DBRS Confirms Pfd-3 Rating of Lifeco Split Corporation Inc. Preferred Shares

DBRS has today confirmed the rating of the Preferred Shares issued by Lifeco Split Corporation Inc. (the Company) at Pfd-3, following a two-year extension of the termination date of the Company.

The Company has existed since June 2000 and issued additional preferred shares (the Preferred Shares) following a capital reorganization in July 2005. The reorganization extended the redemption date of the Company’s capital shares (the Capital Shares) and created preferred shares issued contemporaneously with the redemption of previously issued preferred shares. The net proceeds from the offering were used to purchase common shares (the Portfolio) of Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc. (collectively, the Portfolio Companies) to keep the Portfolio weighting the same after the reorganization. The scheduled termination date of the Company was extended to July 31, 2010.

On June 15, 2010, the Company announced that its Capital Shareholders and Preferred Shareholders approved an extension of the termination date of the Company to July 31, 2012. Holders of the Capital Shares and Preferred Shares had a special retraction right to redeem their shares on the same terms stated in the prospectus. The Company subsequently called 15,194 Preferred Shares (6.6% of the total) for redemption in order to increase the downside protection available to approximately 38.8% as of July 15, 2010. The Company subdivided the remaining Preferred Shares on a 1.39:1 basis to maintain the ratio of Capital Shares to Preferred Shares at 2:1. The new Preferred Share principal value is $36.84 per share, and the fixed quarterly cumulative distribution will be adjusted to $0.3684 per share, continuing to yield 4.00% on the Preferred Share principal amount.

The increase in downside protection to 38.8% from 32.8% provides a small amount of additional protection to the Preferred Shares. The downside protection has been fairly stable since the last rating action on August 27, 2009, fluctuating between 32% and 44%. As a result, the rating on the Preferred Shares is being confirmed at Pfd-3.

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

The applicable methodology is Rating Canadian Split Share Companies and Trusts, which can be found on our website under Methodologies.