DBRS Confirms Big 8 Split Inc. Preferred Share Ratings at Pfd-2

DBRS has today confirmed the Pfd-2 ratings assigned to the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) and the Class C Preferred Shares, Series 1 (the Class C Preferred Shares) issued by Big 8 Split Inc. (the Company). The Class B Preferred Shares and Class C Preferred Shares are collectively referred to as the Preferred Shares. The Company previously issued Class A Capital Shares (the Capital Shares) to provide downside protection to the Preferred Shares. There are an equal number of Preferred Shares and Capital Shares outstanding.

The Company invests in a portfolio (the Portfolio) consisting 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 Class B Preferred Shares and Class C Preferred Shares rank pari passu with respect to return of principal and payment of dividends. The Capital Shares currently provide downside protection of approximately 62% to the Preferred Shares (as of December 3, 2010). The Class B Preferred Shares and Class C Preferred Shares yield 7.00% and 5.75% annually, respectively, on their issue price of $12 per Preferred Share. The Capital Shares are expected to receive all excess dividend income after Preferred Share distributions and other Company expenses have been paid. Based on the current dividend yield on the Portfolio, the current Preferred Share dividend coverage ratio is approximately 1.5 times.

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

The main constraints to the ratings 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 services industry, which in the past has often experienced greater common share price volatility than other industries.

(3) Changes in dividend policies of the banks and insurance companies included in the Portfolio may result in reductions in Preferred Share dividend coverage or downside protection from time-to-time.

The scheduled final maturity date of the Preferred Shares is December 15, 2013.

DBRS will monitor the status of the Preferred Shares and provide rating updates as required.

Note:
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.