DBRS Confirms Rating of Allbanc Split Corp. II Class B Preferred Shares, Series 2 at Pfd-2

DBRS Limited (DBRS) confirmed the rating on the Class B Preferred Shares, Series 2 (the Series 2 Preferred Shares) issued by Allbanc Split Corp. II (the Company) at Pfd-2. The Company holds a portfolio (the Portfolio) of publicly listed common shares of Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank (collectively, the Portfolio Shares). The maturity date for the Series 2 Preferred Shares is February 28, 2021.

The dividends received from the Portfolio are used to pay a fixed cumulative quarterly distribution of $0.3048 per share to holders of the Series 2 Preferred Shares, yielding 4.75% annually on the issue price of $25.67. The current yield on the Portfolio Shares fully covers the Series 2 Preferred Share dividends, providing dividend coverage of approximately 1.7 times (x). The Class A Capital Shares receive excess dividend income after the Series 2 Preferred Share distributions and other expenses of the Company have been paid. In order to generate additional income, the Company may engage in securities lending and covered call option writing.

The downside protection available to the Series 2 Preferred Shares has experienced some fluctuation over the past year. Nevertheless, as at February 8, 2018, it stood at 67.3%, the level observed a year ago. Taking into consideration the amount of downside protection, dividend coverage above 1x, strong Portfolio credit quality and consistency of dividend distributions of the Portfolio holdings, DBRS confirmed the rating on the Series 2 Preferred Shares issued by Allbanc Split Corp. II at Pfd-2.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Series 2 Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the Portfolio Shares may result in significant reductions in downside protection from time to time.

(3) The entire Portfolio is concentrated in the Canadian financial services industry.

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 under Related Documents or by contacting us at info@dbrs.com.

The principal methodology is Rating Canadian Split Share Companies and Trusts (July 2017), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.