DBRS Downgrades SL Split Corp. Preferred Shares to Pfd-5 from Pfd-4 (low)

DBRS has today downgraded the rating of the Preferred Shares issued by SL Split Corp. (the Company) to Pfd-5 from Pfd-4 (low).

In November 2007, the Company issued 1.055 million Preferred Shares (at $25.78 each) and 2.11 million Capital Shares (at $15.26 each), raising gross proceeds of $59.4 million. The termination date for both classes of shares issued is January 31, 2013.

The Company holds a portfolio consisting of common shares of Sun Life Financial Inc. (Sun Life). Dividends received from the portfolio are used to fund a fixed cumulative quarterly dividend to the holders of the Preferred Shares yielding 5% annually on their issue price of $25.78 per share. Holders of the Capital Shares are expected to receive all excess dividend income after Preferred Share distributions and Company expenses have been paid.

On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-4 (low) due to the sufficient level of downside protection available at the time, despite the net asset value (NAV) and downside protection having gradually decreased in the months leading up to the confirmation. However, since the rating confirmation, the NAV has continued to decline, due to the negative performance of Canadian life insurance companies as a whole over the previous quarter, with the common shares of Sun Life in particular declining in value by 28.2% from $26.31 on September 1, 2011, to $18.90 on December 30, 2011. The downside protection available to the Preferred Shares has fallen from 1.7% on September 1, 2011, to -37.9% on December 30, 2011. As a result of the magnitude of the level of negative downside protection available to holders of the Preferred Shares and the overall negative trend observed since the previous rating action, the Preferred Shares have been downgraded to Pfd-5 from Pfd-4 (low).

The scheduled final maturity date of the Preferred Shares is January 31, 2013. DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

Note:
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.