DBRS Confirms Prime Dividend Corp. Preferred Shares Rating of Pfd-3 (high)

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by Prime Dividend Corp. (the Company) at Pfd-3 (high).

In November 2005, the Company issued an equal number of Preferred Shares at $10 each (the Preferred Shares) and Class A Shares at $15 each (the Class A Shares). The redemption date for both classes of shares is December 1, 2018.

The Company holds a portfolio (the Portfolio) primarily comprising common shares of the six major Canadian banks, life insurance companies (Great-West Lifeco Inc., Manulife Financial Corporation, Sun Life Financial Inc.), investment management companies (AGF Management Limited, CI Financial Corp., IGM Financial Inc.) and companies in other industries (BCE Inc., TransAlta Corporation, TransCanada Corporation, Power Financial Corporation, TMX Group Limited). The common shares of each company in the Portfolio generally represent between 4% and 8% of the total net asset value (NAV) of the Company, and no more than 20% of the NAV of the Company may be invested in securities issued by financial services or utilities firms other than those listed above. The Portfolio is actively managed by Quadravest Capital Management Inc.

Dividends received from the Portfolio are used to pay the Preferred Shares a monthly floating-rate distribution equal to the prevailing prime rate in Canada (the Prime Rate) plus 0.75% per annum with a minimum of 5% per annum and maximum of 7% per annum based on the original issue price of $10. Holders of the Preferred Shares are currently receiving the minimum monthly payment of $0.04167 per share (yielding 5% per annum). The distribution rate to holders of the Class A Shares was originally targeted to be monthly payments equal to the Prime Rate plus 2% per annum (with a minimum targeted rate of 5% per annum and a maximum targeted rate of 10% per annum) but was changed in July 2014 to monthly payments equal to 10% per annum of the volume-weighted average market price of the Class A Shares over the last five trading days of the preceding month. The current NAV test in place prevents any distributions to the Class A Shares if the NAV falls below $15.

Since the last rating confirmation completed in July 2015, Canadian equity markets continued to experience a slowdown. As a result, the Portfolio has experienced a further reduction in value, with the current downside protection available to the Preferred Shares standing at 37.5% as of June 15, 2016. The dividend coverage ratio remains unchanged compared with the previous year, at approximately 0.7 times, indicating the consistency of the dividend payments of the underlying companies in the Portfolio.

Considering the aforementioned performance metrics and the time remaining until maturity, DBRS confirms the rating of the Preferred Shares issued by Prime Dividend Corp. at Pfd-3 (high).

DBRS will continue to monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

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.