Press Release

DBRS Confirms Canadian General Investments, Limited’s Preference Shares, Series 4 at Pfd-1 (low)

Split Shares & Funds
June 12, 2019

DBRS Limited (DBRS) confirmed the rating on the 3.75% Cumulative Redeemable Class A Preference Shares, Series 4 (the Series 4 Preference Shares) issued by Canadian General Investments, Limited (the Company) at Pfd-1 (low). The Series 4 Preference Shares will be retractable at the option of their holders on or after June 15, 2023.

The Company’s portfolio (the Portfolio) is a well-diversified, actively managed portfolio of common shares, which includes approximately 50 to 60 well-known names allocated among eleven major sectors with Information Technology, Industrials, Materials, Consumer Discretionary and Financials receiving the largest allocation of approximately 77% collectively as at June 6, 2019. Holders of the Series 4 Preference Shares are entitled to cash dividends of $0.9375 per annum (p.a.), yielding 3.75% p.a. on the initial issue price. Holders of the common shares receive quarterly distributions of $0.20. The Company may also consider the payment of a special capital gains dividend at year end.

On June 5, 2019, the Company entered into an amended and restated credit agreement with a Canadian chartered bank (the Bank) for a $100 million credit facility. This facility has an evergreen feature, which allows the Company to continue to use the facility indefinitely beyond the initial one-year term, provided the bank has not given the Company one-year’s notice that it is terminating the facility. The Bank holds a security interest in the Company’s portfolio assets. Loan interest and principal payments rank in priority to any other distributions from the Portfolio.

As of June 6, 2019, the downside protection available to the holders of the Series 4 Preference Shares was approximately 80.7%. Regular distributions to holders of the Company’s common shares along with Company’s operational expenses are projected to cause a portfolio grind of about 2.3% p.a. for the remaining term; however, the strong asset coverage test of 5.2 times provides enough cushion for the Series 4 Preference Shares. It is well above 2.5 times which prevents any distributions to holders of the common shares. The Company generates additional income through particular investment strategies as well as securities lending. Foreign currency investments in the Portfolio are not hedged.

The confirmation of the rating at Pfd-1 (low) is based on the amount of downside protection available and its positive trend, the Portfolio composition and the Company’s overall performance metrics.

The main constraints on the rating are (1) the Company’s dependence on the value and dividend policies of the securities in the Portfolio and (2) the reliance on the Portfolio manager to generate additional income through methods such as capital gains and securities lending.

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 & Criteria.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada

Ratings

Canadian General Investments, Limited
  • Date Issued:Jun 12, 2019
  • Rating Action:Confirmed
  • Ratings:Pfd-1 (low)
  • Trend:--
  • Rating Recovery:
  • Issued:CA
  • 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

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