DBRS Downgrades Brompton Lifeco Split Corp. Preferred Shares to Pfd-4 (low) from Pfd-4 (high)

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

In April 2007, the Company issued 3.1 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The termination date for both classes of shares issued is April 30, 2014.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies (the Portfolio). As of December 31, 2011, the Portfolio’s composition was: Great-West Lifeco Inc. (27.6%), Manulife Financial Corporation (23.8%), Industrial Alliance Insurance and Financial Services Inc. (23.6%), and Sun Life Financial Inc. (23.2%). The Portfolio was initially equally weighted and is subject to annual rebalancing.

The Preferred Shares pay a fixed cumulative quarterly distribution of $0.13125 per Preferred Share, yielding 5.25% annually on their issue price of $10 per Preferred Share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.075 per Class A Share, yielding 6% annually on their issue price of $15 per Class A Share. However, these Class A Share distributions have been suspended since February 28, 2011, due to the net asset value (NAV) of Company falling below $15 per unit (i.e., 33% downside protection). In addition, no special distributions will be paid if, after such payment, the NAV of the Company would be less than $25 per unit.

On September 8, 2011, DBRS confirmed the ratings of the Preferred Shares at Pfd-4 (high) due to the sufficient level of downside protection at the time. However, the NAV of the Portfolio experienced significant downward movement over the subsequent months due to the negative performance of Canadian life insurance companies in the third and fourth quarter of 2011. The downside protection available to the Preferred Shares fell from 25.8% on July 28, 2011, to -2.9% on December 29, 2011, and now stands at 10.0% as of March 1, 2012. As a result of the downside protection dropping below acceptable levels for a prolonged period, the rating has been downgraded to Pfd-4 (low).

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.