Category: Issue Comments

Manulife Financial Corporation has announced (on June 5):

that after having taken into account all election notices received by the June 4, 2026 deadline for conversion, 17,750 of its currently outstanding 6,537,903 Non-cumulative Rate Reset Class 1 Shares Series 3 (the “Series 3 Preferred Shares”) have been elected for conversion on June 19, 2026, on a one-for-one basis, into Non-cumulative Floating Rate Class 1 Shares Series 4 of Manulife (the “Series 4 Preferred Shares”), and 886,331 of its currently outstanding 1,462,097 Series 4 Preferred Shares have been elected for conversion on June 19, 2026, on a one-for-one basis, into Series 3 Preferred Shares.

Since there would be fewer than 1,000,000 Series 4 Preferred Shares outstanding after the conversion date (June 19, 2026), after taking into account all such election notices received by the June 4, 2026 deadline for conversion, (i) Manulife will automatically convert all remaining Series 4 Preferred Shares into Series 3 Preferred Shares, on a one-for-one basis, on the conversion date, and (ii) the holders of Series 3 Preferred Shares are not entitled to convert their Series 3 Preferred Shares into Series 4 Preferred Shares.

As a result, after giving effect to such conversion, on June 19, 2026, Manulife will have 8,000,000 Series 3 Preferred Shares issued and outstanding. The Series 3 Preferred Shares are listed on the Toronto Stock Exchange under the symbol MFC.PR.F.

As announced by Manulife on May 21, 2026, after June 19, 2026, holders of Series 3 Preferred Shares will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Manulife (the “Board”) and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on June 20, 2026, and ending on June 19, 2031, will be 4.64000% per annum or $0.290000 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at May 21, 2026, plus 1.41%, as determined in accordance with the terms of the Series 3 Preferred Shares.

MFC.PR.F was issued as a 4.20%+141 FixedReset that commenced trading 2011-3-11 after being announced 2011-3-7. Notice of extension was published in 2016 and the rate reset to 2.178%. I recommended that holders not convert to FloatingResets but there was a 21% conversion anyway. In 2021, the dividend rate on MFC.PR.F reset to 2.348% and there was a 3% net conversion to the FixedReset. Notice of extension was given in 2026 and the rate reset to 4.64%.

MFC.PR.P is a FloatingReset, Bills+141bp, which arose via a partial conversion from MFC.PR.F in 2016.

DBRS has announced that it:

upgrades the credit rating on the Preferred Shares issued by Brompton Split Banc Corp. (the Company) to Pfd-3 (high) from Pfd-3. The rating upgrade reflects continued improvement in the downside protection of the Preferred Shares over the past three years, supported by dividend coverage exceeding 1.0 times (x). Brompton Funds Limited is the manager (the Manager).

The Company invests, on an approximately equally weighted basis in a portfolio of common shares (the Portfolio) of the six largest Canadian banks. Holdings in the six largest Canadian banks will generally be equal-weighted at each rebalancing of the Portfolio, but the Company may, at the Manager’s discretion, hold non-equal-weight positions. Also, the Company may hold up to 10% of the total assets of the Portfolio in investments in global financial companies for the purposes of enhanced diversification and return potential, at the discretion of the Manager. In addition to, or instead of, investing in Canadian banks and/or global financial companies directly, the Company may invest, at the Manager’s discretion, a portion of the Portfolio’s assets in exchange-traded funds, including exchange-traded funds managed by the Manager. There will be no duplication of management fees payable by the Company in connection with any investment by the Company in exchange-traded funds managed by the Manager. As of April 30, 2026, the Portfolio holdings were as follows: The Toronto-Dominion Bank (15.4%), Canadian Imperial Bank of Commerce (15.4%), National Bank of Canada (15.4%), The Bank of Nova Scotia (15.2%), Royal Bank of Canada (15.0%), Bank of Montreal (14.9%) and Brompton North American Financials Dividend ETF (8.8%).

