DBRS Confirms Rating of Dividend Growth Split Corp. Preferred Shares at Pfd-3

DBRS has today confirmed the Preferred Shares rating of Dividend Growth Split Corp. (the Company) at Pfd-3. In December 2007, the Company issued approximately 1.5 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The scheduled redemption date for both classes of shares issued is November 30, 2014, subject to the extension of the term for periods of up to five years as determined by the board of directors.

The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio) issued by 20 Canadian dividend-paying companies, each with a market capitalization greater than $2 billion. The Portfolio is rebalanced at least annually. Dividends received from the Portfolio are used to pay to each Preferred Share holder fixed cumulative quarterly dividends equal to 5.25% per annum. Holders of Class A Shares are expected to receive monthly distributions targeted at 8% per annum.

The net asset value (NAV) of the Company dropped shortly after the last rating confirmation in May 2012, but has been increasing since June. As of April 11, 2013, the downside protection available to the Preferred Shares is approximately 42.5% and the dividend coverage ratio is approximately 1.0 times. The Pfd-3 rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

The main constraints to the rating are (1) the Company’s dependence on the value and dividend policies of the securities in the Portfolio and (2) the reliance on the manager to generate a high yield on the Portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

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.