DBRS Upgrades NB Split Corp. Preferred Shares to Pfd-3 (high)

DBRS has today upgraded the rating of the Preferred Shares issued by NB Split Corp. (the Company) to Pfd-3 (high) from Pfd-3. In February 2007, the Company raised approximately $100 million by issuing Preferred Shares (1,436,369 shares at $32.72 each) and Capital Shares (2,872,738 shares at $18.45 each). The final redemption date for both the Preferred Shares and the Capital Shares is February 15, 2012 (the Termination Date).

The net proceeds from the offering were used to purchase a portfolio of common shares (the Portfolio) of the National Bank of Canada (NB). Dividends received on the Portfolio are used to pay a fixed cumulative quarterly dividend of $0.3886 per Preferred Share to yield 4.75% per annum. Based on the current dividend yield on the NB common shares, the Preferred Share dividend coverage is approximately 1.2 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 of the Company has increased by approximately 25%. The current downside protection (as of March 14, 2011) is approximately 57%. The upgrade of the rating of the Preferred Shares is primarily based on the increase in downside protection since August 2010.

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) The Portfolio is entirely concentrated in the common shares of NB.

(3) Volatility of price and changes in the dividend policies of NB may result in significant reductions in downside protection from time to time.

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.