PrefBlog

U.S. Financial 15 Split Corp. has released its Annual Report to November 30, 2010.

An unusual feature of this fund is that it missed quite a few dividends on its preferred shares during the crisis – since these dividends are cumulative, they have been recorded as a liability on the company’s books. Hence:

The Company has 3,081,476 Preferred shares outstanding as at November 30, 2010 with a principal repayment target of $10 per Preferred share for a total of $30,814,760 due on the termination date, December 1, 2012. As at November 30, 2010, the Company has Net Assets equivalent to $5.54 per Preferred share for a total of $17,080,883. This represents a deficiency as at November 30, 2010 of $4.46 per Preferred share for a total deficiency of $13,733,927. An amount of $0.5624 per Preferred share in accrued cumulative dividends representing dividends not paid in previous years as at November 30, 2010 is also available to holders of Preferred shares on the termination date.

Thus, when calculating Market and Asset Coverage for the preferred shares, one must add the cumulated dividends to the published NAV – being very careful to check whether the company has made up any of the arrears since their year-end! There was one such payement in April, 2010, but none since.

Additionally, one may expect that the dividend yield of the underlying portfolio will increase significantly in the near future, as the Fed reduced restrictions on banks on March 18.

Figures of interest are:

MER: 1.50% of the whole unit value.

Average Net Assets: We need this to calculate portfolio yield; unfortunately the number of units changesd, which makes it more approximate. Additionally, the presence of the cumulated dividends makes the calculation more difficult. The Total Assets of the fund at year end was $19.0-million, compared to $24.0-million a year prior, so call it an average of $21.5-million. Total Preferred Share Distribution was $1.46-million, at $0.40/unit (four skipped distributions and one make-up distribution) implies an average of 3.65-million units, at an average NAV of ((5.54+0.56) + (6.50 + 0.56 – 0.125)) / 2 = 6.52, so call it $23.8-million. This is good agreement (considering all the adjustments!), call the average NAV $22-million.

Underlying Portfolio Yield: Dividends and interest received of $120,277 net of withholding divided by average net assets of 22-million is 0.55%.

Income Coverage: Dividends of 120,277 less expenses 290,947 is (170,670), to cover preferred dividends 3,081,476 shares at $0.525 dividend entitlement is less than negative 10.5%.

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