The Portfolio may contain the common shares of less than six Canadian banks as a result of the impact of a merger, acquisition or other significant corporate actions or events affecting one or more of the Canadian banks in the Portfolio. The Manager may, at its discretion, selectively write covered call options and cash covered put options from time to time in respect of the securities included in the Portfolio in order to generate additional distributable income for the Company. The Company also hedges substantially all of its foreign currency exposure to the holdings in the Portfolio back to the Canadian dollar, if any.

Distributions on the Preferred Shares are made quarterly in the amount of $0.15625, yielding 6.25% annually on the original $10.0 issue price. Distributions on the Class A Shares are made monthly in the amount of $0.10 per share. No monthly distributions to the Class A Shares will be made if distributions to the Preferred Shares are in arrears or the net asset value (NAV) per unit (a unit means a notional unit consisting of one Preferred Share and one Class A Share) falls below $15.0. The Company’s NAV has stayed above $15.00 during the last 12 months resulting in the Company declaring cash distributions of $1.20 per Class A Share during that period.

All Preferred Shares and Class A Shares are scheduled to be redeemed by the Company on November 29, 2027, unless the term of the Company is extended. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction at the end of each successive term. On maturity, the holders of the Preferred Shares will be entitled to the value of the Company up to the face value of the Preferred Shares in priority to the holders of the Class A Shares. Holders of the Class A Shares will receive the remaining value of the Company.

On October 6, 2025 and February 12, 2026, the Company announced two stock splits of its Class A Shares (Stock Splits). Pursuant to the October 6, 2025 announcement, shareholders of record as of the close of business on October 27, 2025 received 17 additional Class A Shares for every 100 shares held. Pursuant to the February 12, 2026 announcement, shareholders of record as of the close of business on February 24, 2026 received 20 additional Class A Shares for every 100 shares held.

As of May 28, 2026, the downside protection available to holders of the Preferred Shares increased to 59.3% from 52.8% as of May 31, 2025. The dividend coverage ratio slightly declined to 1.1x compared with the prior year but remained above 1.0x, reflecting the consistent dividend yield generated by the Portfolio holdings. To supplement the Portfolio income, the Company may engage in securities lending or covered call option writing on the shares held in the Portfolio. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 5.6% per year over the next 5 years.

Considering the increase in the amount of downside protection, dividend coverage above 1.0x, the Portfolio concentration in one industry, remaining term, Stock Splits and the projected Portfolio grind, Morningstar DBRS upgraded the credit rating on the Preferred Shares to Pfd-3 (high) from Pfd-3.

The main constraints to the credit rating are as follows:

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

(2) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.

(3) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

Morningstar DBRS’ credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions’ respective press releases at issuance.

This happens despite two Capital Unit splits in quick succession, in February 2026 and October 2025.

Brompton Group has announced:

Power & Infrastructure Split Corp. (the “Fund”) is pleased to announce it is undertaking a treasury offering of class A and preferred shares (the “Class A Shares” and “Preferred Shares”, respectively) (the “Offering”).

The sales period for the Offering is expected to end on Thursday, June 4, 2026. The Offering is expected to close on or about June 11, 2026 and is subject to certain closing conditions including approval by the Toronto Stock Exchange (“TSX”).

The Class A Shares will be offered at a price of $13.60 per Class A Share for a distribution rate of 8.8% on the issue price.(1)(2) The Preferred Shares will be offered at a price of $10.40 per Preferred Share to yield 6.2%.(2) The closing price on the TSX for each of the Class A Shares and the Preferred Shares on June 2, 2026 were $13.75 and $10.48, respectively. The Class A Share and Preferred Share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value (“NAV”) per unit of the Company (calculated as at June 2, 2026), as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the Offering. The Offering is being led by RBC Capital Markets.

The Company invests in a globally diversified and actively managed portfolio (the “Portfolio”) consisting primarily of dividend paying securities of power and infrastructure companies selected by Brompton Funds Limited.

