NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned 'BBB' ratings to Brookfield Asset Management Inc.'s (BAM) C$425 million aggregate principal amount of debt debt securities consisting of C$300 million of Medium Term Notes due March 2024 and C$125 million of 5.95% debentures due June 2035.
The Rating Outlook is Stable.
Debt proceeds will be used to repay obligations. In August 2013, BAM negotiated a settlement to terminate two related 25-year swap agreements for a lump sum payment of $905 million to the counterparty.
Key Positive Rating Drivers
-- Diversified and stable revenue sources from a global investment portfolio;
-- Underlying commercial real estate and power generation assets are individually cash flow producing enhancing liquidity;
-- Enhanced financial flexibility from holding company structure with key subsidiaries publicly-listed and maintaining direct access to capital.
Key Negative Rating Drivers
-- Structural subordination of BAM's cash flows to debt at the project level or subsidiary debt;
-- High degree of leverage at the operating entities;
-- Opportunistic value oriented investment strategy can alter the risk profile.
BAM is a holding company that through majority-owned or controlled operating subsidiaries owns a diversified business portfolio, principally commercial real estate and power generation assets, which provide a stable stream of earnings and cash flows. BAM also derives a stable and recurring revenue stream from its asset management business.
BAM's credit profile is supported by the equity values of BAM's subsidiaries, the largest of which are publicly traded, as well as substantial dividends or distributions from its subsidiaries and investments which are concentrated in the real estate and power generation sectors. The largest publicly traded investments, Brookfield Property Partners, Brookfield Infrastructure Partners, and Brookfield Renewable Energy provide substantial interest and asset coverage to BAM's outstanding parent-level debt.
In April 2013, BAM completed the restructuring of its commercial real estate holdings through the creation of Brookfield Property Partners which now owns substantially all of BAM's commercial real estate properties and its investments in General Growth Properties and Brookfield Office.
As a holding company with a portfolio of investments, rather than an operating company, Fitch analyzes recurring cash flows that directly accrue to BAM in the form of dividends, distributions, and asset management fees of approximately against parent level debt. The resulting Adjusted Parent Only Cash Flow (APOCF, a non-GAAP or non-International Financial Reporting Standards measure) approximates $1.1 billion and produces a debt service coverage measure of approximately 4.5x in Fitch's models. APOCF to parent level debt is approximates 24%. As recent investments mature, Fitch expects coverage measures to improve to between 4.5x and 5.0x through 2015 and leverage to improve slightly to between 25% to 27%.
Liquidity is strong. BAM maintains $2.2 billion in unsecured credit facilities with a consortium of banks and debt maturities are manageable. BAM derives considerable liquidity and financial flexibility from its strategic investments and diversified investments.
The holding company structure, with its primary assets held in several majority-owned publicly listed companies, enhances BAM's financial flexibility in managing the capital structures of its operating subsidiaries but also subordinates its cash flow, which will now be primarily derived from dividends and distributions. BAM also receives management fees based on asset valuations of its core operating subsidiaries, which Fitch considers a stable source of income as well as performance-based incentive distributions.
The holding company structure also protects BAM from the legal risks of its subsidiaries and parental guarantees or other contingent supports are limited. Additionally, there are no cross default provisions between subsidiaries or between the parent and subsidiaries.
Positive: No positive rating actions are currently foreseen.
Negative: Future developments that may individually or collectively lead to a negative rating action include:
-- A change in the risk profile of BAM's real estate and power assets which are generally considered to be of very quality;
-- A large debt financed acquisition.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
-- Corporate Rating Methodology, Aug. 8, 2012;
-- Parent and Subsidiary Linkage, August 8, 2012;
-- Criteria For Rating U.S. Equity REITs and REOCs, Feb. 26, 2013;
-- Investment Manager and Alternative Funds Criteria, Dec. 17, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
Criteria for Rating U.S. Equity REITs and REOCs
Investment Manager and Alternative Funds Criteria