DBRS Confirms Dividend Growth Split Corp. Preferred Shares at Pfd-3

DBRS Limited (DBRS) confirmed the Preferred Shares rating of Dividend Growth Split Corp. (the Company) at Pfd-3. In December 2007, the Company issued approximately 1.5 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Subsequent to the initial public offering, the Company has completed eleven follow-on offerings. The total number of Preferred Shares and Class A Shares outstanding currently stands at approximately 32 million shares each. The scheduled redemption date for both classes of shares issued is November 28, 2019. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction right at the end of each successive term.

The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio) issued by 20 Canadian dividend-paying companies, each with a market capitalization greater than $2.0 billion. The Portfolio is rebalanced at least annually. Dividends received from the Portfolio are used to pay fixed cumulative quarterly dividends equal to $0.525 per annum (p.a.) to each Preferred Shareholder. Holders of Class A Shares are expected to receive monthly distributions targeted at $1.20 p.a.

As of August 24, 2017, the downside protection available to the Preferred Shares was 40.3%. The dividend coverage ratio is approximately 0.6 times. The confirmation of the rating of the Preferred Shares at Pfd-3 is based primarily on the current downside protection available and the minimum downside protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the net asset value of the Company falls below $15.00.

The main constraints to the rating are (1) the Company’s dependence on the value and dividend policies of the securities in the Portfolio and (2) the reliance on the manager to generate a high yield on the Portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

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 2017), which can be found on our website under Methodologies.

The rated entity or its related entities did not participate in the rating process. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities.