DBRS Confirms OMERS & Related Ratings at AAA and R-1 (high)

DBRS has today confirmed the Issuer Rating of OMERS Administration Corporation (OMERS or the Fund) at AAA and the ratings on the long- and short-term guaranteed debt of OMERS’ financing subsidiaries at AAA and R-1 (high), respectively, based on the unconditional guarantee provided by OMERS to the debt instruments. The trends on all ratings remain Stable. Despite the large funding deficit in the OMERS Primary Pension Plan (the Plan), the ratings continue to benefit from a sizable liquidity position, a sound ratio of active-to-retired plan members, a low-recourse debt burden and a history of prudent management. The Series A Debentures and Series C Debentures of OMERS Realty Corporation were discontinued, as the debts have been repaid.

OMERS staved off persistent market volatility to deliver a solid 10.0% total fund return in 2012, surpassing its benchmark by 28 basis points. Private market assets once again led the way in both returns and value-add. The Fund has now surpassed its benchmark for the seventh time in ten years and has a ten-year average return notably above its long-term required rate of return, reflective of the efficacy of the Plan’s investment strategy. However, the Plan’s funding deficit widened further to $9.9 billion at year-end 2012, or 14.4% of accrued pension obligations, on a going-concern basis, despite net asset growth outpacing the rise in accrued pension obligations. 2012 marked the final year of the amortization of 2008 investment losses, which will relieve pressure on the funding position in future years. OMERS believes that recently implemented contribution rate increases and plan design changes, along with the ongoing evolution of its investment strategy, will help to gradually eliminate the funding deficit over the next ten to 15 years.

Total recourse debt rose slightly to $3.8 billion, but declined as a percentage of adjusted net assets to 6.0%, by year-end 2012. With no new recourse debt expected over the near-to-medium term, DBRS expects the Fund’s recourse leverage to remain below the limit of 10% of adjusted net assets, maintaining financial flexibility and commensurate with the rating level. The strategic plan approved in June 2012 will continue to push OMERS toward an asset mix exposure of 53% public markets and 47% private markets, increase internal asset management and source opportunities to drive assets under management higher. In 2012, a new multi-strategy program was introduced, through which OMERS will seek absolute returns by investing in multiple public market asset classes and by employing various investment strategies.

DBRS is encouraged by actions taken by the Plan’s Sponsors Corporation to address the long-term sustainability of the Plan. Additionally, DBRS believes that OMERS’ solid asset base, sound governance and risk management practices, global reach and ample liquid assets position it well to weather market shocks under stressed financial conditions and provide resilience to the credit profile.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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