DBRS Takes Various Rating Actions on 10 Preferred Shares/Securities Issued by Split Share Vehicles

DBRS has today taken a range of rating actions on ten structured preferred shares.

Each of the split share issuers (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 ten structured Preferred Share ratings updated today by DBRS, one has been upgraded and nine have been confirmed. Equity performance has been positive over the past year, with the S&P/TSX Composite Index rising by 7.0% from July 31, 2012, to July 31, 2013. All ten Issuers experienced stable or increasing net asset values (NAVs) over that same period, with those exposed primarily to Canadian financial institutions outperforming more diversified funds. Notwithstanding the positive performance over the past year, the ratings assigned to the many of the Preferred Shares continue to be constrained by distributions paid to holders of the Capital Shares, which depress NAVs and downside protection levels. Other key rating factors include the downside protection volatility in recent months, the credit quality and diversification of each Portfolio and the expected maturity date of the Preferred Shares of each Issuer. One Preferred Share was upgraded, primarily based on the level and stability of the downside protection over the past year.

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 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 (July 2013), which can be found on our website under Methodologies.