DBRS Confirms First Asset CanBanc Split Corp. Preferred Share Rating of Pfd-2 (high)

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by First Asset CanBanc Split Corp. (the Company) at Pfd-2 (high).

In November 2008, the Company issued an equal number of Preferred Shares (at $10 each) and Class A Shares (at $15 each). The net proceeds from the initial offering were invested in a portfolio of common shares (the Portfolio) of the six largest Canadian banks: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank. The Portfolio was initially equally weighted among the banks and is not rebalanced. The redemption date for both classes of shares is scheduled for January 15, 2016.

Dividends received from the Portfolio are used to pay a fixed cumulative preferential quarterly dividend to the holders of the Preferred Shares to yield 6.50% annually. The Class A Shares may receive special year-end capital gains dividends if the NAV of the Company is not less than $23.50 per share after giving effect to such distributions. The latest dividend in the amount of $0.725 per share was paid on Dec. 31, 2014. The total cash distribution to a Class A share to date is $3.77.

The main form of credit enhancement available to the Preferred Shares is a buffer of downside protection. Downside protection corresponds to the percentage decline in market value of the Portfolio that must be experienced before the Preferred Shares would be in a loss position. The amount of downside protection available to the Preferred Shares as of August 12, 2015, is 77.14%.

The dividend coverage ratio is approximately 1.6 times. Other key rating factors include the downside protection volatility in recent months, the credit quality and diversification of the Portfolio, and the upcoming maturity date of the Preferred Shares. Based on these considerations and aforementioned performance metrics, DBRS has confirmed the Pfd-2 (high) rating of the Preferred Shares.

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares. The timing of DBRS rating actions will generally follow the surveillance guidelines listed in DBRS’s split share methodology.

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 2015), which can be found on our website under Methodologies.