DBRS Finalizes Provisional Rating of Big 8 Split Inc. Class D Preferred Shares, Series 1 Pfd-2 (low)

DBRS has today finalized the provisional rating of Pfd-2 (low) to the Class D Preferred Shares, Series 1 (the Class D Preferred Shares) issued by Big 8 Split Inc. (the Company) and discontinued the ratings of the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) and the Class C Preferred Shares, Series 1 (the Class C Preferred Shares), which have been fully redeemed. The previously outstanding Class A Capital Shares have also been redeemed in connection with the issuance of the Class D Capital Shares. The Company will issue a minimum of 1,600,000 Class D Preferred Shares at an issue price of $10.00 per Class D Preferred Share and 1,600,000 Class D Capital Shares at an issue price of $12.50 per Class D Capital Share. The maturity date for the Class D Preferred Shares and Class D Capital Shares is December 15, 2018.

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 52.7% after the payment of all issuance expenses (based on the minimum offering size). Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Class D Preferred Shares at a rate of 4.50% per annum while holders of the Class D Capital Shares are expected to receive all excess dividend income after the Class D Preferred Share distributions 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 1.4 times.

The main constraints to the 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.

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.