PVS.PR.E Sinks on Lousy Volume

Partners Value Split Inc. has announced:

the completion of its previously announced issue of 4,000,000 Class AA Preferred Shares, Series 7 (the “Series 7 Preferred Shares”) at an offering price of $25.00 per Series 7 Preferred Share, raising gross proceeds of $100,000,000. The Series 7 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 5.50% annualized yield on the offering price and have a final maturity of October 31, 2022. The Series 7 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol PVS.PR.E. The net proceeds of the offering will be used to redeem the Company’s outstanding Class AA Preferred Shares, Series 1 no later than March 25, 2016, in accordance with the terms of the Series 1 Preferred Shares, and to pay a special dividend to holders of the Company’s capital shares.

Prior to the closing of the offering, the Company subdivided the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares.

DBRS has rated the issue Pfd-2(low):

DBRS Limited (DBRS) has today finalized the provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 7 (the Series 7 Preferred Shares) issued by Partners Value Split Corp. (the Company) and has confirmed the ratings of the previously issued Class AA Preferred Shares, Series 1; Class AA Preferred Shares, Series 3; Class AA Preferred Shares, Series 5; and Class AA Preferred Shares, Series 6 (collectively, with the Series 7 Preferred Shares, the Class AA Preferred Shares) at Pfd-2 (low).

Following the redemption of the Series 1 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 83% (based on the closing price of BAM shares as of October 22, 2015) and the dividend coverage ratio is expected to be above 1.7 times (based on the Canadian dollar and U.S. dollar exchange rate as of October 22, 2015). BAM declares its dividend in U.S. dollars, so there is the risk that an appreciating Canadian dollar will cause the dividend coverage ratio to fall below 1.0 times. In the event of a shortfall, the Company may sell some of the BAM Shares, engage in security lending or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends. If the Company chooses to lend its holdings, the Portfolio would be exposed to the potential losses in the event that the borrower defaults on its obligations to return the borrowed securities.

The rating is based on the same rating rationale and rating considerations as all other series of Class AA Preferred Shares.

PVS.PR.E is a seven-year 5.50% SplitShare announced October 20. It will be tracked by HIMIPref™ and has been assigned to the SplitShares subindex.

The issue traded a miserable 23,300 shares today in a range of 24.50-80 before settling at 24.52-55, 4×57. Vital statistics are:

PVS.PR.E SplitShare YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.52
Bid-YTW : 5.86 %

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