The investment objectives for the Class A Shares are to provide their holders with regular monthly non-cumulative cash distributions and to provide holders of Class A Shares with the opportunity for capital appreciation through exposure to the Portfolio. Over the past 5 years, the Class A Share has generated a 17.5% per annum return.(2)

The investment objectives for the Preferred Shares are to provide holders with fixed cumulative preferential quarterly cash distributions and to return the original issue price of $10.00 to holders of Preferred Shares on May 29, 2031. The distribution rate for the term from May 30, 2026 to May 29, 2031 is $0.64 per Preferred Share per annum (6.4% on the par value of $10.00) payable quarterly. Over the past 5 years, the Preferred Share has generated a 5.1% per annum return.(2) Purchasers of Preferred Shares in this Offering will be eligible to receive the June 2026 quarterly dividend when the dividend is declared.

So the NAVPU is 22.52 and they’re selling these Whole Units for a total of 24.00. Nice business!

PWI.PR.A now pays 6.4% p.a. after its recent extension to 2031-5-29.

Brookfield Corporation has announced:

the reset dividend rate on its Cumulative Class A Preference Shares, Series 24 (the “Series 24 Shares”) (TSX: BN.PR.R) for the five years commencing July 1, 2026 and ending June 30, 2031.

If declared, the fixed quarterly dividends on the Series 24 Shares during the five years commencing July 1, 2026 will be paid at an annual rate of 5.432% ($0.3395 per share per quarter).

Holders of Series 24 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on June 15, 2026, to convert all or part of their Series 24 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 25 (the “Series 25 Shares”), effective June 30, 2026. The quarterly floating rate dividends on the Series 25 Shares will be paid at an annual rate, calculated for each quarter, of 2.30% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the July 1, 2026 to September 30, 2026 dividend period for the Series 25 Shares will be 1.16525% (4.623% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.2913125 per share, payable on September 30, 2026.

Holders of Series 24 Shares are not required to elect to convert all or any part of their Series 24 Shares into Series 25 Shares.

As provided in the share conditions of the Series 24 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 24 Shares outstanding after June 30, 2026, all remaining Series 24 Shares will be automatically converted into Series 25 Shares on a one-for-one basis effective June 30, 2026; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 25 Shares outstanding after June 30, 2026, no Series 24 Shares will be permitted to be converted into Series 25 Shares. There are currently 10,808,027 Series 24 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 25 Shares effective upon conversion. Listing of the Series 25 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX.

BN.PR.R was issued as BAM.PR.R, a FixedReset 5.40%+230 that commenced trading 2010-1-14 after being announced 2010-1-5. It reset to 3.014% in 2016; I recommended against conversion but there was a 14% conversion to the FloatingReset BAM.PR.S anyway. The issue reset to 3.237% in 2021, at which time the FloatingResets were forcibly converted back to the FixedReset. The ticker changed in December, 2022.

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P. has announced:

the reset dividend rate on its Class AAA Preference Shares, Series N (“Series N Shares”) (TSX: BPO.PR.N).

Series N Shares

If declared, the fixed quarterly dividends on the Series N Shares for the five years commencing July 1, 2026 and ending June 30, 2031 will be paid at an annual rate of 6.2060% ($0.387875 per share per quarter).

Holders of Series N Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on June 15, 2026, to convert all or part of their Series N Shares, on a one-for-one basis, into Class AAA Preference Shares, Series O (the “Series O Shares”), effective June 30, 2026.

The quarterly floating rate dividends on the Series O Shares have an annual rate, calculated for each quarter, of 3.07% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the July 1, 2026 to September 30, 2026 dividend period for the Series O Shares will be 1.358580% (5.39% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.339645 per share, payable on September 30, 2026.

Holders of Series N Shares are not required to elect to convert all or any part of their Series N Shares into Series O Shares.

