PrefBlog

DBRS:

has today downgraded the Preferred Shares issued by US Financial 15 Split Corp. (the Company) to Pfd-3 from Pfd-2 with a Stable trend. The rating had been placed Under Review with Developing Implications on March 19, 2008.
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There is a NAV test that prevents the Manager from paying out Class A Shares distributions if the NAV of the Portfolio is less than $15 per share.

The initial split share structure provided downside protection of 58% to the Preferred Shareholders (after expenses). Although the credit quality of the Portfolio is strong, the NAV of the Portfolio has experienced downward pressure due to its concentration in the financial industry. In the last year, the NAV has dropped from $24.14 per share to $14.19 (as of April 15, 2008), a decline of about 41%. As a result, the current downside protection available to the Preferred Shareholders is approximately 30%.
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The redemption date for both classes of shares issued is December 1, 2012.

Downside protection of 30% equates to asset coverage of about 1.4:1.

This is part of DBRS’ mass review of financial splits which, I believe, marks an end (or at least an increased strictness) to what I perceive as their grandfathering of older, looser standards for split shares, discussed last fall.

The question of how to analyze FTU.PR.A has been discussed on PrefBlog, further to my comment in January that a downgrade looked likely. The issue is tracked by HIMIPref™ and comprises part of the SplitShare Index.

This entry was posted on Friday, April 25th, 2008 at 5:56 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.