DBRS Rates SL Split Corp. Preferred Shares at Pfd-2 (low)

DBRS has today assigned a rating of Pfd-2 (low) with a Stable trend to the Preferred Shares issued by SL Split Corp. (the Company). The Company has raised gross proceeds of $59.4 million by issuing 1.055 million Preferred Shares at $25.78 each and 2.11 million Capital Shares at $15.26 each, providing initial downside protection of 52% to the Preferred Shares (after expenses).

The net proceeds from the initial offering were invested in a portfolio of common shares (the Sun Life Shares) of Sun Life Financial Inc. (Sun Life). Dividends received from the Sun Life Shares will be used to pay a fixed, cumulative quarterly dividend to the holders of the Preferred Shares to yield 5.00% annually. Excess dividends net of all expenses of the Company may be paid as dividends on the Capital Shares. Based on the Sun Life dividend yield and the Sun Life Shares value at inception, there will be a slight grind on the portfolio of 0.40% in the first year.

Capital protection available to the Preferred Shares consists entirely of the value of the Sun Life Shares. On maturity, the holders of the Preferred Shares will be entitled to the repayment of principal and any accrued dividends in priority to the Capital Shares. The Capital Shareholders will be entitled to all capital appreciation, if any, above the repayment of the face value of the Preferred Shares.

The Pfd-2 (low) rating of the Preferred Shares is based on the downside protection available to the Preferred Shareholders, as well as Sun Life’s credit quality and the consistency of its dividend distributions.

The main constraints to the rating are the following:
(1) The downside protection available to holders of the Preferred Shares depends completely on the value of the common shares of Sun Life.

(2) The concentration of the entire portfolio in the common shares of Sun Life.

(3) Volatility of price and changes in dividend policies of Sun Life may result in reductions in downside protection from time to time.

The redemption date for the Preferred Shares will be January 31, 2013.

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