DBRS Assigns Provisional Rating of Pfd-3 (high) to Global Dividend Growth Split Corp. Preferred Shares

DBRS Limited (DBRS) assigned a provisional rating of Pfd-3 (high) to the Preferred Shares to be issued by Global Dividend Growth Split Corp. (the Company). The Company will issue an equal number of Preferred Shares and Class A Shares at an issue price of $10.00 per Preferred Share and $12.00 per Class A Share. The Preferred Shares will be scheduled to mature on June 30, 2021.

Net proceeds from the offering will be used to invest in a portfolio of equity securities of large capitalization global dividend growth companies (the Portfolio). In order to qualify for inclusion in the Portfolio, at the time of investment, each global dividend growth company comprising the Portfolio must (1) have a market capitalization of at least USD 10 billion and (2) have a history of dividend growth or have potential for future dividend growth. The Company expects that at least 20 global dividend growth companies will comprise the Portfolio. Equity securities selected will generally be equally weighted at the time of investment and after rebalancing the Portfolio. The Portfolio will be rebalanced and/or may be reconstituted at least annually. A portion of the Portfolio’s investments will be denominated in currencies other than Canadian dollars, and this exposure is expected to be substantially hedged back to the Canadian dollar. Furthermore, in addition to, or instead of, investing in equity securities of global dividend growth companies directly, the Company may invest a portion of the Portfolio’s assets in exchange-traded funds, including exchange-traded funds managed by Brompton Funds Limited, that provide exposure to global dividend growth companies.

Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares, while holders of the Capital A Shares are expected to receive a monthly distribution of $0.10. No monthly distributions to the Class A Shares will be made if (1) distributions to the Preferred Shares are in arrears or (2) in respect of a cash distribution, the net asset value of the Company falls below 1.5 times the principal amount of the outstanding Preferred Shares. The Company has the ability to write covered call options or engage in security lending in order to generate additional income. Based on the minimum offering size, the initial downside protection available to holders of the Preferred Shares is expected to be approximately 53%.

The Company may issue an unlimited number of Preferred Shares, Class A Shares, Class J Shares and additional classes of shares. The Preferred Shares rank in priority to the Class A Shares with respect to the payment of distributions and the repayment of capital on the dissolution, liquidation or winding-up of the Company. The Class A Shares rank subsequent to the Preferred Shares, and the Class J Shares rank subsequent to both the Preferred Shares and the Class A Shares with respect to distributions on the dissolution, liquidation or winding-up of the Company. There are 100 Class J Shares issued and outstanding at an issue price of $1 per share, and no additional Class J Shares can be issued until all the Class A Shares and Preferred Shares have been retracted, redeemed or purchased for cancellation.

The provisional rating is primarily based on the expected level of downside protection, term to maturity and dividend coverage available to holders of the Preferred Shares as well as the credit quality and diversification of the underlying companies in the Portfolio.

The main constraints to the provisional rating are the following:

(1) The downside protection available to holders of the Preferred Shares will depend on the value of the equity securities held in the Portfolio.
(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in interest coverage or downside protection from time to time.
(3) Dividends and interest received on the Portfolio are currently unable to fully cover distributions on the Preferred Shares.
(4) Reliance on the manager to generate a high yield on the investment portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

A provisional rating is not a final rating and may change or be different than the final rating assigned or may be discontinued altogether. The assignment of a final rating on the above-mentioned security is subject to receipt of all information and final documentation by DBRS that it deems necessary to finalize the rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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

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 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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