PrefBlog

DBRS has announced that it:

has today assigned a stability rating of STA-2 (middle) to the retractable units (the Units) issued by Advantaged Preferred Share Trust (the Trust). The previous rating of Pfd-2 (low) has been discontinued as the DBRS preferred share rating scale will no longer be applied to the Trust.

Proceeds from the Trust’s offerings have been used to enter into a forward agreement with Royal Bank of Canada in order to gain exposure to a diversified portfolio (the Portfolio) of preferred shares. The forward agreement provides unitholders with a return equivalent to a direct investment in the Portfolio. The Portfolio is passively managed by RBC Dominion Securities Inc. (the Administrator).

On May 11, 2010, DBRS published a methodology for rating structured income funds. Prior to the release of the methodology, DBRS had applied its stability ratings only to income trusts, but with the release of the methodology, the stability rating scale now also applies to Canadian investment income funds. A stability rating provides an opinion on both the stability and sustainability of a fund’s cash distributions per unit.

A stability rating of STA-2 (middle) has been assigned to the Units issued by the Trust. This rating is mainly based on the strong credit quality of the Trust’s preferred share portfolio and the limited flexibility for the Administrator to invest in riskier assets. Also, the Trust’s current net income (including a regular additional payment under the forward agreement to offset operating expenses) covers the full distribution paid out to unitholders. The main constraints to the rating are the interest rate risk of the Portfolio and the potential for capital losses and reductions in income resulting from underlying securities being called for redemption by their respective issuers.

DBRS believes that a stability rating reflecting an opinion on the stability of the fund’s distributions will be useful to the Trust’s investors. The rating is based on factors such as the asset composition, credit quality and diversification of the Trust’s portfolio, among others. For more information on the rating factors considered by DBRS in its analysis, refer to the Structured Income Fund methodology that was published on May 11, 2010.

This entry was posted on Thursday, August 26th, 2010 at 10:11 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.