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

DBRS has today finalized the provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 6 (the Series 6 Preferred Shares) issued by Partners Value Split Corp. (the Company; formerly BAM Split Corp.) and confirmed the ratings of the Class AA Preferred Shares, Series 1 (the Series 1 Preferred Shares), Class AA Preferred Shares, Series 3 (the Series 3 Preferred Shares), Class AA Preferred Shares, Series 5 (the Series 5 Preferred Shares; collectively, the Class AA Preferred Shares) at Pfd-2 (low). The Company is expected to issue a minimum of 8,000,000 Series 6 Preferred Shares at an issue price of $25.00 per Series 6 Preferred Share, for gross proceeds of $200,000,000. Proceeds from the Series 6 Preferred Share offering will be used to fund the redemptions of the Series 4 Preferred Shares on their scheduled maturity date of July 9, 2014. To the extent that net proceeds from the offering exceed funding requirements associated with the redemptions, the Company will distribute such net proceeds to holders of the Capital Shares as a special dividend. The Series 6 Preferred Shares are scheduled 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). Dividends received from the Portfolio are used to fund the payment of interest on the Series 1 Debentures, Series 2 Debentures, Series 3 Debentures and Series 4 Debentures (collectively, the Debentures), to the extent that any have been issued, and to fund the payment of dividends on the Class AA Preferred Shares. Holders of the Series 6 Preferred Shares are expected to receive fixed quarterly cumulative distributions of $0.28125, yielding 4.50% per annum. Holders of the Junior Preferred Shares, Series 1 (the Junior Preferred Shares) are entitled to receive quarterly non-cumulative cash distributions at the discretion of the Board of Directors. 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, Capital Shares and Class AAA Preferred Shares (to the extent that any have been issued); junior to the Class A Voting Shares any issued Debentures outstanding; and pari passu with all other Class AA Preferred Shares and the Class A Preferred Shares (to the extent that any have been issued) 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.

Following the issuance of the Series 6 Preferred Shares and prior to the redemption of the Series 4 Preferred Shares, the downside protection available to holders of the Class AA Preferred Shares is expected to be approximately 74.3% after the payment of all issuance expenses. The downside protection is expected to rise to approximately 77.3% once the Series 4 Preferred Shares have been redeemed. The initial Class AA Preferred Shares dividend coverage ratio is expected to be approximately 1.4 times. 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 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.

(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 the Canadian-U.S. exchange rate, 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 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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.