The trend is Negative for all ratings. With this rating action, DBRS Morningstar has removed the ratings from Under Review with Negative Implications, where they were placed on
KEY RATING CONSIDERATIONS
The Negative trend considers CI's continued net outflows of assets under management (AUM) due to a persistently high rate of redemptions relative to gross sales, with the risk that this trend may accelerate in the current market environment as a result of the ongoing Coronavirus Disease (COVID-19) pandemic and the associated economic impact. While AUM is still sizeable and the Company has strong revenues and EBITDA, fee-based assets comprise the majority of CI's revenues and further declines in AUM will put increasing pressure on the Company's cash flow. AUM was
The rating confirmation reflects CI's strong market share in the Canadian asset management industry as a leading nonbank affiliated fund company. CI's scale enables it to compete effectively among its peers and positions it well within the mature asset management landscape in
In
RATING DRIVERS
Although an upgrade is unlikely in the near term given the Negative trend, a material reduction in the Company's leverage or success in reducing redemptions relative to gross sales resulting in higher revenues would lead to positive rating pressure. A sustained increase in free cash flow may also positively pressure the rating. Conversely, the rating would be downgraded if CI's debt leverage increases further to levels commensurate with a lower rating, resulting in a deterioration of its financial flexibility. A sustained, material decline in AUM combined with continued net outflows would also lead to a downgrade.
RATING RATIONALE
The Company's financial flexibility is currently under pressure as a result of increased debt levels. Debt levels are currently temporarily elevated due to the issuance of
Over the years, CI's sizable AUM base has been a consistent source of fee-based revenues, generating enough cash flow to service its debt obligations while maintaining high returns on equity. DBRS Morningstar views positively the Company's steps to adapt to changing market conditions through investing in digital technology and distribution, enhancing its product suite, making strategic acquisitions, and increasing operational efficiencies. CI has also been proactive in responding to the coronavirus pandemic, with management taking the appropriate steps to maintain business continuity and mitigate the flow of redemptions during this time.
CII's Issuer Rating reflects its role in CI as the holding company's major operating subsidiary, housing the mutual fund manufacturing operation and representing more than 95% of the Company's consolidated earnings. The rating of CI's Senior Unsecured Debentures is equalized with CII's Issuer Rating, reflecting the lack of structural subordination between the operating subsidiary and CI.
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Investment Management Companies (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
23-Jun-20 Senior Unsecured Debentures Confirmed BBB (high) Neg CA
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
23-Jun-20 Issuer Rating Confirmed BBB (high) Neg CA
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