DBRS Confirms Global Dividend Growth Split Corp. Preferred Shares at Pfd-3 (high)

DBRS Limited (DBRS) confirmed the rating of the Preferred Shares issued by Global Dividend Growth Split Corp. (the Company) at Pfd-3 (high). The Company invests in a portfolio of 20+ equity securities of large capitalization global dividend growth companies (the Portfolio). In order to qualify for inclusion in the Portfolio, each global dividend growth company comprising the Portfolio must (1) have a market capitalization of at least USD 10 billion and (2) have a history of dividend growth or have potential for future dividend growth. The Portfolio is approximately equally weighted and is rebalanced and/or may be reconstituted at least annually. A portion of the Portfolio’s investments is denominated in currencies other than Canadian dollars. The foreign currency exposure is substantially all hedged back to the Canadian dollar. In addition to, or instead of, investing in equity securities of global dividend growth companies directly, the Company may invest a portion of the Portfolio’s assets in exchange-traded funds that provide exposure to global dividend growth companies, including exchange-traded funds managed by Brompton Funds Limited (the Manager). The maturity date is June 30, 2021. The term of the Company may be extended beyond the maturity date for additional terms of five years each as determined by the Company’s board of directors.

Dividends received on the Portfolio are used to pay fixed cumulative quarterly dividend to holders of the Preferred Shares in the amount of $0.125 per share to yield 5.00% per annum on the issue price of $10.00. The holders of the Capital A Shares receive regular monthly non-cumulative distributions targeted to be $0.10 per Class A Share to yield 10.00% per annum on the issue price of $12.00. No monthly distributions to the Class A Shares will be made if (1) distributions to the Preferred Shares are in arrears or (2) in respect of a cash distribution, the net asset value of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. Operating expenses and stated distributions to the Class A Shares are projected to create average annual grind on the Portfolio of approximately 7.2% until the end of the term.

As of May 27, 2019, the downside protection available to the Preferred Shares was 52.2%. The dividend coverage ratio was 0.6x. To supplement portfolio income, the Company has the ability to write covered call and put options or engage in security lending.

The confirmation of the Pfd-3 (high) rating is based on (1) the level of downside protection available to holders of the Preferred Shares, (2) the effect of stated distributions to the Class A Shares and (3) the quality of underlying securities in the Portfolio.

The main constraints to the rating are the following:

(1) The downside protection available to holders of the Preferred Shares will depend on the value of the equity securities held in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in interest coverage or downside protection from time to time.

(3) Dividends and interest received on the Portfolio are currently unable to fully cover distributions on the Preferred Shares.

(4) Reliance on the Manager to generate additional yield on the Portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

(5) Stated monthly distributions on the Class A Shares that will create a grind on the Portfolio mitigated by an asset coverage test of 1.5x, which ensures sufficient levels of downside protection to the holders of the Preferred Shares.

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
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Toronto, ON M5H 3M7 Canada