Fitch Rates Brookfield Asset Management's Senior Unsecured Notes 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns a 'BBB' rating to Brookfield Asset Management's (BAM) $500 million 4.0% senior unsecured notes due 2025. The rating Outlook is Stable. Proceeds will be used for general corporate purposes.

KEY RATING DRIVERS

Positive:

--Diversified and stable revenue sources from a global investment portfolio;

--Underlying commercial real estate, power generation and infrastructure 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.

Negative:

--Structural subordination of the majority of BAM's cash flows to debt at the project level or subsidiary debt;

--High degree of leverage at the operating entities and parent leverage including preferred stock in the capital structure;

--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, power generation, and infrastructure 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, power generation and infrastructure sectors. The largest publicly traded investments, Brookfield Property Partners (BPY), Brookfield Infrastructure Partners, and Brookfield Renewable Energy provide recurring fees and distributions that provide substantial interest and asset coverage support to BAM's outstanding parent-level debt.

Through BPY and other interests, BAM is among the largest global real estate property operators with approximately $113 billion of assets under management consisting of over 340 million square feet of commercial, retail, and industrial space.

The corporate structure continues to evolve. In December 2014, BAM reached an agreement to acquire the publicly held 30.6% interest in Brookfield Residential Properties in a cash transaction valued at approximately $871 million payable to minority holders. In April 2013, BAM initiated the restructuring of its commercial real estate holdings through the creation of Brookfield Property Partners which will consolidate BAM's commercial real estate properties and its investments in General Growth Properties and Brookfield Office under one platform.

As a holding company with a portfolio of investments, rather than an operating company, Fitch analyzes recurring cash flows that are directly received by BAM in the form of dividends, distributions, and asset management fees against parent level debt and its debt service obligations. The resulting Adjusted Parent Only Cash Flow (APOCF, a non-GAAP or non-International Financial Reporting Standards measure) approximates $1.7 billion and produces a debt service coverage measure of approximately 4.5x in Fitch's models. APOCF to parent level debt is approximately 25%. Fitch expects coverage and leverage measures to remain stable at 4.5x and 30% as higher parent debt levels offset cash flows from new investments.

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.

RATING SENSITIVITIES

Positive: No positive rating actions are currently foreseen under the present corporate structure or risk profile.

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 high quality;

--A large debt financed acquisition.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Investment Holding Companies' (March 25, 2014);

--'Corporate Rating Methodology - Including Short Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Rating U.S. Equity REITs and REOCs (Sector Credit Factors)' (Feb. 26, 2014);

--'Investment Manager and Alternative Funds Criteria' (Dec. 12, 2013).

Applicable Criteria and Related Research:

Rating Investment Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=741159

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating U.S. Equity REITs and REOCs (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=737957

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725057

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=968835

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Contacts

Fitch Ratings
Primary Analyst
Glen Grabelsky
Managing Director
+1 212-908-0577
Fitch Ratings Inc.
33 Whitehall Street
New York NY 10004
or
Secondary Analyst
Steven Marks
Managing Director
+1 212-908-9161
or
Committee Chairperson
Michael Weaver
Managing Director
+1 312-368-3156
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Glen Grabelsky
Managing Director
+1 212-908-0577
Fitch Ratings Inc.
33 Whitehall Street
New York NY 10004
or
Secondary Analyst
Steven Marks
Managing Director
+1 212-908-9161
or
Committee Chairperson
Michael Weaver
Managing Director
+1 312-368-3156
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com