DBRS Upgrades Diversified Preferred Share Trust to STA-2 (low)

DBRS has today upgraded the stability rating of the retractable units (the Units) issued by Diversified Preferred Share Trust (the Trust) to STA-2 (low) from STA-3 (high).

Proceeds from the Trust’s offerings have been used to invest in a diversified portfolio (the Portfolio) of preferred shares and securities. The Portfolio is passively managed by Sentry Investment Inc. (the Administrator).

On August 26, 2010, DBRS assigned a stability rating of STA-3 (high) 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 shortfall in portfolio income relative to the distribution paid out to the Trust’s unitholders is the main constraint to the rating. Other constraints to the rating include the interest rate risk of the Portfolio and the capital losses that may result from underlying securities being called for redemption by their respective issuers.

The current weighted-average yield of the Portfolio is approximately 4.93%. The Trust had previously been making quarterly distributions to the Unitholders equal to $0.30 per unit, yielding 4.80% per annum on the unit issue price of $25, but the Trust announced a change in the distribution rate from $0.30 per unit to $0.25 per share (yielding 4.00% per annum on the Unit issue price of $25) on September 26, 2011, effective with the distribution paid on January 13, 2012. The amount of the distribution and the net asset value (NAV) of the Portfolio may vary in accordance with the credit profile of each of the Portfolio’s underlying securities, prevailing interest rates and rate change expectations, and any losses or gains on rebalancing the Portfolio. As a result of the decreased distribution rate, the Trust’s net income can now cover approximately 93% of the distributions paid out to the unitholders (compared to 78% based on the original distribution rate). The rating of the Units is being upgraded to STA-2 (low) primarily due to the increased distribution coverage ratio, as well as the continued strength in the credit quality and diversification of the Trust’s Portfolio.

For more information on the rating factors considered by DBRS in its analysis, refer to the Stability Ratings for Structured Income Funds methodology that was updated on August 13, 2012.

Notes:
All figures are in Canadian dollars unless otherwise indicated.

The applicable methodology is Stability Ratings for Structured Income Funds (August 2012), which can be found on our website under Methodologies.