DBRS Confirms North American Financial 15 Split Corp. Preferred Shares at Pfd-3 (low)

DBRS Limited (DBRS) confirmed the rating on the Preferred Shares issued by North American Financial 15 Split Corp. (the Company) at Pfd-3 (low). The Company holds a portfolio (the Portfolio) which consists 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 (NAV) 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. Approximately 52% of the Portfolio was invested in U.S. dollars as of November 30, 2017. The Company may use derivatives for hedging purposes. The maturity date is December 1, 2019.

The Portfolio provides approximately 41% of downside protection to holders of the Preferred Shares as at April 13, 2018. On December 1, 2017, the Company increased the dividend rate on the Preferred Shares from 5.25% to 5.50% on the issue price of $10.00. The Preferred Shares currently pay a fixed cumulative monthly dividend of $0.04583 per Preferred 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 the 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 was approximately 0.5 times. The average grind on the Portfolio is expected to be 6.8% annually for the remaining term until maturity. To supplement dividend income received on the Portfolio, the Company may engage in option writing.

Based on the amount of the downside protection, dividend coverage and time remaining to maturity, the Preferred Shares rating has been confirmed at Pfd-3 (low).

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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