LFE.PR.A: DBRS Downgrades to Pfd-4(low)

DBRS has announced:

has today downgraded the rating of the Preferred Shares issued by Canadian Life Companies Split Corp. (the Company) to Pfd-4 (low) from Pfd-3 (low).

In April 2003, the Company issued 8.2 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The termination date for both classes of shares issued is December 1, 2012.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies: Manulife Financial Corporation, Sun Life Financial Inc., Great-West Lifeco Inc., and Industrial Alliance Insurance and Financial Services Inc. (each a Portfolio Company and collectively, the Portfolio). Each Portfolio Company generally represents no less than 10% and no more than 30% of the net asset value (NAV) of the Portfolio. Up to 20% of the net asset value (NAV) of the Company may be invested in equity securities of foreign life insurance companies or other Canadian or foreign financial services corporations other than the Portfolio Companies. The Portfolio is actively managed by Quadravest Capital Management Inc.

The Preferred Shares pay a fixed cumulative monthly dividend of $0.04375 per Preferred Share, yielding 5.25% annually on their issue price of $10 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.10 per Class A Share, yielding 8% annually on their issue price of $15 per share. However, these Class A Share distributions have been suspended since May 31, 2011, due to the NAV per Unit falling below the $15 threshold. In addition, no special year-end dividends will be paid if, after such payment, the NAV of the Portfolio would be less than $25.

On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-3 (low) due to the sufficient level of downside protection at the time. However, over the past few months, the NAV of the Portfolio has experienced significant decline, due to the negative performance of Canadian life insurance companies over the previous quarter. The downside protection available to the Preferred Shares has fallen from 23.3% on August 31, 2011, to 8.5% on December 30, 2011, and stands at 12.05% as of January 13, 2012. As a result of the downside protection dropping below acceptable levels for a sustained period of time, the rating has been downgraded to Pfd-4 (low).

The scheduled final maturity date of the Preferred Shares is December 1, 2012. DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

It’s about time! The NAV was 11.37 as of January 13.

LFE.PR.A was last mentioned on PrefBlog when their warrants expired out of the money in October 2010. LFE.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

One Response to “LFE.PR.A: DBRS Downgrades to Pfd-4(low)”

  1. […] was last mentioned on PrefBlog when it was downgraded to Pfd-4(low) by DBRS. LFE.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit […]

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