DBRS Rates Faircourt Split Trust 6.25% Preferred Securities Pfd-3 (low) and Discontinues 5.75% Preferred Securities and Faircourt Income & Growth Split Trust Preferred Securities

DBRS has today assigned a rating of Pfd-3 (low) to the 6.25% Preferred Securities issued by Faircourt Split Trust (FCS). DBRS has also discontinued the Pfd-3 rating of FCS’s 5.75% Preferred Securities and the Pfd-4 (high) rating of the Preferred Securities issued by Faircourt Income & Growth Split Trust (FIG).

Faircourt Asset Management Inc. (Faircourt) was the manager of both FIG and FCS. The ratings of FIG and FCS were placed Under Review with Developing Implications on August 19, 2010, after Faircourt announced that shareholder meetings would be held for both funds to vote on a proposal to merge FIG into FCS (the Continuing Trust). In meetings held from September 13 to 27, 2010 (adjournments were caused by a lack of quorum), the preferred securityholders and unitholders of FIG and FCS approved the merger.

The FCS 5.75% Preferred Securities had been scheduled to be repaid on March 31, 2011. On September 30, 2010, the preferred securityholders were repaid the full principal of $10.00 per security plus accrued and future interest. Since all of the FCS 5.75% Preferred Securities have been repaid, the Under Review status of the rating cannot be resolved and the Pfd-3 rating has been discontinued.

The FIG preferred securityholders approved an extraordinary resolution authorizing the exchange of their existing securities for the new series of 6.25% Preferred Securities issued by FCS. Since all of the FIG Preferred Securities have been exchanged, the Under Review status of the rating cannot be resolved and the Pfd-4 (high) rating has been discontinued. A new rating of Pfd-3 (low) has been assigned to the FCS 6.25% Preferred Securities. Holders of the 6.25% Preferred Securities have benefited from an effective upgrade in credit quality, resulting mainly from an increase in downside protection following the merger into the Continuing Trust.

The merger has been executed by Faircourt to adapt to the impending changes in the taxation of income trusts, which affected the ability of FCS and FIG to adhere to their investment restrictions. The Continuing Trust has an expanded mandate to invest in a wider range of securities.

The Pfd-3 (low) rating of the 6.25% Preferred Securities is primarily based on the downside protection available (32% as of October 5, 2010) and the diversification of the Continuing Trust’s investment portfolio. The main constraints to the rating are the following:

(1) The downside protection provided to holders of the 6.25% Preferred Securities is dependent on the value of the securities in the investment portfolio.

(2) Volatility of price and changes in the dividend policies of the underlying issuers may result in significant reductions in dividend coverage or downside protection from time to time.

(3) Reliance on the manager to generate a high yield on the investment portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

The 6.25% Preferred Securities are scheduled to mature on December 31, 2014.

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.