Canadian Utilities & Financials Split Corp. has announced:
The leveraging and de-leveraging mechanism offers the ability to increase leverage when the Company’s portfolio appreciates in value and reduce leverage when the portfolio declines in value. Leverage is actively managed by RBC Dominion Securities Inc. (“RBC”) in its capacity as the Company’s Leverage Agent. The value of the Company’s portfolio has declined significantly in recent months, a period characterized by extreme and unprecedented market conditions and economic weakness, and has declined by more than 34% since its inception. As a result, under the terms of the prospectus, RBC is required to sell portfolio securities and invest the proceeds in cash or cash equivalents in order to provide additional assurance that the Company’s objective to repay the $10.00 issue price of the Preferred Shares at maturity will be met and that the Preferred Shares continue to have a high rating from DBRS. Following the sale of portfolio securities, the Class A Shares will continue to have exposure to the portfolio on a non-leveraged basis and distributions on the Class A Shares will be suspended beginning in December. Should the portfolio continue to decline in value, the removal of leverage will lessen the impact of any further decline on the performance of the Class A Shares.
The Company has the ability to re-establish leverage as the portfolio’s value increases. If the remaining portfolio subsequently appreciates in value and the net asset value per Class A Share grew to approximately $7.37, RBC will be instructed to re-invest the cash raised in securities of the portfolio which will restore leverage on the Class A Shares and likely result in the resumption of distributions to holders of Class A Shares.
CFS.PR.A is tracked by HIMIPref™, but is a tiny issue. It was moved from the SplitShare index to Scraps in August 2007 on volume concerns.