Class B Preferred Share dividend coverage ratio is approximately 1.9 times.

The Pfd-2 (low) rating of the Class B 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 provided to holders of the Class B Preferred Shares is dependent on the value of the shares in the Portfolio.

2) Volatility of price and changes in the dividend policies of The Bank of Nova Scotia (BNS) may result in significant reductions in downside protection from time to time.

3) The concentration of the entire Portfolio in the common shares of BNS.

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

The applicable methodology is Rating Canadian Split Share Companies and Trusts, which can be found on our website under Methodologies.