E SPLIT CORP.
This rating action has been taken in connection with the announcement to increase the Preferred Share distribution rate to 7.0% from the current 5.25% on the original issue price of
On
After the distribution rate increase, the Preferred Shares will receive fixed quarterly cumulative preferential cash distributions of
The Company has a loan facility or prime brokerage facility (the Loan Facility) for working capital purposes, with a maximum borrowed amount limited to 5% of the net asset value of the Company. The Loan Facility provides the lender with a security interest over the Portfolio. The Preferred Shares are subordinated to any indebtedness under the Loan Facility. As of
As of
Since the last review conducted in
The confirmed rating of Pfd-3 (high) considers the level of downside protection, dividend coverage available to holders of the Preferred Shares, lack of diversification, and potential grind on the Portfolio arising from the targeted distributions to the Class A Shares.
The main constraints to the rating are as follows:
(1) The downside protection available to holders of the Preferred Shares depends solely on the market value of theEnbridge Inc.'s common shares in the Portfolio, which is exposed to market fluctuations resulting from high inflation, interest rate hikes, economic slowdown, and global supply chain issues.
(2) There is a lack of diversification, as at least 90% of the Portfolio consists entirely ofEnbridge Inc.'s common shares.
(3) Changes in the dividend policy ofEnbridge Inc. may reduce the Preferred Shares' dividend coverage and downside protection over time.
(4) Additional yield earned on the Portfolio to cover Class A Share distributions without having to liquidate Portfolio securities depends on the Manager's skill in generating supplementary income through methods such as option writing and securities lending.
(5) Stated monthly distributions on the Class A Shares, which can create a grind on the Portfolio, are mitigated by an asset coverage test of 1.5x, which ensures sufficient levels of downside protection to the holders of the Preferred Shares.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology applicable to the ratings is Rating Canadian Split Share Companies and Trusts (
Other methodologies referenced in this transaction are listed at the end of this press release.
The DBRS
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 rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
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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