DBRS Confirms Advantaged Preferred Share Trust at STA-2 (middle)

DBRS has today confirmed the stability rating of STA-2 (middle) to the retractable units (the Units) issued by Advantaged Preferred Share Trust (the Trust).

Proceeds from the Trust’s offerings have been used to enter into a forward agreement with Royal Bank of Canada in order to gain exposure to a diversified portfolio of preferred shares (the Portfolio). The forward agreement provides Unitholders with a return equivalent to a direct investment in the Portfolio. The Portfolio is passively managed by RBC Dominion Securities Inc. (the Administrator).

On August 26, 2010, DBRS assigned a stability rating of STA-2 (middle) to the Units issued by the Trust in accordance with the new methodology for rating structured income funds published in May 2010. The rating was mainly based on the strong credit quality of the Trust’s preferred share portfolio and the limited flexibility of the Administrator to invest in riskier assets. The rating was last confirmed on October 19, 2012, at STA-2 (middle).

Since October 2012, the performance of the Portfolio has been fairly stable. The weighted-average yield of the Portfolio is approximately 5.18%, as of September 30, 2013. The Trust’s current net income (including a regular additional payment under the forward agreement to offset operating expenses) covers the full distribution paid out to Unitholders. As a result, the rating of STA-2 (middle) on the Units has been confirmed. The main constraints to the rating are the interest rate risk of the Portfolio and the potential for capital losses and reductions in income resulting from underlying securities being called for redemption by their respective issuers.

For more information on the rating factors considered by DBRS in its analysis, refer to the Stability Ratings for Canadian Structured Income Funds methodology that was published on July 30, 2013.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Stability Ratings for Canadian Structured Income Funds (July 2013), which can be found on our website under Methodologies.