DBRS Upgrades Brompton Lifeco Split Corp. Preferred Shares to Pfd-4 (high) from Pfd-5 (high)

DBRS has today upgraded the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) to Pfd-4 (high) from Pfd-5 (high). In April 2007 the Company issued 3.1 million Preferred Shares (at $10.00 each), along with an equal number of Class A Shares (at $15.00 each). The termination date for both classes of shares issued is April 30, 2014, but a term extension has been proposed by the Company.

The Company holds a portfolio consisting primarily of common shares of the four largest publicly traded Canadian life insurance companies (the Portfolio). As of September 30, 2013, the Portfolio’s composition was: Industrial Alliance Insurance and Financial Services Inc. (26.0%), Sun Life Financial Inc. (24.9%), Manulife Financial Corporation (24.4%) and Great-West Lifeco Inc. (24.0%). The Portfolio was initially equally weighted and is subject to annual rebalancing.

The Preferred Shares pay a fixed cumulative quarterly distribution of $0.13125 per Preferred Share, yielding 5.25% annually on their issue price of $10.00 per share. Holders of the Class A Shares are expected to receive regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011, due to the net asset value of the Company falling below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013.

On June 10, 2013, DBRS confirmed the ratings of the Preferred Shares at Pfd-5 (high). Since then, the performance of the Company has been positive, with downside protection climbing to its highest levels in over two years (39.5% as of December 12, 2013). In addition, the short-term outlook for the Canadian life insurance industry has improved. As a result, the rating of the Preferred Shares has been upgraded to Pfd-4 (high).

DBRS will continue to closely monitor changes in the credit quality of the Preferred Shares and provide rating updates as required.

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

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 Rating Canadian Split Share Companies and Trusts (July 2013), which can be found on our website under Methodologies.