PDV.PR.A Downgraded by DBRS

DBRS has announced that it:

has today downgraded the rating of the Preferred Shares issued by Prime Dividend Corp. (the Company) to Pfd-3 from Pfd-3 (high).

In November 2005, the Company issued 2.2 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The redemption date for both classes of shares issued was originally December 1, 2012, but was extended to December 1, 2018, after holders of 96.1% of Class A Shares and 90.2% of Preferred Shares voted in favour of the extension.

The Company holds a portfolio consisting primarily of common shares (the Portfolio) of the six major Canadian banks, life insurance companies (Great-West Lifeco Inc., Manulife Financial Corporation, Sun Life Financial Inc.), investment management companies (AGF Management Limited, CI Financial Corp., IGM Financial Inc.) and a few other companies (BCE Inc., TransAlta Corporation, TransCanada Corporation, Power Financial Corporation, TSX Group Inc.). The common shares of each Portfolio company represent between 4% and 8% of the total NAV of the Company, and no more than 20% of the NAV of the Company may be invested in securities issued by financial services or utilities firms other than those listed above. The Portfolio is actively managed by Quadravest Capital Management Inc.

Dividends received from the Portfolio are used to pay to each Preferred Share a monthly floating-rate distribution equal to the prevailing prime rate in Canada (the Prime Rate) plus 0.75% per annum, with a minimum of 5% per annum and maximum of 7% per annum. Holders of Class A Shares are targeted to receive a monthly floating-rate distribution equal to the Prime Rate plus 2% per annum, with a minimum targeted rate of 5% per annum and a maximum targeted rate of 10% per annum. Holders of the Preferred Shares have been receiving the minimum monthly payment of $0.04167 per share (yielding 5% per annum) since November 2008.

On September 6, 2011, DBRS confirmed the ratings on the Preferred Shares at Pfd-3 (high) based on the sufficient level of downside protection available to holders of the Preferred Shares at the time. The NAV was fairly volatile in the months following the rating confirmation, with downside protection falling to 39.7% in November 2011 before recovering slightly over the first quarter of 2012. Since April 2012, the NAV declined again, dropping to $15.89 as of June 29, 2012. The current dividend coverage ratio is around 0.87 times and the downside protection available is approximately 37.1%, which fails to reach levels commensurate with a Pfd-3 (high) rating. As a result of the insufficient downside protection and dividend coverage ratio on the Portfolio, the Preferred Shares have been downgraded to Pfd-3 from Pfd-3 (high).

PDV.PR.A was last mentioned on PrefBlog in connection with its outstanding warrants. PDV.PR.A is not tracked by HIMIPref™, as there are only about 1.5-million of the $10-par-value shares outstanding.

Leave a Reply

You must be logged in to post a comment.