Press Release

DBRS Upgrades 5Banc Split Inc. Class B Preferred Shares to Pfd-3 (high)

Split Shares & Funds
March 01, 2011

DBRS has today upgraded the rating of the Class B Preferred Shares (the Preferred Shares) issued by 5Banc Split Inc. (the Company) to Pfd-3 (high) from Pfd-3. In December 2006, the Company issued 14 million Preferred Shares at $10 each and an equal number of Class B Capital Shares (the Capital Shares) at $10 each. The final redemption date for the Preferred Shares and Capital Shares is December 15, 2011.

The net proceeds from the offering were used to purchase a portfolio of common shares of the top five Canadian chartered banks (the Portfolio): Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank. The Portfolio was initially equally weighted among the five banks and is not actively traded.

Dividends received on the Portfolio are used to pay a quarterly fixed cumulative preferential distribution of $0.11875 per Preferred Share to yield 4.75% per annum. Based on the current dividend yields on the underlying banks, the Preferred Share dividend coverage is approximately 1.4 times. As a result, the Preferred Share dividends are currently funded entirely from dividends received on the Portfolio.

The rating of the Preferred Shares was last confirmed on August 10, 2010. Since then, the net asset value (NAV) of the Company has increased by approximately 9%. The current downside protection (as of February 24, 2011) is approximately 49%. The upgrade of the rating of the Preferred Shares is primarily based on the increased downside protection since August 2010 and the fairly short term to final redemption of the Preferred Shares.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the 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 Portfolio is entirely concentrated in the Canadian financial services industry.

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.

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