Morningstar DBRS Confirms Credit Rating on Brompton Split Banc Corp.'s Preferred Shares at Pfd-3

DBRS Limited (Morningstar DBRS) confirms the credit rating on the Preferred Shares issued by Brompton Split Banc Corp. (the Company) at Pfd-3. The Portfolio is actively managed by Brompton Funds Limited (the Manager). The Company invests, on an approximately equally weighted basis, in a portfolio (the Portfolio) consisting of common shares of the six largest Canadian banks (currently, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank). Holdings in the six Canadian Banks will generally be equal weighted at each rebalancing of the Portfolio, however the Company may at the manager's discretion, hold non-equal weight positions. In addition, the Company may hold up to 10% of the total assets of the Portfolio in investments in global financial companies directly or indirectly through exchange-traded funds for the purposes of enhanced diversification and return potential.

Distributions on the Preferred Shares are made quarterly in the amount of $0.15625, yielding 6.25% annually on the original $10.0 issue price. Distributions on the Class A Shares are made monthly in the amount of $0.10 per share. No monthly distributions to the Class A Shares will be made if distributions to the Preferred Shares are in arrears or the net asset value (NAV) per unit (a unit means a notional unit consisting of one Preferred Share and one Class A Share) falls below $15.0. The Company's NAV stayed above $15.0 during 2024 resulting in the Company declaring cash distributions of $1.20 per Class A Share during the year 2024.

All Preferred Shares and Class A Shares are scheduled to be redeemed by the Company on November 29, 2027, unless the term of the Company is extended. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction at the end of each successive term. On maturity, the holders of the Preferred Shares will be entitled to the value of the Company up to the face value of the Preferred Shares in priority to the holders of the Class A Shares. Holders of the Class A Shares will receive the remaining value of the Company.

As of June 13, 2025, the downside protection available to holders of the Preferred Shares improved to 52.8% from 44.7% as of June 30, 2024. The dividend coverage remains steady at 1.3x compared with a year ago, reflecting the consistent dividend yield of the portfolio holdings. To supplement the Portfolio income, the Company may engage in securities lending or covered call option writing on the shares held in the Portfolio. Without giving consideration to capital appreciation potential 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 5.8% per year over the next 5 years.

Considering the increase in the amount of downside protection, dividend coverage above 1.0x, portfolio concentration in one industry, remaining term and expected grind from the monthly distributions to the Class A Shares, Morningstar DBRS confirmed the credit rating on the Preferred Shares at Pfd-3.

The main constraints to the credit rating are as follows:

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

(2) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio's securities.

(3) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that 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.

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 (May 16, 2025) https://dbrs.morningstar.com/research/454196.

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.