DBRS Assigns Provisional Rating of Pfd-2 (low) to Global Resource Champions Split Corp. Class A Preferred Shares, Series 1

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-2 (low) to the Class A Preferred Shares, Series 1 (the Preferred Shares) to be issued by Global Resource Champions Split Corp. (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 equal to the number of issued and outstanding Preferred Shares. The Preferred Shares will be offered at an issue price of $25.00.

The Company will invest the net proceeds in a portfolio (the Portfolio) of publicly listed securities of 15 large capitalization resource companies and will be approximately equally weighted on a U.S.-dollar-equivalent basis. The Company will have no obligation to rebalance the Portfolio thereafter. The majority of the Portfolio’s investments will be denominated in U.S. dollars, and any exposure to currencies other than the U.S. dollar is expected to be hedged back to the U.S. dollar. Dividends received on the Portfolio securities denominated in currencies other than the U.S. dollar may (but are not required to) be hedged back to the U.S. dollar. An indicative portfolio includes Agrium Inc., BHP Billiton PLC, BP PLC, Chevron Corp., Enbridge Inc., Eni SpA, Exxon Mobil Corp., Kinder Morgan Inc./DE, Potash Corp of Saskatchewan Inc., Rio Tinto PLC, Royal Dutch Shell PLC, Statoil ASA, Suncor Energy Inc., TOTAL S.A. and TransCanada Corp. (collectively, the Portfolio Securities).

The dividends received from the Portfolio will be used to pay fixed cumulative quarterly distributions to holders of the Preferred Shares. The Capital Shares are expected to receive all excess dividend income, if any, after the Preferred Share distributions and other expenses of the Company have been paid, provided the net asset value (NAV) after giving effect to the distribution is greater than or equal to 1.44 times. The Company has the ability to write covered call options, cash covered put options or engage in securities lending in order to generate additional income. Based on the current dividend yield on the Portfolio, the expected initial Preferred Share dividend coverage ratio is substantially above 1.0 times.

The initial downside protection available to the holders of the Preferred Shares is expected to be greater than 54% (after offering expenses). Downside protection available to the Pre¬ferred Shares consists of the NAV of the Capital Shares. Upon maturity, the holders of the Preferred Shares will be en¬titled to the value of the Portfolio Securities, up to the face value of the Preferred Shares, in priority to the holders of the Capital Shares. The holders of the Capital Shares will be entitled to the distribu-tion in the excess of dividend income on the Portfolio Securities beyond what is required to pay the holders of the Preferred Shares, as well as all capital appreciation.

The provisional Pfd-2 (low) rating of the Preferred Shares is primarily based on the expected level of downside protection and dividend coverage available to holders of the Preferred Shares, as well as the credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the provisional rating are the following:

(1) The downside protection available to holders of the Preferred Shares will depend on the value of the shares held in the Portfolio.

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

(3) The Portfolio is concentrated in the resource sector.

A provisional rating is not a final rating and may change or be different from the final rating assigned, or may be discontinued altogether. The assignment of a final rating on the above-mentioned security is subject to receipt of all information and final documentation by DBRS that it deems necessary to finalize the rating.

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.