DBRS Downgrades Big Bank Big Oil Split Corp., Removed from Under Review with Negative Implications

DBRS Limited (DBRS) has today downgraded the rating of the Class A, Preferred Shares (the Preferred Shares) issued by Big Bank Big Oil Split Corp. (the Company) and removed its Under Review with Negative Implications status. In June 2006, the Company issued 2.72 million Preferred Shares at $10 each and an equal number of Capital Shares (the Capital Shares) at $15 each. The final redemption date for the Preferred Shares is December 30, 2016.

The net proceeds from the offering were used to purchase a portfolio of common shares of the six largest banks and several of the largest oil and gas companies in Canada (collectively, the Portfolio). The Portfolio was initially equally weighted and is rebalanced annually. Dividends received on the Portfolio are used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares, yielding 5.25% annually on the initial issue price. Holders of the Capital Shares are currently receiving monthly distributions of $0.05 per Capital Share.

On February 6, 2015, due to the drop in downside protection caused by the plunge in oil prices at the end of 2014 and the continued price volatility in early 2015, DBRS placed the rating of the Preferred Shares Under Review with Negative Implications. Downside protection available to holders of the Preferred Shares was 42.1% as of March 30, 2015. As a result of the downside protection remaining below acceptable levels for a prolonged period, the rating of the Preferred Shares have been downgraded to Pfd-3 (high) from Pfd-2 (low), and DBRS removed the Preferred Shares from Under Review with Negative Implications.

The main constraints on the rating are as follows:

(1) The downside protection provided to holders of the Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying companies in the Portfolio may result in significant reductions in downside protection or dividend coverage from time to time.

(3) The concentration of the entire Portfolio is in the Canadian banking and energy industry.

Going forward, DBRS will not provide rating reports for split share companies that are being reviewed for surveillance purposes. This change will be made in an effort to provide more concise and meaningful updates. A rating report will continue to be published for initial fund ratings, reorganizations and extensions.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.