DBRS Confirms CPPIB and CPPIB Capital Inc. at AAA and R-1 (high)

DBRS has today confirmed the Issuer Rating of the Canadian Pension Plan Investment Board (CPPIB or the Fund), the non-agent federal Crown corporation responsible for managing the assets of the Canada Pension Plan (CPP), at AAA. The rating on the $10 billion U.S. and Canadian Short-Term Promissory Note programs of CPPIB Capital Inc., the financing subsidiary whose short-term debt programs are unconditionally guaranteed by the Fund, is also confirmed at R-1 (high). The trends on both ratings remain Stable, premised on a solid financial position, positive net contributions projected until 2020, a strong liquidity position and low recourse debt levels.

Despite the weak performance of public equity markets, CPPIB’s overall return in F2012 was sound at 6.6%, 200 basis points above the reference portfolio benchmark. Notable returns were generated for fixed income and inflation linked bonds, and as anticipated, investments in private market assets continued to drive performance. Recourse debt as a percentage of adjusted net assets stood at a modest 1.5% at year-end March 31, 2012. By the end of the first quarter, June 30, 2012, net assets were up by a further 2.6% to $165.8 billion, although returns were limited at 0.5% for the period.

DBRS notes that public markets may continue to be marred by an uncertain global economic outlook into 2013, particularly concerning is the tepid U.S. recovery, European debt woes and slowing growth in key emerging markets. As part of its ongoing strategy to become a “global investment organization,” CPPIB is expected to expand its holdings in emerging and foreign market investments and will continue to leverage its projected net cash flow position for the next nine years to invest in long-term illiquid assets (real estate and infrastructure), which have contributed heavily to absolute returns in recent years. Investments in long-term illiquid assets are made to the extent they meet CPPIB’s risk/return criteria. Commercial paper issuances are expected to rise steadily to fund short-term investments and may eventually reach the limit of $10 billion. CPPIB is further considering the option of opening a medium-term notes program; however, all recourse debt should remain under 10% of adjusted net assets going forward, the commensurate level for the rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Canadian Public Pension Funds & Related Exclusive Asset Managers (May 2012), which can be found on our website under Methodologies.