DBRS Confirms Financial 15 Split Corp. II Preferred Shares at Pfd-4 (high)

DBRS has today confirmed the rating of the Preferred Shares issued by Financial 15 Split Corp. II (the Company) at Pfd-4 (high). In October 2004, the Company issued 6.4 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Although these shares were offered separately, together they form a Unit. The redemption date was originally December 1, 2014, but shareholders have approved an extension of the redemption date for both classes of shares to December 1, 2019.

The Company holds a portfolio consisting primarily of common shares of 15 high-quality North American financial services companies: Bank of America Corporation, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, CI Financial Corp., Citigroup Inc., The Goldman Sachs Group, Inc., Great-West Lifeco Inc., JP Morgan Chase & Co., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., The Toronto-Dominion Bank and Wells Fargo & Company. Up to 15% of the net asset value (NAV) of the Company may be invested in securities of issuers other than those mentioned above, and no more than 10% of the NAV of the Company may be invested in any single issuer. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Portfolio currently provides approximately 38.5% of downside protection to holders of the Preferred Shares. The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on their issue price of $10 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.10 per Class A Share, yielding 8% annually on their issue price of $15 per share. No distributions will be paid to Class A Shares if the NAV per Unit falls below $15 and no special year-end dividends will be paid if, after such payment, the NAV of the Portfolio would be less than $25.

Although downside protection has increased over the past year, the Preferred Share dividend coverage ratio is below 1.0 times and the monthly Class A Share distribution is expected to result in a grind on the portfolio of 4.5% for the remaining six months until maturity. As a result, the rating of the Preferred Shares has been confirmed at Pfd-4 (high).

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.