DBRS has today:
downgraded the Class B Preferred Shares (the Preferred Shares) issued by 5Banc Split Inc. (the Company) to Pfd-2 (low), with a Stable trend, from Pfd-2. The rating has been removed from Under Review with Developing Implications where it was placed on March 19, 2008.
In December 2006 and January 2007, the Company raised gross proceeds of $282 million by issuing 14.1 million Preferred Shares at $10 each and an equal number of Capital Shares at $10 each. The net proceeds from the offering were invested in a portfolio of initially equally weighted common shares (the Portfolio) of the top five Canadian chartered banks: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank. The initial split share structure provided downside protection of approximately 48% to the Preferred Shares (after expenses).
The holders of the Preferred Shares receive fixed cumulative quarterly distributions equal to 4.75% per annum. The fixed distributions of dividends on the Preferred Shares are funded from the dividends received on the Portfolio and, if necessary, with proceeds from the sale of the Portfolio’s shares. The current yield on the Portfolio fully covers the Preferred Shares dividend, providing dividend coverage of approximately 1.3 times. Excess dividends net of all expenses of the Company are paid as dividends on the Capital Shares.
The Company’s net asset value (NAV) has experienced downward pressure over the past year, dropping from $19.35 per share to $15.87, a decline of 18%. The current downside protection available to the Preferred Shareholders is approximately 37% (as of June 19, 2008). The downgrade of the Preferred Shares is primarily based on the reduced level of asset coverage available to cover the Preferred Shares principal.
The redemption date for both classes of shares issued is December 15, 2011
The DBRS mass review of financial splits has been previously discussed. FBS.PR.B had a partial call for redemption in November, and was removed from the S&P/TSX Preferred Share Index with all the other split-share corporations at the last rebalancing. It is a included in the HIMIPref™ Split-Share Index.
Update: See also previous post for FBS.PR.B.
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