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

DBRS Limited (DBRS) has today confirmed the Preferred Shares rating of Dividend Growth Split Corp. (the Company) at Pfd-3. In December 2007, the Company issued approximately 1.5 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Subsequent to the initial public offering, the Company has completed six follow-on offerings. The total number of Preferred Shares and Class A Shares outstanding currently stands at approximately 18.7 million shares each. The scheduled redemption date for both classes of shares issued is November 28, 2019.

The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio) issued by 20 Canadian dividend-paying companies, each with a market capitalization greater than $2 billion. The Portfolio is rebalanced at least annually. Dividends received from the Portfolio are used to pay to each Preferred Share holder fixed cumulative quarterly dividends equal to $0.525 per annum. Holders of Class A Shares are expected to receive monthly distributions targeted at $1.20 per annum.

The net asset value (NAV) of the Company has been volatile since the last rating confirmation in April 2014. As of April 9, 2015, the downside protection available to the Preferred Shares is approximately 45.2%, down from 46.7% on April 3, 2014. The dividend coverage ratio is approximately 0.99 times. The Pfd-3 rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

The main constraints to the rating are (1) the Company’s dependence on the value and dividend policies of the securities in the Portfolio and (2) the reliance on the manager to generate a high yield on the Portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

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. Rating reports 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 2013), 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.