DBRS Morningstar finalizes preliminary rating of Pfd-2 (low) on Partners Value Split Corp. Class AA Preferred Shares Series 13.

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DBRS Limited (DBRS Morningstar) has finalized its preliminary rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 13 (the Series 13 Preferred Shares) issued by Partners Value Split Corp. (the company).

DBRS Morningstar has also affirmed the ratings assigned to the Class AA Preferred Shares, Series 8 (the Series 8 Preferred Shares); the Class AA Preferred Shares, Series 9 (the Series 9 Preferred Shares); Class AA Preferred Shares, Series 10; Class AA Preference Shares, Series 11; and Class AA Preference Shares, Series 12 (collectively, the Class AA Preferred Shares) at Pfd-2 (low).

Series 13 Preferred Shareholders will be entitled to receive a quarterly fixed cumulative dividend of $0.278125 per share to earn 4.45% per annum on the issue price of $25.00. The Series 13 Preferred Shares rank pari passu with all other Class AA Preferred Shares. The maturity date of the new series is May 31, 2029. The proceeds (net of issue costs) from the offering of the Series 13 Preferred Shares will be used to pay a special dividend on the Capital Shares. Prior to the issuance of the Series 13 Preferred Shares, the Capital Shares will be subdivided such that there will be an equal number of Capital Shares and Preferred Shares outstanding.

The Company holds a portfolio (the Portfolio) of Brookfield Asset Management Inc. (BAM; rated A (low) with a stable trend by DBRS Morningstar) Class A Limited Voting Shares (the BAM Shares). Dividends from the Portfolio are used to fund the payment of interest on the Debentures to the extent they were issued and to fund the payment of dividends on the Class AA Preferred Shares. There are 700 Series 6 Debentures outstanding (due to the redemption of 700 Series 8 Preferred Shares) and 3,200 Series 7 Debentures (due to the redemption of 3,200 Series 9 Preferred Shares).

All series of Class AA Preferred Shares rank ahead of Capital Shares, Class AAA Preferred Shares and Junior Preferred Shares Series 1; the Junior Preferred Shares, Series 2; and the Junior Preferred Shares, Series 3 (collectively, the Junior Preferred Shares) and rank pari passu with all other Class AA Preferred Shares with respect to payment of dividends and return of capital.

Junior Preferred Shareholders are entitled to receive quarterly non-cumulative cash distributions at an annual rate of 5% when declared by the Board of Directors. There are $295 million of junior preferred shares currently outstanding. Capital Shareholders of the Company will receive excess dividend income only after interest on Debentures, distributions on Class AA Preferred Shares, distributions on Junior Preferred Shares and other Company expenses will have been paid. Any capital appreciation of the BAM Shares will benefit the Capital Shareholders.

The Company has issued a limited number of Class A Voting Shares which have priority over the Class AA Preferred Shares with respect to capital in the event of the dissolution, liquidation or insolvency of the Company. There are currently 100 such shares outstanding with a book value of $8.00.

Following the offering of the Series 13 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 88.7%. Based on current dividends paid on BAM shares and the Canadian dollar and we exchange rate from dollar to March 14, 2022, the dividend coverage ratio should be around 2.0 times (x). BAM declares its dividends in we dollars; therefore, there is a risk that an appreciation of the Canadian dollar could cause the dividend coverage ratio to fall below 1.0x. In the event of a shortfall, the Company may sell certain shares of BAM, engage in securities lending or write covered call options to generate sufficient income to satisfy its obligations to pay dividends on the Class AA Preferred Shares. . If the Company chooses to lend its assets, the Portfolio would be exposed to potential losses if the borrower failed to meet its obligations to return the borrowed securities.

The main constraints to ratings are as follows:

(1)	The downside protection available to Class AA Preferred Shareholders depends solely on the market value of BAM Shares held in the Portfolio, which will fluctuate over time.
(2)	There is a lack of diversification, as the Portfolio is entirely made up of BAM Shares.
(3)	Changes in BAM's dividend policy may result in reductions in Class AA Preferred Shares dividend coverage.
(4)	As BAM declares dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate, specifically the appreciation of the Canadian dollar versus the U.S. dollar. This may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares as these dividends are paid in Canadian dollars.
(5)	Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Junior Preferred Shares.

A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar Analytical Framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/ research/373262.

Remarks:

Unless otherwise stated, all figures are in Canadian dollars.

The primary methodology is the Canadian Fractional Share Trust and Corporation Rating (June 28, 2021), which can be found on dbrsmorningstar.com under Methodologies and Criteria.

DBRS Sovereign Morningstar group publishes reference macroeconomic scenarios for rated sovereigns. DBRS Morningstar’s analysis considered impacts consistent with baseline scenarios as set out in the following report: https://www.dbrsmorningstar.com/research/384482.

Related regulatory information pursuant to National Instrument 25-101 Designated Rating Organizations is incorporated by reference and may be viewed by clicking the link under Related Documents or by contacting us at [email protected]

The rated entity or its related entities participated in the rating process for this rating metric. 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.

The full report providing additional analytical detail is available by clicking the link under Related Documents below or by contacting us at [email protected]

For more information about this credit or this industry, visit www.dbrsmorningstar.com or contact us at [email protected]

DBRS Limited

DBRS Tower, 181 University Avenueoffice 700

Toronto, ON M5H 3M7 Canada

Phone. +1 416 593-5577

Ratings

Date Issued	Debt Rated	Action	Rating	Trend	Attributesi

US = Lead Analyst based in the USA

CA = Lead Analyst based in Canada

EU = Lead Analyst based in EU

UK = Lead Analyst based in UK

E = EU approved

U= UK approved

Unsolicited participation with access

Unsolicited participation without access

Unsolicited Non Participating

28-Mar-22	Class AA Preferred Shares, Series 10	Confirmed	Pfd-2 (low)	--	CA
28-Mar-22	Class AA Preferred Shares, Series 11	Confirmed	Pfd-2 (low)	--	CA
28-Mar-22	Class AA Preferred Shares, Series 12	Confirmed	Pfd-2 (low)	--	CA
28-Mar-22	Class AA Preferred Shares, Series 13	Provis.-Final	Pfd-2 (low)	--	CA
28-Mar-22	Class AA Preferred Shares, Series 8	Confirmed	Pfd-2 (low)	--	CA
28-Mar-22	Class AA Preferred Shares, Series 9	Confirmed	Pfd-2 (low)	--	CA
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