DBRS Confirms Ratings on 22 Preferred Shares and Securities Issued by Split Share Vehicles

DBRS has today confirmed the ratings for 22 structured preferred shares issued by 20 split share companies and trusts (collectively, the Issuers).

Each of the Issuers has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – dividend-yielding preferred shares or securities (the Preferred Shares) and capital shares or units (the Capital Shares). The main form of credit enhancement available to the Preferred Shares is a buffer of downside protection. Downside protection corresponds to the percentage decline in market value of the Portfolio that must be experienced before the Preferred Shares would be in a loss position. The amount of downside protection available to the Preferred Shares will fluctuate over time, based on changes in the market value of the Portfolio.

The Preferred Shares were last confirmed in August 2010. Equity performance was generally positive from July 31, 2010, to March 31, 2011; however, net asset values (NAVs) dropped over the past few months as global equity markets were negatively affected by concerns over the European sovereign debt crisis and the U.S. debt ceiling deadline. High volatility levels intensified following the downgrade of the U.S. long-term debt rating below AAA by one major rating agency. Notwithstanding the current volatility and sharp drop in markets over the past few months, the current levels of protection available to the Preferred Shares are commensurate with the ratings assigned. The rating confirmations are also based on longer-term performance and structural features of the Issuers that benefit the Preferred Shares. Other key rating factors are the credit quality and diversification of each Portfolio; the amount of distributions paid to the Capital Shares; and the expected maturity date of the Preferred Shares of each Issuer.

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares. The timing of DBRS rating actions will generally follow the surveillance guidelines listed in DBRS’s split share methodology.

Notes:
The applicable methodology is Rating Canadian Split Share Companies and Trusts, which can be found on our website under Methodologies.

The full reports providing additional analytical detail are available by clicking on the links under Related Research at the right of the screen or by contacting us at info@dbrs.com.