Research : SplitShare Credit Quality (PrefLetter Version)

The innumeracy of regulators knows no bounds, so they permit statements in prospectuses such as:

In order to achieve the Company’s initial targeted dividends of $1.20 per Class A Share per annum, the Company will be required to generate an average annual return on the Portfolio of 8.58% if the value of the Portfolio is maintained intact until the Termination Date.

This calculation goes beyond the word ‘average’. Due to Sequence of Returns Risk, the required long term average will increase with the price volatility of the underlying portfolio, as the targeted dividends will be a significant cash drag on the company – just like a normal retirement portfolio!

In this essay, which was later distilled into a shorter version for popular appeal, I look at the determinants of credit quality for SplitShare preferreds.

Look for the research link!

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