SBC.PR.A: Capital Unit Split

Brompton Funds has announced (on 2025-10-6):

Brompton Split Banc Corp. (the “Fund”) is pleased to announce its intention to complete a stock split of its class A shares (the “Share Split”) due to the Fund’s strong performance. Class A shareholders of record at the close of business on October 27, 2025 will receive 17 additional class A shares for every 100 class A shares held, pursuant to the Share Split. The Share Split is subject to the approval of the Toronto Stock Exchange (the “TSX”).

Class A shareholders will continue to receive regular monthly cash distributions targeted to be $0.10 per class A share following the Share Split. As a result, the total dollar amount of distributions to be paid to class A shareholders is expected to increase by approximately 17%. The Fund 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.

Over the last 10 years, the class A shares have delivered a 18.4% per annum total return based on net asset value, outperforming the S&P/TSX Equal Weight Diversified Banks Total Return Index by 5.1% per annum and the S&P/TSX Composite Total Return Index by 6.6% per annum.(1) Since inception, class A shareholders have received cash distributions of $23.45 per share.

Following the completion of the Share Split, the preferred shares of the Fund are expected to have downside protection from a decline in the value of the Fund’s portfolio of approximately 55%.(2)

The class A shares are expected to commence trading on an ex-split basis at the opening of trading on October 27, 2025. No fractional class A shares will be issued and the number of class A shares each holder shall receive will be rounded down to the nearest whole number. The Share Split is a non-taxable event.

The Fund invests on an approximately equally weighted basis in a portfolio (the “Portfolio”) of common shares of the six largest Canadian banks: Royal Bank of Canada, The Bank of Nova Scotia, National Bank of Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Montreal. In addition, the Fund may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purpose of enhanced diversification and return potential.

This harms the credit quality of the preferreds by increasing the cash drag (due to increased distributions to the Capital Units due to the split) and by decreasing the Asset Coverage ratio. However, with a Whole Unit NAVPU of 24.15 as of 2025-10-9, there is no immediate cause for alarm.

My guess is that they’re doing this to increase the leverage provided by owning the Capital Units, given my assumption that this is what these shareholders want.

Update, 2025-12-2: Brompton has announced a treasury offering of preferreds only:

Brompton Split Banc Corp. (the “Fund”) is pleased to announce it isundertaking a treasury offering of preferred shares (“Preferred Shares”) (the “Offering”).

The sales period for this offering is expected to end on Wednesday, December 3, 2025. The offering is expected to close on or about December 10, 2025 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Preferred Shares will be offered at a price of $10.40 per Preferred Share to yield 6.0%.
(1) The closing price on the TSX for the Preferred Shares on December 1, 2025 was $10.54. The offering is being led by RBC Capital Markets.

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions, in the amount of $0.15625 per Preferred Share (6.25% per annum on the original $10.00 issue price), and to return the original issue price to holders of Preferred Shares on November 29, 2027.

The Fund has declared aggregate dividends on the Preferred Shares of $10.22 per Preferred Share, representing 80 consecutive quarterly dividends since inception on November 16, 2005.

Based on the most recently calculated net asset value per unit of the Fund on November 27, 2025, the Preferred Shares have downside protection from a decline in the value of the Fund’s portfolio of approximately 57%. The Preferred Shares have a Morningstar DBRS rating of Pfd-3.

The Fund invests on an approximately equally weighted basis in a portfolio (the “Portfolio”) of common shares of the six largest Canadian banks: Royal Bank of Canada, The Bank of Nova Scotia, National Bank of Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Montreal. In addition, the Fund may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purpose of enhanced diversification and return potential.