As provided in the share conditions of the Series N Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series N Shares outstanding after June 30, 2026, all remaining Series N Shares will be automatically converted into Series O Shares on a one-for-one basis effective June 30, 2026; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series O Shares outstanding after June 30, 2026, no Series N Shares will be permitted to be converted into Series O Shares. There are currently 10,875,438 Series N Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series O Shares effective upon conversion. Listing of the Series O Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series O Shares will be listed on the TSX under the trading symbol “BPO.PR.O”.

BPO.PR.N was issued a FixedReset 6.15%+307, that commenced trading 2010-1-20 after being announced 2010-1-11. The issue attracted some unfavourable comment on issue due to the relatively long call lock-out period – which shows complete misunderstanding of the investment impact of an issuer call option, but we’ll ignore that. The issue reset to 3.782% in 2016; I recommended against conversion and there was no conversion.The issue reset to 4.007% in 2021, with no conversion. It is tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Brookfield Office Properties Inc. has announced (on 2026-05-19):

that it intends to redeem all 7,982,204 of its outstanding Class AAA Preference Shares, Series CC (TSX: BPO.PR.C), all of which are held by CDS & Co., as nominee of CDS Clearing and Depositary Services Inc., for cash on June 30, 2026. The redemption price for each such share will be C$25.00. Separately from the redemption price, the final quarterly cash dividend of C$0.382313 per share, will be paid in the usual manner on June 30, 2026, to holders of record on June 15, 2026.

Notice of Redemption has been sent to CDS & Co. Payment of the redemption price will be made to all beneficial holders of the Series CC Shares on or after June 30, 2026 through the facilities of CDS & Co.

BPO.PR.C was issued as a FixedReset, 6.00%+518M600, that commenced trading 2016-4-27 after being announced 2016-4-18. It reset to 6.12% in 2021 with no conversion. The issue has been tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Thanks to the Assiduous Reader who brought this to my attention!

DBRS has announced that it:

upgraded the credit rating on the Preferred Shares issued by Dividend 15 Split Corp. II (the Company) to Pfd-3 from Pfd-3 (low). The rating upgrade reflects the significant improvement in downside protection for the Preferred Shares over the past year.

The Company invests in an actively managed portfolio of common shares (the Portfolio) which currently primarily includes securities of the following publicly traded Canadian companies, each of whose securities will generally represent no less than 4% and no more than 8% of the net asset value of the Company: Bank of Montreal, Royal Bank of Canada, Bank of Nova Scotia, Sun Life Financial Inc., BCE Inc, TC Energy Corp., Canadian Imperial Bank of Commerce, TELUS Corporation, Thomson Reuters Corporation, Enbridge Inc, The Toronto-Dominion Bank, Manulife Financial, TransAlta Corporation, National Bank of Canada. The Company may also invest up to 15% of the net asset value in equity securities of issuers other than the companies listed above. In order to supplement the dividends received on the portfolio and to reduce risk, the Company will from time to time write covered call options in respect of some or all of the common shares in the Portfolio. The Portfolio is actively managed by Quadravest Capital Management.

The Company’s termination date is December 1, 2029. At termination, the holders of the Preferred Shares will be entitled to the value of the Company up to the face amount of the Preferred Shares in priority to the holders of the Class A Shares. Holders of the Class A Shares will receive the remaining value of the Company. The Company’s board of directors can extend the termination date for additional successive terms of five years each, provided that shareholders are given an optional special retraction right in connection with such extension.

Dividends received from the Portfolio are used to pay fixed cumulative monthly cash distributions. Holders of the Preferred Shares are entitled to receive fixed cumulative preferential monthly cash dividends in the amount of $0.05833 per Preferred Share, yielding 7.00% per annum on the original issue price of $10.00. Holders of the Class A Shares currently receive regular monthly cash distributions, targeted to be $0.10 per Class A Share. Distributions to the Class A Shares are made only if the distributions on the Preferred Shares are not in arrears and the NAV per unit (which consists of one Class A and one Preferred Share) is in excess of $15.00 Distributions for the one-year period ended April 2026 totaled $1.20 per Class A Share.

