DBRS Confirms Rating on Soundvest Split Trust Preferred Securities at Pfd-5 (high)

DBRS Limited (DBRS) confirmed the rating on the Preferred Securities issued by Soundvest Split Trust (the Trust) at Pfd-5 (high). The Trust invests in a diversified portfolio of Canadian companies (the Portfolio). Eligible investments of the Trust currently include common shares and preferred shares, income trusts, income securities (including bonds and debentures), real estate investment trusts, Canadian mortgage-backed securities and other equity securities. The Trust may engage in securities lending to generate additional income.

Holders of the Preferred Securities receive fixed quarterly interest payments of $0.15, yielding 6.0% annually on the issue price of $10.00 per security. Holders of capital units of the Trust (the Capital Units) may receive regular monthly cash distributions, provided that the Preferred Security asset coverage ratio is greater than 1.4 times (x). Capital Unit distributions were suspended in August 2011 because the asset coverage test was not met.

Based on the latest Portfolio yield as at February 28, 2019, the Preferred Securities distribution coverage ratio was approximately 0.5x. The insufficient amount of Portfolio dividends to cover Preferred Security distributions is projected to create an average annual grind of approximately 3.1% until maturity. As at February 28, 2019, the downside protection available to the Preferred Securities was approximately 6.3%. Downside protection has experienced a decline in the past year, but has shown slow recovery in the last two months.

Considering the amount of downside protection available to the Preferred Securities and projected grind until the expected end of the term on March 31, 2020, DBRS confirmed the rating on the Preferred Securities issued by the Trust at Pfd-5 (high).

Notes:
All figures are in Canadian dollars unless otherwise noted.

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 principal methodology is Rating Canadian Split Share Companies and Trusts (July 2018), which can be found on dbrs.com under Methodologies & Criteria.

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.

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