DBRS Upgrades North American Financial 15 Split Corp. Preferreds to Pfd-3 (low) from Pfd-4 (high)

DBRS Limited (DBRS) has today upgraded the rating on the Preferred Shares issued by North American Financial 15 Split Corp. (the Company) to Pfd-3 (low) from Pfd-4 (high).

In October 2004, the Company originally issued 6.4 million Preferred Shares at $10 each and an equal number of Class A Shares (the Class A Shares) at $15 each. Since the initial issue, there have been three additional follow-on offerings. The redemption date is December 1, 2019.

The Company holds a portfolio (the 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.; JPMorgan 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 Company’s net asset value may be invested in securities of issuers other than those mentioned above and no more than 10% of the Company’s NAV may be invested in any single issuer. As of November 30, 2016, collectively 11% was invested in U.S. Bancorp and Fifth Tnird Bancorp. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Portfolio provides approximately 42.2% of downside protection to holders of the Preferred Shares as of April 13, 2017. The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on the issue price of $10 per share. Holders of the Class A Shares 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 Portfolio’s NAV is less than $25.

The Preferred Share dividend coverage ratio is approximately 0.7 times. An average grind on the Portfolio is expected to be 5.8% annually for the remaining term until maturity. As a result of increased downside protection and dividend coverage over the last year as well as time remaining to maturity, the Preferred Shares rating has been upgraded to Pfd-3 (low) from 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 principal methodology is Rating Canadian Split Share Companies and Trusts (June 2016), which can be found on dbrs.com under Methodologies.