On June 20, 2025, the Company renewed its at-market-program that allows the Company to issue shares of the Company to the public from time to time at the Company’s discretion, effective until July 19, 2027, unless terminated prior to such date by the Company. The maximum gross proceeds from the issuance of the shares will be $350,000,000.

As of May 15, 2026, the downside protection available to holders of the Preferred Shares improved to 47.9% from 35.5% as of April 30, 2025, and the asset coverage was at 1.9 times (x) whereas the projected dividend coverage declined to 0.6x. The dividend coverage below 1.0x indicates that the current dividend income earned by the Company is not enough to fully cover the Company’s operating expenses and targeted distributions on the Preferred Shares. To further supplement the Portfolio income, the Company may engage in covered call and put options writing on all or a portion of the shares held in the Portfolio and/ or rely on realized capital gains. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the Preferred Share distributions together with the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 5.8% per year over the next 5 years.

Considering the increase in the amount of downside protection available to holders of the Preferred Shares, dividend coverage below 1.0x, the Portfolio diversification and projected grind on the Portfolio, Morningstar DBRS upgraded the credit rating on the Preferred Shares to Pfd-3 from Pfd-3 (low).

The main constraints to the credit rating are as follows:

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

(2) Dividends and interest received on the Portfolio are currently unable to fully cover distributions on the Preferred Shares.

(3) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the portfolio’s securities.

(4) Stated monthly distributions on the Class A Shares will likely create a grind on the portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

Manulife Financial Corporation has announced:

the applicable dividend rates for its Non-cumulative Rate Reset Class 1 Shares Series 3 (the “Series 3 Preferred Shares”) (TSX: MFC.PR.F) and Non-cumulative Floating Rate Class 1 Shares Series 4 (the “Series 4 Preferred Shares”) (TSX: MFC.PR.P).

With respect to any Series 3 Preferred Shares that remain outstanding after June 19, 2026, holders thereof will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors (the “Board”) of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on June 20, 2026, and ending on June 19, 2031, will be 4.64000% per annum or $0.290000 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at May 21, 2026, plus 1.41%, as determined in accordance with the terms of the Series 3 Preferred Shares.

With respect to any Series 4 Preferred Shares that remain outstanding after June 19, 2026, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the three-month period commencing on June 20, 2026, and ending on September 19, 2026, will be 0.94092% (3.73300% on an annualized basis) or $0.235230 per share, being equal to the sum of the three-month Government of Canada Treasury bill yield as at May 21, 2026, plus 1.41%, as determined in accordance with the terms of the Series 4 Preferred Shares.

Beneficial owners of Series 3 Preferred Shares and Series 4 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on June 4, 2026. The news release announcing such conversion right was issued on May 4, 2026 and can be viewed on SEDAR+ or Manulife’s website. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, TSX Trust Company (Canada), at 1‑800‑783‑9495.

MFC.PR.F was issued as a 4.20%+141 FixedReset that commenced trading 2011-3-11 after being announced 2011-3-7. Notice of extension was published in 2016 and the rate reset to 2.178%. I recommended that holders not convert to FloatingResets but there was a 21% conversion anyway. In 2021, the dividend rate on MFC.PR.F reset to 2.348% and there was a 3% net conversion to the FixedReset. Notice of extension was given in 2026.

MFC.PR.P is a FloatingReset, Bills+141bp, which arose via a partial conversion from MFC.PR.F in 2016.

DBRS has announced that it:

downgraded its credit rating on the Preferred Shares (the Preferred Shares) issued by Global Dividend Growth Split Corp. (the Company) to Pfd-3 from Pfd-3 (high). The rating downgrade reflects the completion of a stock split of the Class A Shares (Share Split), negative dividend coverage ratio, extension of term and a projected grind of 8.4% per year over the next five years. Brompton Funds Limited (Manager) is acting as the manager for the Company.

