DBRS Assigns Provisional Rating of Pfd-3 (high) to Brompton Oil Split Corp.

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (high) to the Preferred Shares to be issued by Brompton Oil Split Corp. (the Company). The Company will issue an equal number of Preferred Shares and Class A Shares, at an issue price of $10.00 per Preferred Share and $15.00 per Class A Share. The Preferred Shares and Class A Shares will be scheduled to mature on March 31, 2020.

Net proceeds from the offering will be used to invest in the common shares of at least 15 large capitalization North American oil and gas issuers (the Portfolio). The Portfolio will be initially equally weighted and will be rebalanced at least semi-annually. A portion of the Portfolio’s investments will be denominated in U.S. dollars, and this exposure is expected to be hedged completely back to the Canadian dollar.

Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares of $0.1250 per Preferred Share ($0.50 per annum or 5.0% per annum on the initial issue price of $10.00 per Preferred Share), while holders of the Capital Shares are expected to receive a regular monthly non-cumulative cash distribution of $0.10 per Class A Share. The Company has the ability to write covered call options or engage in securities lending in order to generate additional income. Based on the minimum offering size, the initial downside protection available to holders of the Preferred Shares is expected to be approximately 57.3%.

The provisional rating is primarily based on the expected level of downside protection and dividend coverage available to holders of the 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 Preferred Shares 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 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.

(5) The concentration of the Portfolio in one industry

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 of all information and final documentation by DBRS that it 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 2014), which can be found on our website under Methodologies.