DBRS Confirms Big 8 Split Inc. Class D Preferred Shares, Series 1 at Pfd-2

DBRS Limited (DBRS) confirmed the rating of the Class D Preferred Shares, Series 1 (the Preferred Shares) issued by Big 8 Split Inc. (the Company) at Pfd-2. The Company invests in a portfolio (the Portfolio) consisting of common shares of Bank of Montreal (rated AA with a Stable trend by DBRS), The Bank of Nova Scotia (rated AA with a Stable trend by DBRS), Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS), Royal Bank of Canada (rated AA with a Positive trend by DBRS), The Toronto-Dominion Bank (rated AA with a Positive trend by DBRS), Great-West Lifeco Inc. (rated A (high) with a Stable trend by DBRS), Manulife Financial Corporation (rated “A” with a Stable trend by DBRS) and Sun Life Financial Inc. (rated “A” with a Stable trend by DBRS). The Portfolio is approximately equally weighted and is not actively traded.

Dividends received from the Portfolio are used to pay fixed-cumulative quarterly distributions to holders of the Preferred Shares, yielding 4.50% per annum on the initial issue price of $10.00. The Class D Capital Shares (the Capital Shares) receive excess dividend income after the Preferred Share distributions and other Company expenses have been paid. Based on the current dividend yield on the Portfolio, the Preferred Share dividend coverage ratio is approximately 1.9 times, and as such, there is no grind on the portfolio. In order to generate additional returns, the Company has the ability to engage in securities lending. There is an equal number of the Preferred Shares and the Capital Shares outstanding.

Downside protection available to the Preferred Shares consists of the net asset value of the Capital Shares. As of October 31, 2018, the downside protection was approximately 62.4%.

On Oct. 25, 2018, in relation to the term expiration, the Company announced the redemption date for both classes of shares to be Dec 15, 2018. On the maturity date, the holders of the Preferred Shares will be entitled to the repayment of principal and any accrued dividends in priority to the Capital Shares. The Capital Shares will be entitled to the remaining value of the Portfolio, including all capital appreciation. Both classes of shares are scheduled to mature on December 15, 2018.

Taking into consideration the remaining term to maturity, the consistency of dividend distributions of the underlying common shares in the Portfolio, strong credit quality of the Portfolio holdings, as well as the amount of the downside protection available, DBRS confirmed the rating of the Class D Preferred Shares, Series 1 issued by the Company at Pfd-2.

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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