DBRS Confirms Allbanc Split Corp. II Class B Preferred Shares, Series 1, at Pfd-2 (low)

DBRS has today confirmed the rating of the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) issued by Allbanc Split Corp. II (the Company) at Pfd-2 (low). The Preferred Shares were issued in February 2011 following a reorganization of the Company. The Company used the proceeds from the issuance of the Class A Preferred Shares and Class A Capital Shares to purchase a portfolio of common shares of the top six Canadian chartered banks (the Portfolio) that is passively managed. As of February 16, 2012, the Portfolio’s composition is: The Toronto-Dominion Bank (22.1%), Royal Bank of Canada (20.5%), Bank of Nova Scotia (19.9%), Canadian Imperial Bank of Commerce (16.9%), Bank of Montreal (14.9%), and National Bank of Canada (5.6%) (remaining 0.1% in other net assets).

The dividends received from the Portfolio are used to pay a fixed cumulative quarterly distribution of $0.2316 per share to holders of the Class B Preferred Shares, yielding approximately 4.25% annually on the initial issue price of $21.80. The current yield on the Portfolio shares fully covers the Class B Preferred Share dividends, providing dividend coverage of approximately 1.76 times. The Class A Capital Shares receive all excess dividend income after the Class B Preferred Share distributions and other expenses of the Company have been paid. Current downside protection available to holders of the Preferred Shares is 52.0% as of February 16, 2012.

The Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

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

The Class B Preferred Shares will be redeemed by the Company on February 28, 2016.

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.