DBRS Takes Various Rating Actions on 13 Preferred Shares and Securities Issued by Split Share Vehicles

DBRS has today taken a range of rating actions on 13 structured preferred shares issued by 12 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.

Of the 13 structured Preferred Shares ratings updated today by DBRS, one has been upgraded, seven have been confirmed, four have been downgraded and one has been placed Under Review with Negative Implications. From July 29, 2011, to July 31, 2012, the S&P/TSX Composite Index fell by approximately 9.9%. The S&P/TSX Financials Sector Index, S&P/TSX Energy Sector Index and S&P/TSX Materials Sector Index (all subsets of the Composite Index) dropped by 2.1%, 13.9% and 26.8%, respectively, over the past year. Equities have had mixed performance over the past year due to the escalating concerns over the European sovereign debt crisis. The materials, insurance and energy industries have been hit particularly hard, which is reflected in the overall noticeably lower downside protection available to the Preferred Shares with exposure to those industries from a year ago. As a result, four of the Preferred Shares ratings have been downgraded and one has been placed Under Review with Negative Implications. Among the remaining eight Preferred Shares ratings, seven have been confirmed at their current rating levels and one has been upgraded, mainly based on the improved downside protection available and high dividend coverage ratio.

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:
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.