DBRS Confirms Financial 15 Split Corp. Preferred Shares at Pfd-4 (high)

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by Financial 15 Split Corp. (the Company) at Pfd-4 (high). In November 2003, the Company issued 10.9 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The final redemption date for both classes of shares issued is December 1, 2020 (extended from December 1, 2015, at a special meeting of shareholders on May 14, 2014).

The Company holds a portfolio (the Portfolio) consisting primarily of common shares of 15 high-quality North American financial services companies: Bank of America Corporation, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, CI Financial Corp., Citigroup Inc., The Goldman Sachs Group Inc., Great-West Lifeco Inc., JP Morgan Chase & Co., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., Toronto-Dominion Bank and Wells Fargo & Company (collectively, the Portfolio Companies). Up to 15% of the net asset value (NAV) of the Company may be invested in securities of issuers other than those mentioned above. These names include AGF Management Limited, TMX Group Inc. and U.S. Bancorp as of December 10, 2014. The common shares of a particular Portfolio Company each represent between 4% and 8% of the total NAV of the Company, and no more than 10% of the NAV of the Company may be invested in any single issuer. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on their issue price of $10 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.1257 per Class A Share, yielding 10% annually on their issue price of $15 per share. These Class A Share distributions were suspended in July 2011 as a result of the NAV per unit falling below the $15 threshold but have been reinstated since January 2013. No special year-end dividends will be paid if, after such payment, the NAV of the Portfolio would be less than $25.

Since the last rating confirmation in January 2014, the NAV of the Company has improved slightly, despite volatility in the markets during the year. Downside protection available to holders of the Preferred Shares rose to 43.4% as of December 31, 2014, from 42.2% on December 31, 2013. Despite the increased downside protection, the current dividend coverage ratio of around 0.46 and the reinstatement of Class A Share distributions result in an average grind of approximately 11% over the next two years. As a result, the rating has been confirmed at Pfd-4 (high).

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, which can be found on our website under Methodologies.