DBRS Places Brompton Lifeco Split Corp. Preferred Shares Under Review with Positive Implications

DBRS has today placed the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) Under Review with Positive Implications. In April 2007 the Company issued 3.1 million Preferred Shares (at $10.00 each), along with an equal number of Class A Shares (at $15.00 each). The termination date for both classes of shares issued was originally April 30, 2014, but was extended to April 29, 2019.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies (the Portfolio). As of March 31, 2014, the Portfolio’s composition was: Manulife Financial Corporation (26. 1%), Sun Life Financial Inc. (25.5%), Industrial Alliance Insurance and Financial Services Inc. (25.1%) and Great-West Lifeco Inc. (22.6%). The Portfolio was initially equally weighted and is subject to annual rebalancing.

As part of the term extension, the fixed cumulative quarterly distributions to the Preferred Shares will be increased to $0.14375 per preferred share starting May 1, 2014, yielding 5.75% annually on their issue price of $10.00 per share (up from 5.25% previously). Holders of the Class A Shares are expected to continue receiving regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011, due to the net asset value of the Company falling below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013.

On December 23, 2013, DBRS upgraded the ratings of the Preferred Shares to Pfd-4 (high) from Pfd-5 (high). Since then, the performance of the Company has been generally stable, although downside protection has fallen slightly in April (37.2% as of April 10, 2014). Despite the drop, downside protection remains above levels typically seen at the Pfd-4 (high) level, and as a result, the rating of the Preferred Shares has been placed Under Review with Positive Implications.

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

Note:
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.