Press Release

DBRS Confirms Life & Banc Split Corp. Preferred Shares at Pfd-3

Split Shares & Funds
November 20, 2018

DBRS Limited (DBRS) confirmed the rating on the Preferred Shares issued by Life & Banc Split Corp. (the Company) at Pfd-3. The Company invests in a portfolio of common shares (the Portfolio) issued by the six major banks in Canada (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, National Bank of Canada; rated AA (low) with a Stable trend by DBRS, Royal Bank of Canada; rated AA with a Positive trend by DBRS and The Toronto-Dominion Bank; rated AA with a Positive trend by DBRS) and four Canadian life insurance companies (Great-West Lifeco Inc.; rated A (high) with a Stable trend by DBRS, Industrial Alliance Insurance and Financial Services 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 equally weighted and rebalanced at least annually. The term of the Company has been extended for additional five years until October 30, 2023, and the board of directors may extend the Company’s share term by successive terms of up to five years, provided that shareholders are given an optional retraction right at the end of each successive term.

On September 25, 2018, the Company announced the distribution rate increase paid to the Preferred Shares. Holders of the Preferred Shares will be entitled to fixed cumulative quarterly dividends, offering a return of 5.45% per annum on the original issue price of $10.00 per share, starting November 30, 2018. Holders of Class A Shares continue to receive monthly distributions targeted at $0.10 per share. As protection to the holders of the Preferred Shares, an asset coverage test does not permit the Company to make monthly distributions to the Class A Shares if the dividends of the Preferred Shares are in arrears or if the net asset value (NAV) of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. In addition, no special distributions can be made to the Class A Shares if, after such distribution, the NAV of the Portfolio is below $25.00.

The Company has the ability to write covered call options or engage in securities lending with respect to the common shares of the Portfolio to generate additional income in order to supplement dividend distributions. Securities lending exposes the Portfolio to the risk of loss if the borrower defaults on its obligations to return the borrowed securities and if the collateral is insufficient to reconstitute the portfolio of loaned securities.

As at November 8, 2018, the downside protection available to the Preferred Shares was 43.1%. The dividend coverage ratio was about 1.0x. Taking into consideration the credit quality, volatility and diversification of the Portfolio as well as the amount of downside protection available to the Preferred Shares, DBRS confirmed the rating on the Preferred Shares at Pfd-3.

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