DBRS Assigns Provisional Rating of Pfd-2 (low) to Partners Value Split Corp. Class AA Preferred Shares, Series 6

DBRS has today assigned a provisional rating of Pfd-2 (low) to the Class AA Preferred Shares, Series 6 (the Series 6 Preferred Shares) to be issued by Partners Value Split Corp. (the Company; formerly BAM Split Corp.). The previously issued Class AA Preferred Shares, Series 4 (the Series 4 Preferred Shares) are scheduled to mature on July 9, 2014, and will be redeemed using net proceeds from the issuance of the Series 6 Preferred Shares. To the extent that net proceeds from the offering exceed funding requirements associated with the redemptions of the Series 4 Preferred Shares, the Company will distribute such net proceeds to holders of the Capital Shares as a special dividend. The Series 6 Preferred Shares are expected to mature on October 8, 2021.

The Company owns a portfolio (the Portfolio) of Class A Limited Voting Shares (the BAM Shares) of Brookfield Asset Management Inc. (BAM; rated A (low) by DBRS). Any capital appreciation of the BAM Shares will benefit the holders of the Capital Shares. All series of Class AA Preferred Shares rank senior to the Junior Preferred Shares and Capital Shares, junior to any issued Debentures outstanding and pari passu with all other Class AA Preferred Shares with respect to payment of dividends and repayment of principal. Holders of the Capital Shares of the Company will only receive excess dividend income after interest on the Debentures, Class AA Preferred Share distributions, Junior Preferred Share distributions and other Company expenses have been paid.

The Company has advised DBRS that the initial downside protection available to the Series 6 Preferred Shares is expected to be approximately 77.1%, after the payment of all issuance expenses and the distribution of the special dividend on the Capital Shares (assuming an issuance size of $200 million Series 6 Preferred Shares). Holders of the Series 6 Preferred Shares are expected to receive a fixed quarterly cumulative distribution. The dividend coverage ratio is expected to be greater than 1.0 times. As a result, the Company is expected to be able to fund distributions on the Class AA Preferred Shares without relying on other methods for generating income or reverting to the sale of common shares in the Portfolio. In the event of a shortfall, the Company may sell some of the BAM Shares, engage in securities lending or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends.

The provisional rating is based on the same rating rationale and rating considerations as all other series of Class AA Preferred Shares (primarily the downside protection and dividend coverage available to the Class AA Preferred Shares).

The main constraints to the ratings are the following:

(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.

(2) There is a lack of diversification as the Portfolio is entirely made up of BAM Shares, so the rating on the Class AA Preferred Shares will generally not exceed the rating on the preferred shares of BAM.

(3) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Shares dividend coverage.

(4) As BAM declares dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to exchange rates, specifically the appreciation of the Canadian dollar versus the U.S. dollar. This may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares, as these dividends are paid in Canadian dollars.

(5) Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Class AAA Preferred Shares (if and when there are any outstanding) and Junior Preferred Shares.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Split Share Companies and Trusts (July 2013), which can be found on our website under Methodologies.

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.