DBRS Confirms Prime Dividend Corp Preferred Shares at Pfd-3

DBRS has today confirmed the rating of the Preferred Shares issued by Prime Dividend Corp (the Company) at Pfd-3.

In November 2005, the Company issued 2.2 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The redemption date for both classes of shares issued was originally December 1, 2012, but was extended to December 1, 2018, after holders of 96.1% of Class A Shares and 90.2% of Preferred Shares voted in favour of the extension in November 2011.

The Company holds a portfolio consisting primarily of common shares (the Portfolio) of the six major Canadian banks, life insurance companies (Great-West Lifeco Inc., Manulife Financial Corporation, Sun Life Financial Inc.), investment management companies (AGF Management Limited, CI Financial Corp., IGM Financial Inc.) and companies in other industries (BCE Inc., TransAlta Corporation, TransCanada Corporation, Power Financial Corporation, TSX Group Inc.). The common shares of each Portfolio company represent between 4% and 8% of the total net asset value (NAV) of the Company, and no more than 20% of the NAV of the Company may be invested in securities issued by financial services or utilities firms other than those listed above. The Portfolio is actively managed by Quadravest Capital Management Inc.

Dividends received from the Portfolio are used to pay to each Preferred Share a monthly floating-rate distribution equal to the prevailing prime rate in Canada (the Prime Rate) plus 0.75% per annum, with a minimum of 5% per annum and maximum of 7% per annum. Holders of Class A Shares are targeted to receive a monthly floating-rate distribution equal to the Prime Rate plus 2% per annum, with a minimum targeted rate of 5% per annum and a maximum targeted rate of 10% per annum. Holders of the Preferred Shares have been receiving the minimum monthly payment of $0.04167 per share (yielding 5% per annum) since November 2008.

On July 20, 2012, DBRS downgraded the rating of the Preferred Shares to Pfd-3 from Pfd-3 (high) due to a drop in downside protection in the months leading up to the rating action. Since then, the NAV of the Company has recovered slowly, with downside protection available to holders increasing from 37% in July 2012 to 40% in January 2013, and stabilizing at that level over the past few months. The current dividend coverage ratio is approximately 0.88 times, so income received on the Portfolio is unable to fully cover Preferred Share distributions. As a result, the rating of the Preferred Shares has been confirmed at Pfd-3.

DBRS will continue to closely monitor changes in the credit quality 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.