DBRS Finalizes Provisional Rating on Faircourt Split Trust 6.00% Preferred Securities at Pfd-3 (low)
Split Shares & FundsDBRS Limited (DBRS) has today finalized the provisional rating of Pfd-3 (low) on the 6.00% Preferred Securities (the Preferred Securities) issued by Faircourt Split Trust (the Trust) and has at the same time discontinued the ratings of the 6.25% Preferred Securities, which have been fully redeemed. The Trust will issue a minimum of 1,000,000 6.00% Preferred Securities at an issue price of $10.00 per Preferred Security and a maximum of 592,200 Matched Units (consisting of one 6.00% Preferred Security and one Trust Unit) at an issue price of $16.80 per Matched Unit. The maturity date for the 6.00% Preferred Securities is June 30, 2019.
The Trust has advised DBRS that the initial downside protection available to holders of the 6.00% Preferred Securities is expected to be approximately 36.7% after the payment of all issuance expenses. The downside protection is provided by the Trust Units. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of December 17, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.02 times.
According to the terms of the Trust’s Declaration of Trust, the Trust has the ability to borrow up to 10% of Total Assets (as defined in the Declaration of Trust) under a loan facility in order to meet its investment objectives. Under the terms of the Company’s Trust Indenture, the loan facility is considered Senior Indebtedness, and all amounts owing under the loan facility will be paid in priority to the 6.00% Preferred Securities. There is currently no loan facility in place and therefore, there are currently no amounts owing under a loan facility; however, to the extent that the Trust borrows under a loan facility, the rating on the 6.00% Preferred Securities could be negatively impacted. DBRS will continue to monitor the situation in connection with the ongoing surveillance of the rating on the 6.00% Preferred Securities, and will take appropriate ratings action as necessary.
The main constraints to the provisional rating are the following:
(1) The downside protection available to holders of the 6.00% Preferred Securities will depend on the value of the common shares held in the Portfolio.
(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in interest coverage or downside protection from time to time.
(3) Dividends and interest received on the Portfolio are currently unable to fully cover Preferred Security distributions.
(4) Reliance on the manager to generate a high yield on the investment portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.
The scheduled final maturity date of the 6.00% Preferred Securities is June 30, 2019.
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 2014), which can be found on our website under Methodologies.
The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.
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