DBRS Confirms R Split III Corp. Class B Preferred Shares, Series 1 Preferred Share Rating of Pfd-2

DBRS Limited (DBRS) has today confirmed the rating of Pfd-2 on the Class B Preferred Shares, Series 1 (the Preferred Shares), issued by R Split III Corp. (the Company).

Approximately 1.23 million Preferred Shares were issued at $13.60 each on May 31, 2012, following the redemption of the Class A Preferred Shares in accordance with their original terms as part of a share capital reorganization. The final redemption date for the Preferred Shares is scheduled for May 31, 2017.

The Company invests in a portfolio of common shares (the Portfolio) of Royal Bank of Canada. Dividends received from the Portfolio are used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares, yielding 4.25% annually on the issue price of $13.60, which translates to $0.1445 per share. Holders of Class A Capital Shares are entitled to excess income only after the Preferred Share distributions and other expenses of the Company have been paid. The Company has been consistently paying quarterly Capital Share dividends since 2011, with the latest dividend being equal to $0.1175 and paid on August 31, 2015.

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 the 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 27, 2015, is 72.3%.

The dividend coverage ratio is approximately 3.1 times. Other key rating factors include the downside protection stability in recent months, the credit quality and concentration of the Portfolio in one asset and the approaching maturity date of the Preferred Shares. Based on these considerations and aforementioned performance metrics, DBRS has confirmed the Pfd-2 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.