DBRS Finalizes Provisional Rating of Pfd-2 (low) for BNS Split Corp. II

DBRS Limited (DBRS) has today finalized the provisional rating of Pfd-2 (low) of the Class B Preferred Shares, Series 2 (the Preferred Shares) to be issued by BNS Split Corp. II (the Company). The Preferred Shares will be issued to maintain the leveraged split share structure of the Company so that the number of issued and outstanding Capital Shares is twice the number of issued and outstanding Preferred Shares. The Company is expected to issue 569,143 million Preferred Shares at an issue price of $19.71 each ($11,217,809) and extend 1,138,286 million Capital Shares on the issuance date. The Preferred Shares and the Capital Shares are scheduled to mature on September 22, 2020.

The Company invests in a portfolio of common shares of The Bank of Nova Scotia (the BNS shares). Net proceeds from the offering (after deducting the agents’ fees and expenses of the issue) along with the proceeds from the sale of the BNS shares, if necessary, will be used to fund the redemption of all of the Class B Preferred Shares, Series 1 as well as the Capital Shares surrendered for redemption pursuant to a special retraction right.

Dividends received from the BNS Shares will be used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares in the amount of $0.1971 per quarter, which represents an annual yield of 4.0% on the offering price. Excess dividends net of all expenses of the Company and after the preferred cumulative dividends have been paid to the holders of the Preferred Shares may be paid as dividends on the Capital Shares or re-invested by the Company in additional BNS Shares as determined by the Board of Directors of the Company. The distributions of dividends on the Preferred Shares may be additionally funded from the sale of the underlying shares. The Company may engage in securities lending to supplement the income generated by the dividends.

The initial downside protection available to the holders of the Preferred Shares is expected to be approximately 62% (after offering expenses). Based on the current dividend yield on the Portfolio and the initial offering size, the Preferred Share Dividend coverage ratio is expected to be approximately 2.6 times.

The main constraints to the final rating are the following:

(1) The downside protection available to holders of the Preferred Shares depends on the value of the BNS Shares and is a subject to share price volatility.

(2) Changes in dividend policy of the Bank of Nova Scotia may result in fluctuations in dividend coverage or downside protection from time to time.

(3) The Portfolio is entirely concentrated in the common shares of the Bank of Nova Scotia.

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.

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