NEW YORK--(BUSINESS WIRE)--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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.