DBRS Finalizes Canoe EIT Income Fund Cumulative Redeemable Series 2 Preferred Units Rating of Pfd-2 (high), Confirms Outstanding Cumulative Redeemable Series 1 Preferred Units

DBRS Limited (DBRS) finalized the provisional rating of Pfd-2 (high) assigned to the Cumulative Redeemable Series 2 Preferred Units (the Series 2 Preferred Units) issued by Canoe EIT Income Fund (the Fund) and confirmed the rating of the previously issued Cumulative Redeemable Series 1 Preferred Units (the Series 1 Preferred Units, collectively with the Series 2 Preferred Units, the Preferred Units). The Series 2 Preferred Units will rank pari passu with the Series 1 Preferred Units. The Series 2 Preferred Units are expected to be retractable at the option of the holders on or after March 15, 2025. The Series 2 Preferred Units were issued at a price of $25.00 per Series 2 Preferred Unit. They are entitled to fixed quarterly cumulative preferential cash distributions of $0.30 (or $1.20 annually) as and when declared, representing a 4.80% per-annum return on the issue price of $25.00. Distributions on the Preferred Units may be restricted as indicated below.

The Fund has a credit facility (the Credit Facility) with a Tier 1 Canadian bank, but it is restricted by its Declaration of Trust from borrowing in excess of 20% of the Fund’s total assets at the time of borrowing, after giving effect to the borrowing. The Credit Facility is secured by all of the Fund’s present and after-acquired personal property, undertaking and assets as well as all proceeds thereof. Distributions on the Preferred Units are restricted if a default or event of default occurs under the Credit Facility or if the outstanding amount borrowed exceeds the available credit at any time.

Following the new issue and assuming no capital distributions or special dividends paid, the net asset value of the Fund would have to fall by approximately 77% for the holders of the Preferred Units to be in a loss position. Considering the expected level of downside protection available to holders of the Preferred Units and the composition and diversification of the Fund’s portfolio, DBRS has finalized the provisional rating of Pfd-2 (high) assigned to the Series 2 Preferred Units and confirmed the Series 1 Preferred Units at Pfd-2 (high).

The main constraints to the rating are the following:

(1) The potential grind on the Portfolio arising from redemption rights and distributions to the Units.
(2) The foreign-exchange risk due to the absence of a hedge on some investments in foreign currencies.
(3) The priority of the lenders under the Credit Facility over the Fund’s assets up to the amount of credit outstanding.

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.

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