DBRS Comments on GMP Capital Investment in Richardson-GMP Acquisition

DBRS has today reviewed the impact of GMP Capital Inc.’s (GMP) planned incremental investment in Richardson-GMP as part of Richardson-GMP’s acquisition of Macquarie Private Wealth (MPW). There is no resulting change in GMP’s preferred share rating of Pfd-3 (low). The trend remains Negative.

Richardson-GMP, which is roughly one third owned by GMP, announced last night an agreement to purchase MPW for $132 million. Richardson-GMP will be issuing $60 million of preferred shares, half of which will be purchased by GMP, and $30 million of common shares of which GMP will purchase roughly $10 million. GMP will use existing cash resources to fund its net $40 million incremental investment in Richardson-GMP.

While Richardson-GMP has not been contributing much to GMP’s bottom line, it has been modestly profitable recently. With MPW adding nearly $13 billion in assets under administration to Richardson-GMP’s existing $15 billion, the incremental scale will improve Richardson-GMP’s profitability. DBRS views the private wealth business as a diversifying influence in GMP’s profitability profile, but this acquisition does not overcome the fundamental capital market weakness challenges which are the primary reason for the existing Negative trend.

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

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