DBRS Confirms Rating of S Split Corp. Preferred Shares at Pfd-3

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by S Split Corp. (the Company) at Pfd-3. In May 2007 the Company issued 4.75 million Preferred Shares (at $10 each), along with an equal number of Class A Shares (at $15 each). The termination date for both classes of shares issued was originally December 1, 2014, but was extended to November 30, 2021.

The Company holds a portfolio consisting of the common shares of the Bank of Nova Scotia (the BNS Shares). Dividends received from the BNS Shares are used to pay a fixed cumulative monthly dividend to the holders of the Preferred Shares equal to 5.25% per annum. Based on the most recent dividend paid on the BNS Shares, the dividend income net of management fees and other expenses is expected to cover approximately 47% of the Preferred Share distributions. Holders of the Class A Shares are expected to receive regular monthly cash distributions in an amount targeted to be 6% per annum on the net asset value of the Class A Shares.

On September 5, 2014, DBRS confirmed the ratings of the Preferred Shares at Pfd-3. Since then, the performance of the Company has been volatile, with downside protection decreasing since the last rating action in September 2014 (50.3% as of November 20, 2014). Despite the drop, downside protection remain at levels typically seen at the Pfd-3 level.

The main constraints to the rating are:

(1) The downside protection available to holders of the Preferred Shares are entirely dependent on the value of the BNS Shares

(2) The concentration of the entire portfolio in the BNS Shares

(3) The dividends received on the Portfolio are currently unable to fully cover Preferred Share distributions

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 2014), which can be found on our website under Methodologies.