DBRS has announced that it:
has today downgraded the Class A Shares issued by Mulvihill Pro-AMS RSP Split Share Corp. (the Company) to D from Pfd-5.
After paying offering expenses and an initial contribution to a Class B Shares forward agreement, the net proceeds from the initial offering were invested in a diversified portfolio of Canadian and U.S. equities (the Managed Portfolio), providing asset coverage of approximately 1.8 times to the Class A Shares. In addition to providing principal protection for the Class A Shares, the Managed Portfolio has been used to make fixed cumulative monthly distributions to the Class A Shares equal to 6.5% per annum and to pay annual fees and expenses. In addition to this, the Company has been making semi-annual contributions of $0.43 per Class A Share from the Managed Portfolio to a forward agreement with the Counterparty for the repayment of the Class A Shares principal on December 31, 2013 (the Termination Date).
On September 3, 2008, the Company announced that distributions to the Class A Shares would be suspended subsequent to the September 2008 distribution payment in order to provide greater certainty to the repayment of principal.
The Managed Portfolio has declined more than 90% since inception. About one-third of the decline has resulted from the semi-annual contributions to the Class A Forward Account. Based on previous contributions to the Class A Forward Account, the Counterparty has guaranteed to repay 89.8% of the Class A Shares principal amount on the Termination Date. The current net asset value (NAV) of the Managed Portfolio is $1.48 (as of September 25, 2008), which is sufficient for the Company to contribute the remaining funds necessary to secure 100% of the principal amount on the Termination Date through the forward agreement. However, there is an additional $3.41 per Class A Share in cumulative dividends still to be paid at maturity. In order for the Company to repay full principal and cumulative dividends on the Termination Date, a return of 23% per year on the Managed Portfolio is required. Once Company expenses are taken into account, the return required to meet all Class A Shares principal and dividend obligations increases to more than 40% per year. Based on the foregoing, DBRS has downgraded the rating of the Class A Shares to D.
SPL.A was last mentioned on PrefBlog when it was downgraded to Pfd-5. SPL.A is tracked by HIMIPref™ and is included in the “Scraps” index – it would be SplitShare … but there are credit concerns!