DBRS Confirms Ratings on Dundee Corporation at BBB (low) and Pfd-3 (low)

DBRS has today confirmed its ratings on the Senior Unsecured Debentures and Cumulative Redeemable First Preferred Shares of Dundee Corporation (Dundee or the Company) at BBB (low) and Pfd-3 (low), respectively. The trends remain Stable. There are currently no Senior Unsecured Debentures outstanding.

The existing ratings on Dundee employ the DBRS holding company methodology, which generally requires a notch differential to the respective ratings of a major operating subsidiary such as DundeeWealth Inc. (DW). The ratings also reflect the Company’s potentially more volatile earnings, albeit mitigated somewhat by its more diversified portfolio of investments and its own conservative capital structure on an unconsolidated basis.

More specifically, the rating confirmations reflect the continuing good business results of DW, the largest and most stable source of Company earnings. In recent quarters, DW has continued to increase its market share in the Canadian mutual fund industry. Issuer Rating and Preferred Share ratings of DW have correspondingly been confirmed at BBB and Pfd-3, respectively, with a Stable trend. The DW stake represented close to 60% of DBRS’s calculation of the Company’s net asset value (NAV) at June 30, 2008. Even though DBRS gives only marginal weight to the Company’s holdings of land and resource investments, it also recognizes that the Company historically adds value through its disciplined investment process, notwithstanding the incremental volatility in earnings and NAV.

Following a number of corporate restructurings, the Company’s financial leverage has shifted from the holding company to the operating subsidiaries such as DW and Dundee Realty. Correspondingly, the unconsolidated debt ratio of the Company has been reduced from over 25% in 2003 to just 4% at June 30, 2008. When preferred shares are included as financial leverage, this ratio increases to 15.4%, which remains conservative, especially given the absence of any double leverage at the holding company. As long as the market value of the Company’s portfolio exceeds its book value and maintains its liquidity, effective capitalization may in fact be more conservative than reported. At eight times, the market value of the Company’s assets cover fixed obligations, including preferred shares, and supports the single notch differential to the DW ratings.

Company liquidity is good with liquid assets representing 17% of the total, even before consideration is given to the Company’s positions in its various subsidiaries and equity-accounted investments. While limiting the Company’s flexibility somewhat, the shareholder agreement between Dundee and The Bank of Nova Scotia (BNS), which gives BNS the right of first offer for any DW shares held by the Company, suggests how attractive the DW asset is in the marketplace, while providing an additional source of liquidity. The Company also has a $150 million revolving term credit facility, of which $110 million remains undrawn. The Dundee Realty operation has its own $150 million credit facility, which combined with internal resources, provides potential real estate acquisition potential of $500 million. No dividends are paid to Dundee shareholders.

Financial results of the Company tend to be volatile, reflecting income volatility at DW related to performance fees, large real estate transactions at Dundee Realty, incremental dilution gains taken in the resource operations and general investment income volatility. The DBRS analysis attempts to look through the non-cash and non-recurring elements of the Company’s results to arrive at a measure of core profitability that removes some of this associated volatility. Nevertheless, the positive correlation between Canadian equity markets and resource prices, including land values, suggest that the overall Dundee investment portfolio is not overly diversified, which remains a challenge.

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