DBRS Downgrades Split Yield Corp. Class I Preferreds to Pfd-3; Confirms Class II Preferreds at D

DBRS has today downgraded the 5.5% Class I Cumulative Preferred Shares (the Class I Shares) issued by Split Yield Corporation (the Company) from Pfd-2 (low) to Pfd-3 with a Negative trend. Also, DBRS has confirmed the rating of the 7.0% Class II Cumulative Preferred Shares (the Class II Shares) at D.

In April 1998, the Company issued $30.6 million of Class I Shares at $20 each, $23 million of Class II Shares at $15 each, and $23 million of Capital Shares at $15 each. The net proceeds of the offering are invested in a portfolio (the Portfolio) of common shares of companies listed on one of two selected North American equity indices. The Portfolio provided initial downside protection of about 58% to the Class I Shares and 26% to the Class II Shares (after expenses).

Quadravest Capital Management (the Manager) manages the Portfolio, generating income from dividends, covered call option premiums and capital appreciation. The holders of the Class I Shares and the Class II Shares receive fixed, cumulative quarterly dividends yielding 5.50% and 7.00% per annum, respectively. The Class I Shares rank in priority to the Class II Shares with respect to the payment of dividends and repayment of capital on the Termination Date. Excess income, if any, is distributed on a quarterly basis to the Capital Shareholders.

Since inception, the net asset value (NAV) of the Portfolio has declined from $47.57 to $28.40 per share (as of December 31, 2007), a decline of about 40%. The current NAV provides downside protection of about 29.6% to the Class I Shares. If the portfolio was liquidated and proceeds distributed, the Class II Shareholders would experience a loss of about 44% of their initial principal. The Portfolio would have to generate a return of about 9% in the next year in order for the NAV to maintain its current level.

The downgrade of the Class I Shares is based on the current NAV of the Portfolio, as well as the annual grind on the Portfolio relative to its current NAV.

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