The Company invests in a portfolio of common shares (the Portfolio) issued by the six largest Canadian banks:
Dividends from the Portfolio are used to pay holders of the Preferred Shares floating cumulative monthly dividends at an annual rate equal to the prevailing prime rate in
DBRS Morningstar expects the monthly cash distributions to the holders of the Class A Shares and operating expenses to cause an average grind on the NAV of the Portfolio of approximately 3.5% until the end of the term. An asset coverage test in place mitigates the effects of the grind by not permitting the Company to make monthly distributions to the Class A Shares if the dividends of the Preferred Shares are in arrears or if the NAV of the Portfolio falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares. In addition, no special distributions can be made to the Class A Shares if, after such distributions, the NAV is below
The main form of credit enhancement available to the Preferred Shares is a buffer of downside protection. As of
Following the stock market sell-off in response to the worldwide spread of Coronavirus Disease (COVID-19) and various geopolitical news in
The maturity date is
DBRS Morningstar also considered the following constraints:
(1) The reliance on the Portfolio manager to generate additional income through methods such as option writing.
(2) The monthly cash distributions to holders of the Class A Shares.
(3) The dependence of the downside protection available to holders of the Preferred Shares on the value of the underlying common shares, which are subject to share price volatility.
CORONAVIRUS-RELATED ANALYTICAL CONSIDERATIONS
This rating action was based on factors that included additional analysis and, where appropriate, additional assumptions were applied to expected performance as a result of the global efforts to contain the spread of the coronavirus. On
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is Rating Canadian Split Share Companies and Trusts (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
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11-Aug-20 Preferred Shares Downgraded Pfd-3 -- CA
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