DBRS Confirms Big Bank Big Oil Split Corp.’s Preferred Shares at Pfd-2 (low)

DBRS has today confirmed the rating of the Class A, Preferred Shares (the Preferred Shares) issued by Big Bank Big Oil Split Corp. (the Company) at Pfd-2 (low). In June 2006, the Company issued 2.72 million Preferred Shares at $10 each and an equal number of Capital Shares (the Capital Shares) at $15 each. The original final redemption date for both classes of shares was December 30, 2011; however, the final redemption date was extended by five years to December 30, 2016, at a special meeting of shareholders on May 18, 2010.

The net proceeds from the offering were used to purchase a portfolio of common shares of the six largest banks and several of the largest oil and gas companies in Canada (collectively, the Portfolio). The Portfolio was initially equally weighted and is rebalanced annually. Dividends received on the Portfolio are used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares, yielding 5.25% annually on the initial issue price. Holders of the Capital Shares are currently receiving monthly distributions of $0.08 per Capital Share.

On April 5, 2013, DBRS confirmed the rating of the Preferred Shares and removed the rating from Under Review with Negative Implications. Since then, downside protection has been relatively stable, fluctuating between 48% and 52%. As a result, the Preferred Shares have been confirmed at Pfd-2 (low).

The main constraints on the rating are as follows:

(1) The downside protection provided to holders of the Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying companies in the Portfolio may result in significant reductions in downside protection or dividend coverage from time to time.

(3) The concentration of the entire Portfolio is in the Canadian banking and energy industry.

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.

The full report providing analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.