Brascan Adjustable Rate Trust I

Brascan Adjustable Rate Trust I

March 20, 2008 17:34 ET

Brascan Adjustable Rate Trust Announces Initiatives and Fund Update

TORONTO, ONTARIO--(Marketwire - March 20, 2008) - Brascan Adjustable Rate Trust I (the "Fund") (TSX:BAO.UN), today announced recent initiatives undertaken by the Manager in response to the ongoing challenges in the credit and mortgage-backed securities markets. The Fund was established to provide unitholders with an investment in credit securities, primarily mortgage-backed securities, on a leveraged basis. At March 13, 2008, the Fund had total net assets of approximately $8.8 million or $6.06 per unit.

Portfolio Update

In accordance with its investment objectives, the Fund has exposure to an actively managed portfolio of primarily mortgage-backed securities held by a partnership ("the Partnership"). The market for asset-backed and mortgage-backed securities has experienced unprecedented disruption over the past 12 months. This disruption has been precipitated by a severe credit contraction that is presently occurring in the United States. As a consequence, many securities have fallen in value notwithstanding that they retain high quality ratings from the rating agencies.

In order to reduce leverage and protect asset values, the Partnership has sold all of its Agency mortgage-backed securities, which have the greatest amount of current liquidity, and used the proceeds to repay debt and reduce its leverage to approximately 1:1. This strategy of reduced leverage is expected to enable the portfolio to better withstand the severe price volatility characterizing current markets. The Manager believes this action is in the best interests of the Fund, given the illiquidity and very heavy penalty for sales in the non-Agency mortgage-backed securities markets. As such, the Fund's current holdings are 100% non-Agency mortgage-backed securities, with the majority of these holdings rated BBB. In light of these changes to the portfolio mix and the resultant weighted average rating factor, the Manager understands that the units of the Fund have been downgraded to 'BBBf' by Standard and Poor's.

Financing Update

The Partnership uses short-term borrowings, including repurchase agreements, with financial institutions to finance its portfolio and its holdings are pledged as security for such borrowings. In light of current credit conditions, many lenders have withdrawn financing.

In response to these conditions, the Manager has arranged alternative financing for the Partnership from an affiliate, Trilon International Inc. ("Trilon"). Trilon has guaranteed the liabilities of the Partnership to its principal creditor, and has provided a US$20 million one-year revolving loan facility to the Partnership. At this date, approximately US$7.7 million has been drawn by the Partnership under the loan agreement. As mentioned above, the Fund has sold securities to repay debt such that borrowings from other lenders total an additional $5.8 million.

The entering into of the guarantee and the revolving loan agreement was considered by the independent review committee (the "IRC") of the Fund and the Partnership. The IRC unanimously recommended, after reasonable inquiry, that the transaction achieves a fair and reasonable result for the Fund and the Partnership and is in the best interests of each of them.

The Manager has determined that the transaction, while subject to related party rules under securities laws, is exempt from the valuation requirements and the minority approval requirements under those rules.

Strategic Review

Under its investment policies, the Partnership may not make new investments unless, after doing so, at least 80% of its investments consist of Agency mortgage-backed securities and/or non-Agency mortgage-backed securities rated AAA by S&P, Moody's or Fitch. Accordingly, the Manager has initiated a complete review of the investment objectives and strategy of the Fund and the Partnership. This review is expected to be completed within 30 days.

Current conditions in the credit markets remain extremely volatile and liquidity-constrained. The Fund's net asset value, which is calculated weekly, is directly dependent on the weekly valuation of the Partnership's portfolio. Under the terms of the agreement by which the Fund receives its exposure to the Partnership and its portfolio, it is possible that the underlying value of the Partnership's portfolio may decline to the point that the agreement would terminate. In the event that occurs, the Fund would be entitled to receive an amount based on the then market-value of the Partnership less costs associated with the termination. The Manager may determine at that time that it is in the best interests of the Fund to seek its termination.

The ability of the Fund to make monthly distributions is dependent upon cash flows received by the Partnership on its portfolio securities less certain expenses and adjustments. The strategic review will include a review of the Fund's ongoing ability to make distributions. The previously announced March distribution will be payable on April 15, 2008. There can be no assurance that the Fund will make further distributions in any particular month or months.

Brascan Adjustable Rate Trust I is an investment trust providing unitholders with exposure to a portfolio primarily consisting of mortgage-backed securities. The Fund is listed on the TSX under the symbol BAO.UN.

About Forward-looking Information

This News Release contains forward-looking information within the meaning of Canadian provincial securities laws and other "forward-looking statements" and information, within the meaning of certain securities laws, including "safe harbour" provisions in any applicable Canadian securities regulations. These forward-looking statements include, among others, statements with respect to the future performance of the mortgage-backed securities market and the Partnership's portfolio. The words "anticipate", "may," "believe," "expects," derivations thereof and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters, identify forward-looking statements. Although the Manager and Investment Manager believe that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund and the Partnership to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements or information include: general economic conditions; market disruptions; changes in interest and exchange rates; changes in mortgage prepayment rates; credit risk around borrower default; availability of financing; changes in legislation or practices governing the income trust sector and other risks and factors described in the Fund's and the Partnership's Prospectus, Annual Information Form and other documents filed by the Fund and the Partnership with the securities regulators in Canada. Except as may be required by law, neither the Fund nor the Partnership undertakes any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

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