DBRS Confirms Big 8 Split Inc. Preferred Shares at Pfd-2

DBRS has today confirmed the ratings of Pfd-2 assigned to the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) and the Class C Preferred Shares, Series 1 (the Class C Preferred Shares) issued by Big 8 Split Inc. (the Company). The Class B Preferred Shares and Class C Preferred Shares are collectively referred to as the Preferred Shares. Downside protection to the Preferred Shares is provided by the Class A Capital Shares (the Capital Shares), which were issued in conjunction with the Preferred Shares. There are an equal number of Preferred Shares and Capital Shares outstanding.

The Company has used net proceeds from the issuance of the Preferred Shares and Capital Shares to invest in a portfolio (the Portfolio) consisting of common shares of Bank of Montreal (rated AA with a Stable trend by DBRS), Bank of Nova Scotia (rated AA with a Stable trend by DBRS), Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS), Royal Bank of Canada (rated AA with a Stable trend by DBRS), The Toronto-Dominion Bank (rated AA with a Stable trend by DBRS), Great-West Lifeco Inc. (rated AA (low) with a Stable trend by DBRS), Manulife Financial Corporation (rated A (high) with a Stable trend by DBRS) and Sun Life Financial Inc. (rated AA (low), Under Review with Negative Implications, by DBRS).

The Class B Preferred Shares and Class C Preferred Shares yield 7.00% and 5.75% annually, respectively, on their issue price of $12 per Preferred Share and rank pari passu with respect to return of principal and payment of dividends. Holders of the Capital Shares are expected to receive all excess dividend income after Preferred Share distributions and other Company expenses have been paid.

DBRS last confirmed the rating of the Preferred Shares at Pfd-2 on December 7, 2011. Performance has been generally stable since the last rating confirmation, with the NAV of the Company fluctuating between $28 and $32. The current dividend coverage ratio is 1.6 times and the current downside protection (as of November 30, 2012) available to holders of the preferred shares is approximately 62.4%. The confirmation of the rating of the Preferred Shares is based primarily on the level of downside protection and dividend coverage available, as well as on the high credit quality and consistency of dividend distributions of the underlying names in the Portfolio.

The main constraints to the ratings are the following:

(1) The downside protection available to holders of the Preferred Shares depends on the value of the common shares held by the Portfolio.

(2) The Portfolio is entirely concentrated in the Canadian financial services industry, which has often experienced greater common share price volatility than other industries in the past.

(3) Changes in dividend policies of the banks and insurance companies included in the Portfolio may result in reductions in Preferred Share dividend coverage or downside protection from time to time.

The scheduled final maturity date of the Preferred Shares is December 15, 2013.

DBRS will monitor the status of the Preferred Shares and provide rating updates as required.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Canadian Split Share Companies and Trusts (August 2012), which can be found on our website under Methodologies.