DBRS Confirms the Caisse at AAA and CDP Financial Inc. at AAA and R-1 (high), and Rates CDP Financial Inc. U.S. Commercial Paper Program at R-1 (high)

DBRS has today confirmed the Issuer Rating of the Caisse de dépôt et placement du Québec (the Caisse) at AAA. DBRS has also confirmed CDP Financial Inc.’s Long-Term Debt and Commercial Paper ratings at AAA and R-1 (high), respectively, based on the unconditional guarantee provided by the Caisse. The trends on all ratings remain Stable. Concurrently, DBRS has assigned a rating of R-1 (high) with a Stable trend to the new USD 5 billion Commercial Paper program of CDP Financial Inc., the financing subsidiary of the Caisse. Similar to the existing commercial paper program, the notes to be issued under the new program will be unconditionally and irrevocably guaranteed by the Caisse and will rank pari passu with all other unsecured and unsubordinated obligations of CDP Financial Inc.

The ratings reflect the combination of the Caisse’s exclusive investment mandates with its largest depositors, considerable unencumbered assets under management, low recourse debt burden, substantial liquidity and the continued independence of the Caisse to manage its affairs, devoid of interference from the government.

The Caisse generated a total portfolio return of 9.6% in 2012, up from 4.0% in 2011 and 30 basis points better than the benchmark, as equity markets continued their ascent. All but one of the Caisse’s specialized portfolios posted a positive return for the year. As a result, net assets climbed to $176.2 billion as at December 31, 2012, up by 10.8% year-over-year, driven by $14.9 billion in investment results and $2.3 billion in net depositor contributions. The total depositor count stood at 30 as of June 30, 2013. Through the first six months of 2013, the Caisse delivered a 4.5% investment return, outperforming its benchmark by 30 basis points, helping to push net assets to $185.9 billion as at June 30, 2013. DBRS notes that, as an exclusive asset manager, the Caisse has no direct responsibility for the obligations faced by the depositors in relation to the benefits owed to their members, which greatly reduces the volatility of the Caisse’s net asset position.

After a modest increase in 2011, investment-related liabilities were 19.5% higher in 2012, primarily due to increased short selling of securities and a sharp rise in repos usage, which offset declines in derivatives. However, recourse debt issued by CDP Financial Inc. was unchanged during the year at $9.3 billion, bringing recourse leverage to a relatively low 5.0% of adjusted net assets at December 31, 2012. This remains well within the Caisse’s limit of 10%, a level that DBRS views as adequate for the AAA rating, and provides considerable financial flexibility. No term debt has been issued in 2013, and commercial paper outstanding remained at $1 billion. Liquidity remained sizable throughout 2012 and into 2013, with high-quality liquid assets, as measured by DBRS, remaining consistently above $38 billion and well in excess of the DBRS requirement of 1.5 times the commercial paper program limit.

The limit on the new U.S. commercial paper program is set at USD 5 billion. The current limit on the multi-currency and Canadian commercial paper program will be scaled back from $7 billion to $3 billion. Similar to the existing commercial paper program, the new program will be used by CDP Financial Inc. to originate loans to the Caisse to finance short-term investment activities. The new program will also enhance funding flexibility and provide the opportunity for better asset-liability currency matching. The Caisse has indicated that it expects total recourse debt to remain below the limit of 10% of net assets in the years ahead, which is commensurate with the current ratings.

Notes:
All figures are in Canadian 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, which can be found on our website under Methodologies.

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