DBRS Comments on the Approval of the Proposed Merger of Two Brompton Split Share Funds

DBRS notes that on March 14, 2011, Brompton Funds Management Limited announced that Brompton Equity Split Corp. (BE) and Dividend Growth Split Corp. (DGS) would be holding shareholder meetings on April 8, 2011 to vote on special resolutions to merge BE and DGS by way of amalgamation. Earlier today, the merger was approved and is expected to be implemented on May 18, 2011. The preferred shares issued by BE (the BE Preferred Shares) are currently rated Pfd-2 by DBRS, and the preferred shares issued by DGS (the DGS Preferred Shares) are currently rated Pfd-3 by DBRS.

BE and DGS will amalgamate to form a new fund which will also be named Dividend Growth Split Corp. (New DGS) and will have the same portfolio holdings, investment restrictions and scheduled termination date as DGS.

BE was scheduled to terminate on May 31, 2011, while the scheduled termination date of New DGS is November 30, 2014 (the Termination Date). Once the merger is completed, holders of the BE Preferred Shares will receive preferred shares in New DGS (the New DGS Preferred Shares) with a term of approximately 3.5 years (maturing on the Termination Date). The preferred shares will continue to receive fixed cumulative preferential quarterly cash distributions yielding 5.25% annually on the par value of $10 per share.

Shareholders of BE will have the opportunity to redeem their BE Preferred Shares or BE Class A Shares prior to the completion of the merger (the Special Redemption Right). The redemption price will be equal to the NAV per BE Preferred Share (including accrued dividends) or BE Class A Share on or about April 28, 2011. To be redeemed, BE shares must be tendered for redemption no later than April 15, 2011.

The Special Redemption Right may result in a greater number of BE Class A Shares being redeemed than BE Preferred Shares. If this is the case, BE will be authorized to redeem Preferred Shares in an amount that will establish a 1:1 ratio of New DGS Preferred Shares to New DGS Class A Shares following the merger.

If the 1:1 ratio of preferred shares to class A shares outstanding is maintained, the merger will not result in a decrease in downside protection for existing DGS Preferred Shareholders. As a result, provided BE exercises its right to restore the 1:1 ratio, DBRS expects that the New DGS Preferred Shares will be assigned the same rating as the DGS Preferred Shares.

Once the merger has been completed, DBRS will discontinue the rating assigned to the BE Preferred Shares.

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.