The Company invests in a portfolio of equity securities of large capitalization global dividend growth companies (the Portfolio). As of April 30, 2026, the Portfolio was invested in 35 equity securities across 11 different sectors, including information technology (20.1%), financials (17.7%), industrials (13.5%), healthcare (10.8%), consumer discretionary (7.7%), consumer staples (6.1%), energy (5.7%), materials (4.4%), real estate (4.4%), utilities (3.0%) and communication services (2.2%). To qualify for inclusion in the Portfolio, each global dividend growth company must have (1) a market capitalization of at least $10 billion and (2) a history of dividend growth or the potential for future dividend growth.

As of April 30, 2026, 90.0% of the Company’s net asset value was denominated in currencies other than Canadian dollars. The foreign currency exposure is substantially hedged back to the Canadian dollar. In addition to, or instead of, investing directly in equity securities of global dividend growth companies, the Company may invest a portion of the Portfolio’s assets in exchange-traded funds that provide exposure to global dividend growth companies, including exchange-traded funds managed by the Manager.

The current issued and outstanding Preferred Shares and Class A Shares have a maturity date of June 30, 2026. On August 12, 2025, the Company’s board of directors approved a 5-year extension, setting the maturity date to June 27, 2031. In connection with such extension, shareholders may retract their Preferred Shares or Class A Shares on June 30, 2026, pursuant to a special retraction right.

The holders of Preferred Shares are currently receiving fixed cumulative quarterly cash distributions of $0.125 (or $0.50 annually) per share, representing a 5.0% per annum return on the issue price of $10.00. The Company announced that the distribution rate of the Preferred Shares will increase to 6.20% for the extended term from July 1, 2026 to June 27, 2031.The holders of the Class A Shares receive regular monthly noncumulative distributions targeted to be $0.10 per Class A Share to yield 10.0% per annum on the issue price of $12.0. No monthly distributions to the Class A Shares will be made if (1) distributions to the Preferred Shares are in arrears or (2) in respect of a cash distribution, the net asset value (NAV) of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares.

On April 27, 2026, the Company announced a Share Split, Class A shareholders of record at the close of business on May 11, 2026 received 15 additional Class A Shares for every 100 Class A Shares held. Class A shareholders will continue to receive the same regular monthly non-cumulative cash distributions (currently $0.10 per Class A Share) following the Share Split. As a result, the net asset value (NAV) per unit (one notional Unit: consists of one Preferred Share and one Class A Share) declined to $22.50 as of May 11, 2026 from $23.52 as of April 30, 2026.

The downside protection available to the Preferred Shares was 55.2% as of May 11, 2026. The dividend coverage has continued to deteriorate over the past three years, and is currently negative, at approximately -0.02x. The negative dividend coverage indicates that the current dividend income earned by the Company is not enough to fully cover the targeted distributions on the Preferred Shares, which increases the reliance on the Manager to generate a high yield to meet distributions and other expenses without having to liquidate portfolio securities. To supplement the Portfolio income, the Company may engage in securities lending or covered call and put options writing on all or a portion of the shares held in the Portfolio. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the Preferred Share distributions together with the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 8.4% per year over the remaining term. However, the grind in the portfolio is mitigated by a 1.5x NAV test.

Considering the level of downside protection, Share Split, negative dividend coverage ratio, extension of term and a projected grind of 8.4% per year over the next five years, Morningstar DBRS downgraded the credit rating on the Preferred Shares issued by the Company to Pfd-3 from Pfd-3 (high).

The main constraints on the credit rating are the following:

(1) Volatility in stock prices, along with changes in the dividend policies of the underlying issuers, may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.

(2) Dividends and interest received on the Portfolio are currently unable to fully cover distributions on the Preferred Shares.

(3) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate Portfolio securities.

(4) Stated monthly distributions on the Class A Shares will likely create a grind on the Portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.

Morningstar DBRS’ credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions’ respective press releases at issuance.

The Capital Unit split and dividend reset was reported on PrefBlog.