DBRS has announced that it:
upgrades the credit rating on the Preferred Shares issued by Brompton Split Banc Corp. (the Company) to Pfd-3 (high) from Pfd-3. The rating upgrade reflects continued improvement in the downside protection of the Preferred Shares over the past three years, supported by dividend coverage exceeding 1.0 times (x). Brompton Funds Limited is the manager (the Manager).
The Company invests, on an approximately equally weighted basis in a portfolio of common shares (the Portfolio) of the six largest Canadian banks. Holdings in the six largest Canadian banks will generally be equal-weighted at each rebalancing of the Portfolio, but the Company may, at the Manager’s discretion, hold non-equal-weight positions. Also, the Company may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purposes of enhanced diversification and return potential, at the discretion of the Manager. In addition to, or instead of, investing in Canadian banks and/or global financial companies directly, the Company may invest, at the Manager’s discretion, a portion of the Portfolio’s assets in exchange-traded funds, including exchange-traded funds managed by the Manager. There will be no duplication of management fees payable by the Company in connection with any investment by the Company in exchange-traded funds managed by the Manager. As of April 30, 2026, the Portfolio holdings were as follows: The Toronto-Dominion Bank (15.4%), Canadian Imperial Bank of Commerce (15.4%), National Bank of Canada (15.4%), The Bank of Nova Scotia (15.2%), Royal Bank of Canada (15.0%), Bank of Montreal (14.9%) and Brompton North American Financials Dividend ETF (8.8%).
The Portfolio may contain the common shares of less than six Canadian banks as a result of the impact of a merger, acquisition or other significant corporate actions or events affecting one or more of the Canadian banks in the Portfolio. The Manager may, at its discretion, selectively write covered call options and cash covered put options from time to time in respect of the securities included in the Portfolio in order to generate additional distributable income for the Company. The Company also hedges substantially all of its foreign currency exposure to the holdings in the Portfolio back to the Canadian dollar, if any.
Distributions on the Preferred Shares are made quarterly in the amount of $0.15625, yielding 6.25% annually on the original $10.0 issue price. Distributions on the Class A Shares are made monthly in the amount of $0.10 per share. No monthly distributions to the Class A Shares will be made if distributions to the Preferred Shares are in arrears or the net asset value (NAV) per unit (a unit means a notional unit consisting of one Preferred Share and one Class A Share) falls below $15.0. The Company’s NAV has stayed above $15.00 during the last 12 months resulting in the Company declaring cash distributions of $1.20 per Class A Share during that period.
All Preferred Shares and Class A Shares are scheduled to be redeemed by the Company on November 29, 2027, unless the term of the Company is extended. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction at the end of each successive term. On maturity, the holders of the Preferred Shares will be entitled to the value of the Company up to the face value 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.
On October 6, 2025 and February 12, 2026, the Company announced two stock splits of its Class A Shares (Stock Splits). Pursuant to the October 6, 2025 announcement, shareholders of record as of the close of business on October 27, 2025 received 17 additional Class A Shares for every 100 shares held. Pursuant to the February 12, 2026 announcement, shareholders of record as of the close of business on February 24, 2026 received 20 additional Class A Shares for every 100 shares held.
As of May 28, 2026, the downside protection available to holders of the Preferred Shares increased to 59.3% from 52.8% as of May 31, 2025. The dividend coverage ratio slightly declined to 1.1x compared with the prior year but remained above 1.0x, reflecting the consistent dividend yield generated by the Portfolio holdings. To supplement the Portfolio income, the Company may engage in securities lending or covered call option writing on the shares held in the Portfolio. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 5.6% per year over the next 5 years.
Considering the increase in the amount of downside protection, dividend coverage above 1.0x, the Portfolio concentration in one industry, remaining term, Stock Splits and the projected Portfolio grind, Morningstar DBRS upgraded the credit rating on the Preferred Shares to Pfd-3 (high) from Pfd-3.
The main constraints to the credit rating are as follows:
(1) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.
(2) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.
(3) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.
Morningstar DBRS’ credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions’ respective press releases at issuance.
This happens despite two Capital Unit splits in quick succession, in February 2026 and October 2025.