DBRS Confirms Ratings on Class AA Preferred Shares Issued by Partners Value Split Corp. at Pfd-2 (low)

DBRS Limited (DBRS) confirmed the ratings of the Class AA Preferred Shares, Series 3 (the Series 3 Preferred Shares); the Class AA Preferred Shares, Series 6 (the Series 6 Preferred Shares); the Class AA Preferred Shares, Series 7 (the Series 7 Preferred Shares); and the Class AA Preferred Shares, Series 8 (the Series 8 Preferred Shares; collectively, the Class AA Preferred Shares) issued by Partners Value Split Corp. at Pfd-2 (low). All series of the Class AA Preferred Shares rank senior to the Capital Shares, the Class AAA Preferred Shares and the Junior Preferred Shares and on a pari passu basis with all other Class AA Preferred Shares with respect to payment of dividends and repayment of principal.

The Company owns a portfolio (the Portfolio) of Class A Limited Voting Shares (the BAM Shares) of Brookfield Asset Management Inc. (BAM; rated A (low) by DBRS). Dividends received from the Portfolio are used to fund the payment of interest on the Debentures to the extent that any have been issued, and to fund the payment of dividends on the Class AA Preferred Shares. Holders of the Junior Preferred Shares, Series 1 (the Junior Preferred Shares) are entitled to receive quarterly noncumulative cash distributions at an annual rate of 5%, when declared by the board of directors. Holders of the Capital Shares of the Company receive excess dividend income after interest on the Debentures, Class AA Preferred Share distributions, Junior Preferred Share Distributions and other Company expenses have been paid. Any capital appreciation of the BAM Shares will benefit the holders of the Capital Shares.

The downside protection available to the Class AA Preferred Shares was approximately 85.5% and the dividend coverage ratio was 2.0 times (x; based on the closing price of BAM shares and the Canadian dollar and U.S. dollar exchange rate as of September 10, 2018). BAM declares its dividends in U.S. dollars, so there is the risk that an appreciating Canadian dollar will cause the dividend coverage ratio to fall below 1.0x. In the event of the shortfall, the Company may sell some of the BAM Shares. The Company has the ability to engage in security lending and write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends. If the Company chooses to lend its holdings, the Portfolio will be exposed to the potential losses in the event that the borrower defaults on its obligations to return the borrowed securities. In addition, DBRS has considered the following factors in the analysis:

(1) The downside protection available to holders of the Class AA Preferred Shares depends solely on the market value of the BAM Shares held in the Portfolio, which will fluctuate over time.

(2) Changes in the dividend policy of BAM may result in reductions in Class AA Preferred Shares dividend coverage.

(3) Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Junior Preferred Shares.

Based on these considerations, DBRS has confirmed the ratings of the Class AA Preferred Shares at Pfd-2 (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.

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