DBRS Confirms Brookfield Investments at Pfd-2 (low)

DBRS has today confirmed the rating of Pfd-2 (low) with a Stable trend for the Senior Preferred Shares of Brookfield Investments Corporation (Brookfield Investments or the Company) following the Company’s announcement to transfer its indirect 15% interest in The Canary Wharf Group (CWG) to Brookfield Europe L.P. (BELP). In exchange, the Company will receive a limited partnership interest of approximately 42% in BELP representing a market value of $588 million and cash proceeds in the amount of $196 million (the Transaction).

The Transaction is part of an initiative by the Company’s parent, Brookfield Asset Management Inc. (BAM), to reorganize all of its European and Middle Eastern holdings under one corporate entity, BELP. Going forward, BELP will own and operate all of BAM’s European assets, currently comprised of Canary Wharf, 20 Canada Square, a portfolio of development properties and cash/financial assets. In addition to this, BELP’s operations will consist of four divisions: commercial property; infrastructure; construction and development; and asset management.

Overall, DBRS views the Transaction as a rating neutral event for Brookfield Investments and the rating confirmation takes into consideration the following:

(1) Although BELP’s assets are mainly domiciled in the United Kingdom, the Transaction provides some additional diversification of real estate investments and modestly reduces the Company’s exposure to CWG’s investments in a large real estate holding in London, England. DBRS notes, however, that Brookfield Investments will continue to have a considerable investment in CWG through the ownership of its BELP interest.

(2) The Transaction is expected to provide cash flow levels and asset coverage that are sufficient to support the Pfd-2 (low) rating. DBRS estimates pro forma asset coverage for the Senior Preferred Shares of 8.26 times (based on public share values as at December 1, 2008) and Senior Preferred dividend coverage of 2.95 times. These metrics also reflect the recent declines in market values across the Company’s investments and the suspension of Norbord’s dividend, which DBRS had factored into the current rating in its last review of Brookfield Investments (see DBRS press release dated April 18, 2008). Going forward, DBRS expects these metrics to recover given the quality of the underlying investments, and believes cash on hand and loans receivable from Brookfield Asset Management totalling $238 million provide additional liquidity and support to asset coverage metrics.

The current rating is also supported by the following: (1) Brookfield Investments’ senior debt not exceeding 10% of the market value of Brookfield Investments’ portfolio; (2) No dividends being paid on the Brookfield Investments common shares unless, after giving effect to such dividend, the asset coverage for the Brookfield Investments Senior Preferred Shares would be at least three times. Excess cash flows beyond the Senior Preferred Shares are available to Brookfield Investments as sole holder of the Junior Preferred Shares and as sole common shareholder. The Junior Preferred Shares rank subordinate to the Senior Preferred Shares with respect to the payment of dividends and the Senior Preferred Shares are entitled to receive quarterly fixed, non-cumulative dividends equal to $0.31 per share.

The challenges to the rating include: (a) 50% of the value of the underlying shares is unlisted and may be illiquid. Upon retraction by the holder, the principal amount of Senior Preferred Shares may be repaid by liquidating the assets, which may have an impact on the realized value of Portfolio Shares; (b) there are no restrictions on the contents of the underlying portfolio and volatile market conditions could cause significant reductions in the net asset value of the Portfolio Shares (especially common shares).

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Real Estate which can be found on our website under Methodologies.

This is a Corporate rating.