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 Class B 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 14, 2013, the Portfolio’s composition is: Royal Bank of Canada (22.2%; rated AA by DBRS), The Toronto-Dominion Bank (21.4%; rated AA by DBRS), Bank of Nova Scotia (19.8%; rated AA by DBRS), Canadian Imperial Bank of Commerce (16.6%; rated AA by DBRS), Bank of Montreal (14.6%; rated AA by DBRS), and National Bank of Canada (5.3%; rated AA (low) by DBRS) (the remaining 0.1% is 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 1.9 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 Class B Preferred Shares is 56.3% as of February 14, 2013.

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 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.