Press Release

DBRS Confirms BNS Split Corp. II Class B Preferred Shares at Pfd-2

Split Shares & Funds
August 31, 2018

DBRS Limited (DBRS) confirmed the rating of the Class B Preferred Shares, Series 2 (the Preferred Shares) issued by BNS Split Corp. II (the Company) at Pfd-2. The Company holds a portfolio (the Portfolio) of common shares of the Bank of Nova Scotia (BNS; rated AA with a Stable trend by DBRS). The dividends received from the Portfolio are used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares in the amount of $0.1971 per quarter, representing 4.0% per annum on the issue price. Excess dividends net of all expenses of the Company, after the preferred cumulative dividends have been paid to the holders of the Preferred Shares, may be paid as dividends on the Capital Shares or re-invested by the Company in additional BNS shares as determined by the board of directors of the Company. The distributions of dividends on the Preferred Shares may be additionally funded from the sale of the underlying shares. The Company may engage in securities lending to supplement the income generated by the dividends.

As of August 23, 2018, downside protection was 71.6%. Downside protection remained stable throughout the year. The dividend coverage ratio was approximately 3 times. Taking into consideration the amount of downside protection available, the dividend coverage and the absence of the grind on the Portfolio, DBRS confirmed the rating of the Preferred Shares at Pfd-2.

Following the Company’s monthly retraction in January 2018, a total of 700 units (one Preferred Share and two Capital Shares) were retracted for cash with an aggregate value of $47,922. As the result of the retraction, the Preferred Share issued capital was reduced by $13,797 and the Capital Share issued capital was reduced by $34,125. The redemption date of both classes of shares is September 22, 2020.

The main constraints to the final rating are the following:

(1) The downside protection available to holders of the Preferred Shares depends on the value of common shares of BNS and is subject to share price volatility.

(2) Changes in dividend policy of BNS may result in fluctuations in dividend coverage or downside protection from time to time.

(3) The Portfolio is entirely concentrated in the common shares of BNS.

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.

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

Ratings

  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.