DBRS Morningstar Confirms Rating on Allbanc Split Corp. II Class B Preferred Shares, Series 2 at Pfd-2

DBRS Limited (DBRS Morningstar) confirmed the rating on the Class B Preferred Shares, Series 2 (the Series 2 Preferred Shares) issued by Allbanc Split Corp. II (the Company) at Pfd-2. The Company holds a portfolio (the Portfolio) of publicly listed common shares of Bank of Montreal (rated AA with a Stable trend by DBRS Morningstar), Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS Morningstar), National Bank of Canada (rated AA (low) with a Positive trend by DBRS Morningstar), Royal Bank of Canada (rated AA (high) with a Stable trend by DBRS Morningstar), The Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar), and The Toronto-Dominion Bank (rated AA (high) with a Stable trend by DBRS Morningstar; collectively, the Portfolio Shares). The maturity date for the Series 2 Preferred Shares is February 28, 2021.

The dividends received from the Portfolio are used to pay a fixed cumulative quarterly distribution of $0.3048 per share to holders of the Series 2 Preferred Shares, yielding 4.75% annually on the issue price of $25.67. The current yield on the Portfolio shares fully covers the Series 2 Preferred Share dividends, providing dividend coverage of approximately 2.1 times (x). The Class A Capital Shares receive excess dividend income after the Company’s Series 2 Preferred Share distributions and other expenses have been paid. To generate additional income, the Company may engage in securities lending and covered-call option writing.

With some minor volatility, downside protection overall remained level throughout the year. It stood at 68.2% as of January 16, 2020. Considering the amount of downside protection, dividend coverage above 1.0x, strong Portfolio credit quality as well as consistency of the Portfolio holdings’ dividend distributions, DBRS Morningstar confirmed the rating on the Series 2 Preferred Shares issued by the Company at Pfd-2.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Series 2 Preferred Shares is dependent on the value of the Portfolio shares.

(2) Price volatility and changes in the Portfolio Shares’ dividend policies may result in significant reductions in downside protection from time to time.

(3) The entire Portfolio is concentrated in the Canadian financial services industry.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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@dbrs.com.

The principal methodology is Rating Canadian Split Share Companies and Trusts, which can be found on dbrs.com under Methodologies & Criteria.

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.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada