PrefBlog

DBRS has announced (on 2021-7-27):

DBRS Limited (DBRS Morningstar) upgraded the rating on the Preferred Shares issued by Dividend 15 Split Corp. II (the Company) to Pfd-3 (low) from Pfd-4. The Company holds a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio), which are issued by the following 15 companies: Bank of Montreal, The Bank of Nova Scotia, BCE Inc., CI Financial Corp., Canadian Imperial Bank of Commerce, Enbridge Inc., Manulife Financial Corporation, National Bank of Canada, Royal Bank of Canada, Sun Life Financial Inc., TELUS Corporation, Thomson Reuters Corporation, The Toronto-Dominion Bank, TransAlta Corporation, and TC Energy Corp. Up to 15% of the net asset value (NAV) of the Portfolio may be invested in equity securities of issuers other than the companies listed above. The Portfolio is actively managed by Quadravest Capital Management Inc. The Company has the ability to write covered call options in respect of some or all of the common shares held in the Portfolio to generate additional income and supplement the dividends received on the Portfolio.

Dividends received from the Portfolio’s underlying common shares are used to pay fixed cumulative monthly cash distributions of $0.04792 per Preferred Share, yielding 5.75% annually on the original issue price of $10.00. Holders of the Class A Shares receive regular monthly cash dividends targeted at $0.10 per Class A Share, yielding 8% per annum on the original issue price of $15.00. No monthly distributions to the Class A Shares are made if the dividends of the Preferred Shares are in arrears, or if the Company’s NAV falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. Furthermore, no special distributions are made if the Company’s NAV is below $25.00. No distributions are currently made to holders of the Class A Shares.

The termination date is December 1, 2024. At maturity, the holders of the Preferred Shares will be entitled to the value of the Company up to the face amount of the Preferred Shares in priority to the holders of the Class A Shares. Holders of the Class A Shares will receive the remaining value of the Company.

As at June 30, 2021, the downside protection available to the Preferred Shares was 35.0%, and the dividend coverage ratio was approximately 0.7x. The rating upgrade on the Preferred Shares to Pfd-3 (low) from Pfd-4 is based on the current downside protection level and the minimum downside protection provided by an asset coverage test, which does not permit any distribution to the holders of Class A Shares if the Company’s NAV falls below $15.00.

The main constraints on the rating are:

(1) The Company’s dependence on the value and dividend policies of the securities in the Portfolio.

(2) The reliance on the Portfolio manager to generate additional income through methods such as option writing.

(3) Market fluctuations resulting from the response to the worldwide spread of the Coronavirus Disease (COVID-19) that could negatively affect the Company’s NAV.

The rating includes additional analysis of the Company’s expected performance as a result of the global efforts to contain the coronavirus. The DBRS Morningstar sovereigns group initially published its outlook on the pandemic’s impact on key economic indicators for the 2020–22 time frame on April 16, 2020. DBRS Morningstar last updated the macroeconomic scenarios on June 18, 2021, in its “Global Macroeconomic Scenarios – June 2021 Update.” For details, see https://www.dbrsmorningstar.com/research/380281.

This entry was posted on Sunday, August 8th, 2021 at 5:47 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.