PrefBlog

Brompton Group has announced:

Due to the strong performance of its class A shares, Brompton Split Banc Corp. (the “Company”) announces its intention to effect a split of its class A shares (the “Share Split”) and a concurrent private placement of preferred shares (the “Private Placement”). The Company intends to announce the final number of new class A and preferred shares expected to be issued and outstanding as a result of the Share Split and the Private Placement by way of a press release on or about Wednesday, April 12, 2017.

It is the Company’s intention that class A shareholders of record on or about Monday, April 24, 2017 will receive additional class A shares pursuant to the Share Split. The number of preferred shares offered in the Private Placement will be an amount such that following the Share Split there will be an equal number of class A and preferred shares outstanding. The Company expects that the Share Split and the Private Placement will result in an approximately 20% increase in the number of outstanding class A and preferred shares. The Share Split and the Private Placement are subject to regulatory approval.

Following the Share Split, class A shareholders will continue to receive the currently targeted monthly distribution of $0.10 per class A share. As such, existing class A shareholders are expected to be provided with an effective increase in monthly cash distributions equal to approximately 20%, in-line with the expected percentage increase in outstanding class A shares due to the Share Split. The Company provides a distribution reinvestment plan, on a commission-free basis, for class A shareholders that wish to reinvest distributions and realize the benefits of compound growth.

The preferred share equity coverage, as represented by the class A net asset value (“NAV”), is expected to be at least $13.68 following the Share Split(1). As such, following the completion of the Share Split and the Private Placement, the preferred shares are expected to have downside protection from a decline in the value of the Company’s portfolio of approximately 58%. The expected class A NAV is higher than the equity coverage available for the preferred shares: (a) at the inception of the Company, (b) at the time that the current Pfd-3 (high) rating was initially assigned, and (c) at the time the current preferred share dividend rate of $0.45 per annum was originally announced(2). DBRS has confirmed that the rating of the preferred shares will continue to be Pfd-3 (high) following the completion of the Share Split and the Private Placement.

For over 11 years, since inception in November 2005 to March 31, 2017, the class A share have delivered a 12.0% per annum total return based on NAV, outperforming the total return of the S&P/TSX Capped Financials Index by 3.5% per annum and the total return of the S&P/TSX Composite Index by 5.6% per annum(3). Since inception, class A shareholders have received cash distributions of $13.25 per class A share.

Over the last five years to March 31, 2017, the preferred shares have delivered a 4.7% per annum total return based on NAV, outperforming the total return of the S&P/TSX Preferred Share Index by 3.5% per annum with lower volatility(3).

Brompton Split Banc Corp. invests in a portfolio, on an approximately equal weight basis, in common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.
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(1) Based on the NAV of the class A shares used to determine the Share Split ratio.
(2) Inception date: November 16, 2005; DBRS assignment of Pfd-3(high) rating: August 27, 2009 (class A NAV: $11.51); current term’s preferred share dividend rate announced September 26, 2012 (class A NAV: $11.33 as at September 24, 2012)
(3) See Standard Performance Data table below. Source: Brompton, Thomson Reuters, as at March 31, 2017

Brompton Split Banc Corp. Performance to March 31, 2017	1 Yr	3 Yrs	5 Yrs	10 Yrs	Incep. (16/11/05)
Class A Shares (TSX:SBC)	47.2%	17.0%	18.7%	10.0%	12.0%
S&P/TSX Capped Financials Index	24.3%	11.0%	13.3%	7.0%	8.5%
S&P/TSX Composite Index	18.6%	5.8%	7.8%	4.7%	6.4%
Preferred Shares (TSX:SBC.PR.A)	4.6%	4.6%	4.7%	5.0%	5.1%
S&P/TSX Preferred Share Index	21.9%	0.6%	1.2%	n/a	n/a

The performance table is actually rather clever; Assiduous Readers will note that the company does not report the performance of the Whole Units against any of the indices; instead, it is the leveraged-by-definition Capital Units that are measured against the indices – which dramatically improves the results in a rising market!

Whole Unit results are reported to 2016-12-31 end-date in the 2016 Annual Report:

Even this comparison isn’t quite right, since the S&P/TSX Capped Financials Index includes a high weight of insurance issues and the exclusive weighting in banks is a client decision and not a discretionary management decision. One should really simply assume that the Whole Units will basically reflect the return of equally weighted banks less the MER and

The MER per unit, excluding Preferred share distributions (which were covered by the portfolio’s dividend income), was 0.99% for 2016 and 0.97% for 2015. This ratio is more representative of the ongoing efficiency of the administration of the Fund.

Update, 2017-4-11: Details:

Brompton Split Banc Corp. (the “Company”) is pleased to announce the details of the previously announced split of its class A shares (the “Share Split”) and provide an update on the concurrent private placement of preferred shares (the “Private Placement”). The Share Split and the Private Placement remain subject to regulatory approval.

The Company is pleased to announce that class A shareholders of record at the close of business on April 25, 2017 will receive 21 additional class A shares for every 100 class A shares held, pursuant to the Share Split. Following the Share Split, class A shareholders will continue to receive the currently targeted monthly distribution of $0.10 per class A share. The Company provides a distribution reinvestment plan, on a commission-free basis for class A shareholders that wish to reinvest distributions and realize the benefits of compound growth.

Pursuant to the Private Placement, 1,382,784 preferred shares were offered to investors at a price of $10.03 per preferred share. Following the Share Split there will be an equal number of class A and preferred shares outstanding. The Private Placement is scheduled to close on April 25, 2017. The preferred share equity coverage, as represented by the class A net asset value (“NAV”), is approximately $13.77 after giving effect to the Share Split(1). This represents downside protection from a decline in the value of the Company’s portfolio of approximately 58%. DBRS has confirmed that the rating of the preferred shares will continue to be Pfd-3 (high) following the completion of the Share Split and the Private Placement.

Since inception in November 2005 to March 31, 2017, the class A shares have delivered a 12.0% per annum total return based on NAV, outperforming the total return of the S&P/TSX Capped Financials Index by 3.5% per annum and the total return of the S&P/TSX Composite Index by 5.6% per annum (2). Since inception, class A shareholders have received cash distributions of $13.25 per class A share.

Over the last five years to March 31, 2017, the preferred shares have delivered a 4.7% per annum total return based on NAV, outperforming the total return of the S&P/TSX Preferred Share Index by 3.5% per annum with lower volatility(2).

Brompton Split Banc Corp. invests in a portfolio, on an approximately equal weight basis, in common shares of 6 Canadian Banks: Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank.

This entry was posted on Thursday, April 6th, 2017 at 8:28 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.