DBRS Confirms North American Financial 15 Split Corp. Preferred Shares at Pfd-4 (high)

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by North American Financial 15 Split Corp. (the Company) at Pfd-4 (high).

In October 2004, the Company issued 6.4 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Although these shares were offered separately, together they form a Unit. The redemption date is December 1, 2019.

The Company holds a portfolio consisting primarily of common shares of approximately 15 North American financial services companies: Bank of America Corporation, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, CI Financial Corp., Citigroup Inc., The Goldman Sachs Group, Inc., Great-West Lifeco Inc., JP Morgan Chase & Co., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., The Toronto-Dominion Bank and Wells Fargo & Company. Up to 15% of the net asset value (NAV) of the Company may be invested in securities of issuers other than those mentioned above, and no more than 10% of the NAV of the Company may be invested in any single issuer. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Portfolio provides approximately 33.3% of downside protection to holders of the Preferred Shares as of April 15, 2016. The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on their issue price of $10 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.10 per Class A Share, yielding 8.0% annually on their issue price of $15 per share. No distributions will be paid to Class A Shares if the NAV per Unit falls below $15 and no special year-end dividends will be paid if, after such payment, the NAV of the Portfolio would be less than $25.

The downside protection of the Company has experienced a slight decline in the past year losing about 7% in value compared to May 2015 numbers. The Preferred Share dividend coverage ratio is approximately 0.5 times. An average grind on the portfolio is expected to be 1.6% annually for the remaining term until maturity. Considering the aforementioned metrics, the rating of the Preferred Shares has been confirmed at Pfd-4 (high).

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.