DBRS Rates PSP Capital Inc.’s U.S. Short-Term Promissory Notes

DBRS has today assigned a rating of R-1 (high) with a Stable trend to the new U.S. Short-Term Promissory Notes (commercial paper or CP) program of US$3 billion of PSP Capital Inc. (the Issuer), the financing subsidiary of Public Sector Pension Investment Board (PSPIB or the Fund). The Notes will be unconditionally and irrevocably guaranteed by PSPIB and will rank pari passu with all other unsecured and unsubordinated obligations of the Issuer. The limit on the program is currently set at US$3 billion, consistent with the limit on the Canadian program, though the Fund expects to maintain total CP outstanding well below these board-approved limits. The new program will be used by the Issuer to originate loans to PSPIB to finance investment activities, particularly in real estate and infrastructure. DBRS also notes that the Fund recently increased its overall internal limit on total recourse debt from 7.5% to 10% of adjusted net assets, which is consistent with other issuers in the sector and remains commensurate with the rating.

For the first six months of fiscal year-end 2013, the Fund generated an overall return of 2.1%, driven primarily by gains in private asset classes, which helped to offset soft public equity returns amid weakness in global markets. The net asset position grew by a further 6% to $68.1 billion as of September 30, 2012, on a combination of investment gains and sizeable net contributions from the four pension plan depositors. DBRS expects recourse leverage to rise modestly during the course of FY2013. No long-term debt was issued in the fiscal year to date, but CP outstanding is believed to have grown moderately. DBRS expects the combined balance of the CP programs will be approximately $2 billion by fiscal year-end 2013. Recourse debt is expected to continue to climb slowly over the medium term as the Fund expands its activities in private market asset classes.

The Fund maintains a robust liquidity position with highly liquid assets, as defined by DBRS, greater than $13 billion over the past year, well in excess of DBRS’s liquidity requirement, which further highlights PSPIB’s substantial financial flexibility.

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 Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (May 2012) and Commercial Paper Liquidity Support Criteria for Corporate Non-Bank Issuers (November 2012), which can be found on our website under Methodologies.