PrefBlog

DBRS has announced that it:

has today downgraded the Preferred Shares issued by SNP Health Split Corp. (the Company) to Pfd-5 (high), with a Stable trend, from Pfd-3 (high). The rating has been removed from Under Review with Negative Implications, where it was placed on October 24, 2008.

In February 2002, the Company raised gross proceeds of approximately US$156 million by issuing 3.3 million Preferred Shares (at US$25 each) and 6.6 million Capital Shares (at US$11.15 each). The initial split share structure provided downside protection of 47% to the Preferred Shares (after expenses).

The net proceeds from the initial offering were invested in a portfolio of common shares (the Portfolio) of companies that make up the S&P Health Care Sector Index of the S&P 500 Index. Holders of the Preferred Shares receive a fixed, cumulative quarterly dividend yielding 6% annually. The distributions are funded from dividends received on the Portfolio holdings as well as from income generated by writing covered call options and cash-covered put options. The Capital Shareholders do not receive distributions.

The redemption date for both classes of shares issued is February 11, 2009, so there are less than three months remaining until maturity. However, the value of the Portfolio has declined significantly in the last few months, putting full repayment of the Preferred Shares principal at risk. From August 28, 2008, to December 3, 2008, the net asset value (NAV) of the Company dropped from $36.80 to $26.34 due to market volatility, a decline of approximately 28%. As a result, most of the initial downside protection available to the Preferred Shares has eroded; the current downside protection is 5% (as of December 3, 2008).

As a result of the volatility in the current equity markets and the lower asset coverage available, DBRS has downgraded the rating of the Preferred Shares to Pfd-5 (high) with a Stable trend.

SNH.PR.U was part of the DBRS Mass Review of Splits. It is not tracked by HIMIPref™.

This entry was posted on Friday, December 5th, 2008 at 6:17 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.