DBRS Provisionally Rates Big 8 Split Inc. Class D Preferred Shares, Series 1 Pfd-2 (low)

DBRS has today assigned a provisional rating of Pfd-2 (low) to the Class D Preferred Shares, Series 1 (the Class D Preferred Shares) to be issued by Big 8 Split Inc. (the Company). An equal number of Class D Capital Shares will also be issued. The previously issued Class B Preferred Shares, Series 1 (the Class B Preferred Shares), Class C Preferred Shares, Series 1 (the Class C Preferred Shares) and Class A Capital Shares will be redeemed on December 15, 2013.

To the extent that net proceeds from the offering exceed funding requirements associated with the redemptions of the Class B Preferred Shares and Class C Preferred Shares, the Company will use such net proceeds to invest in additional common shares for the portfolio (the Portfolio), which consists 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 A (high) with Stable trend by DBRS) and will not be rebalanced.

The Company has advised DBRS that the initial downside protection available to holders of the Class D Preferred Shares is expected to be approximately 53.1% after the payment of all issuance expenses. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Class D Preferred Shares, while holders of the Class D Capital Shares are expected to receive all excess dividend income after the Class D Preferred Shares and other expenses of the Company have been paid. Based on the current dividend yield on the Portfolio, the initial Class D Preferred Share dividend coverage ratio is expected to be approximately 1.7 times.

The provisional rating is primarily based on the expected level of downside protection and dividend coverage available to holders of the Class D Preferred Shares, as well as the credit quality of the underlying companies in the Portfolio.

The main constraints to the provisional rating are the following:

(1) The downside protection available to holders of the Class D Preferred Shares will depend on the value of the common shares held in 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 Class D Preferred Share dividend coverage or downside protection from time to time.

The scheduled final maturity date of the Class D Preferred Shares is December 15, 2018.

A provisional rating is not a final rating and may change or be different than the final rating assigned or may be discontinued altogether. The assignment of a final rating on the above-mentioned security is subject to receipt by DBRS of all information and final documentation that DBRS deems necessary to finalize the rating.

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.