DBRS Assigns Provisional Rating of Pfd-2 to NewGrowth Corp. Class B Preferred Shares, Series 3

DBRS has today assigned a provisional rating of Pfd-2 to the Class B Preferred Shares, Series 3 (the Series 3 Preferred Shares) to be issued by NewGrowth Corp. (the Company). On March 26, 2014, the Company announced the approval of a proposed share capital reorganization (the Reorganization) by holders of its Class A Capital Shares (the Capital Shares), which allows holders of the Capital Shares to extend the term of their investments by an additional five years, to June 26, 2019. The previously issued Class B Preferred Shares, Series 2 (the Series 2 Preferred Shares) will be redeemed on June 26, 2014, and the Series 3 Preferred Shares will be issued in order to maintain the Company’s desired leveraged split share structure.

To the extent that net proceeds from the offering exceed funding requirements associated with the redemptions of the currently outstanding Series 2 Preferred Shares, the Company will use such net proceeds to invest in additional common shares for the portfolio (the Portfolio). The Portfolio will consist of the common shares of 19 Canadian issuers in the banking, telecom, pipeline, utility and oil and gas sectors: Bank of Montreal, Bank of Nova Scotia, BCE Inc., Canadian Imperial Bank of Commerce, Canadian Natural Resources Ltd., Canadian Oil Sands Ltd., Canadian Utilities Ltd., Cenovus Energy Inc., Emera Inc., Enbridge Inc., Fortis Inc., Husky Energy Inc., National Bank of Canada, Rogers Communications Inc., Royal Bank of Canada, Suncor Energy Inc., TELUS Corporation, The Toronto-Dominion Bank and TransCanada Corporation. The Portfolio will be equally weighted initially and will not be rebalanced.

The Company has advised DBRS that the initial downside protection available to holders of the Series 3 Preferred Shares is expected to be approximately 56.2% 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 Series 3 Preferred Shares. Holders of the Capital Shares are expected to receive all excess dividend income after the Series 3 Preferred Share dividends and other expenses of the Company have been paid. Based on the current dividend yield on the Portfolio, the initial Series 3 Preferred Share dividend coverage ratio is expected to be greater than 1.0 times.

The provisional rating is primarily based on the expected level of downside protection and dividend coverage available to holders of the Series 3 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 Series 3 Preferred Shares will depend on the value of the common shares held in the Portfolio.

(2) Changes in dividend policies of the companies included in the Portfolio may result in reductions in Series 3 Preferred Share dividend coverage or downside protection from time to time.

The scheduled final maturity date of the Series 3 Preferred Shares is June 26, 2019.

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.