Morningstar DBRS Confirms Credit Rating of Pfd-3 (high) on Infrastructure Dividend Split Corp.'s Preferred Shares

DBRS Limited (Morningstar DBRS) confirmed its credit rating of Pfd-3 (high) on the Preferred Shares issued by Infrastructure Dividend Split Corp. (the Company). Middlefield Limited (the Manager) manages the Company and Middlefield Capital Corporation (the Advisor) provides investment advice.

On May 4, 2024, the Company acquired the investment portfolio of International Clean Power Dividend Fund (CLP), a nonredeemable investment fund structured as a trust and managed by the Manager. In exchange for the assets of CLP, the Company issued Class A Shares at a price of $15.0 each that were distributed by CLP to its former unitholders and CLP was wound up and delisted from the TSX on May 7, 2024. Concurrently, the Company completed an initial offering of Preferred Shares at an issue price of $10.0 each.

The Company invests in a diversified, actively managed portfolio (the Portfolio) of dividend paying securities of issuers operating in the infrastructure sector, focusing on issuers the Advisor believes are undervalued and well-positioned to benefit from the Advisor's outlook for a gradual reduction in interest rates, the continuation of global decarbonization, and favourable demographics (the Infrastructure Issuers). The Company is restricted from having for a period of more than 30 consecutive days: (1) less than 75% of the value of the total assets of the Company (excluding cash and cash equivalents) comprising the securities of Infrastructure Issuers, (2) more than 25% of the value of the total assets of the Company (excluding cash and cash equivalents) comprising securities of issuers having a market capitalization of less than $1 billion, and (3) more than 15% the value of the total assets of the Company (excluding cash and cash equivalents) comprising securities of issuers from countries that meet MSCI's definition of emerging market country.

As of December 31, 2024, the Portfolio consisted of equity securities from 26 mostly investment-grade Infrastructure Issuers, that were diversified by sector as follows: utilities (48.1%), real estate (21.7%), pipelines (20.0%), energy (7.5%), industrials (2.3%) and cash (1.0%). The Portfolio is exposed to foreign exchange risk through financial instruments denominated in various foreign currencies. The Company has not hedged its exposure to currency fluctuations but closely monitors foreign exchange (FX) movements. As of December 31, 2024, approximately 23% of the Company's Portfolio was exposed to FX risk.

The Preferred Shares are entitled to fixed quarterly cumulative preferential cash distributions of $0.18, representing a 7.20% return on the issue price of $10.0. Holders of the Class A Shares are currently receiving regular monthly noncumulative distributions of $0.14 representing a 11.2% return on the $15.0 issue price. The Company intends to increase or decrease from time to time, the targeted monthly distribution amount to the Class A Shares, to reflect any increase or decrease to the Company's available income. No monthly distributions to the Class A Shares will be made if the dividends of the Preferred Shares are in arrears or the net asset value (NAV) of a unit (one Preferred Share and one Class A Share) falls below $15.0.

The Preferred Shares are scheduled to mature on April 30, 2029, subject to extension for successive terms of up to five years as determined by the Company's board of directors and provided that shareholders are given an optional special retraction right at the end of each successive term. On maturity, the holders of the Preferred Shares are entitled to the value of the Portfolio up to the face value of the Preferred Shares and any accrued but unpaid dividends in priority to the holders of the Class A Shares.

As of April 28, 2025, the downside protection available to the Preferred Shares was 60.9% and the dividend coverage ratio was above 1.0 times (x). Without giving consideration to the potential for capital appreciation or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 7.2% per year for the remaining term of the Preferred Shares. To supplement the Portfolio income, the Company may engage in covered call options on all or a portion of the shares held in the Portfolio; engage in securities lending; and/or rely on realized capital gains.

Taking into consideration the credit quality and diversification of the Portfolio, the amount of downside protection available to the Preferred Shares, the dividend coverage above 1.0 x and the expected grind in the Portfolio, Morningstar DBRS has confirmed the rating on the Preferred Shares at Pfd-3 (high).

The main constraints to the credit rating are the following:

(1) 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.

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

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

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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

The principal methodology applicable to the credit rating is Rating Canadian Split Share Companies and Trusts (June 21, 2024) https://dbrs.morningstar.com/research/434794.

Other methodologies referenced in this transaction are listed at the end of this press release.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.