DF.PR.A Downgraded to Pfd-4 by DBRS

DBRS has announced that it has:

downgraded the Preferred Shares (the Preferred Shares) issued by Dividend 15 Split Corp. II (the Company) to Pfd-4 from Pfd-3 (low). The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio), which are issued by the following 15 companies: Bank of Montreal, The Bank of Nova Scotia, BCE Inc., CI Financial Corp., Canadian Imperial Bank of Commerce, Enbridge Inc., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., TELUS Corporation, Thomson Reuters Corporation, The Toronto-Dominion Bank, TransAlta Corporation, and TC Energy Corp. Up to 15% of the net asset value (NAV) of the Portfolio may be invested in equity securities of issuers other than the companies listed above. Quadravest Capital Management Inc. actively manages the Portfolio. The Company has the ability to write covered call options in respect of some or all of the common shares held in the Portfolio to generate additional income and supplement the dividends received on the Portfolio.

On May 22, 2020, DBRS Morningstar placed the Preferred Shares Under Review with Negative Implications. The Preferred Shares have experienced a considerable reduction in downside protection since February 2020 as a result of the rapid decline in the NAV of the portfolio in response to the stock market sell-off, which was triggered by the worldwide spread of Coronavirus Disease (COVID-19) and various geopolitical events. With this downgrade, the rating of the Preferred Shares has been removed from Under Review with Negative Implications.

As at July 15, 2020, the downside protection available to the Preferred Shares was 21.2%. The dividend coverage ratio was approximately 0.8 times (x). Holders of the Preferred Shares continue to receive fixed cumulative monthly cash distributions of $0.04792 per Preferred Share, yielding 5.75% annually on the original issue price of $10.00. Distributions to the Class A Shares have been suspended since March 2020 because they have not met the NAV test of 1.5x.

DBRS Morningstar downgraded the rating on the Preferred Shares based on longer-term trends being established for the NAV. Although the downside protection has experienced some recovery in the past three months, its current level combined with a dividend coverage below 1.0, are commensurate with a Pfd-4 rating.

The NAVPU was 12.53 on July 31, for Asset Coverage of 1.3-:1 and downside protection (the same concept expressed differently) of 20.2%. The ‘Review-Negative’ status, now rescinded, was previously reported on PrefBlog.

Leave a Reply

You must be logged in to post a comment.