DBRS Rates Allbanc 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 Allbanc Split Corp. II (the Company) and discontinued the rating assigned to the Class A Preferred Shares, which have been repaid. The Company has issued approximately 2.18 million Class B Preferred Shares at $21.80 each 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. 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 issuance of the Class A Preferred Shares and Class A Capital Shares to purchase a portfolio of common shares of the top six Canadian chartered banks (the Portfolio). The weightings of the banks in the Portfolio have not changed as a result of the reorganization of the Company. The approximate weightings are as follows: The Toronto-Dominion Bank (21%), Bank of Nova Scotia (21%), Royal Bank of Canada (21%), Canadian Imperial Bank of Commerce (17%), Bank of Montreal (15%) and National Bank of Canada (5%). The Portfolio provides initial downside protection of approximately 55% to the holders of the Class B Preferred Shares (after reorganization expenses).

The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution of $0.2316 per share to holders of the Class B Preferred Shares, yielding approximately 4.25% annually on the initial issue price. The current yield on the Portfolio shares fully covers the Class B Preferred Share dividends, providing dividend coverage of approximately 1.6 times. 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.

The Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong 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 Canadian banks may result in significant reductions in downside protection from time to time.

(3) The entire Portfolio is concentrated in the Canadian financial services industry.

The Class B Preferred Shares will be redeemed by the Company on February 28, 2016.

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.