DBRS Assigns Provisional Rating of AAA to PSP Capital Inc.’s Term Notes

DBRS has today assigned provisional ratings of AAA with Stable trends to each of the proposed Series 6 Floating Rate Notes maturing on April 4, 2016, and Series 7 Fixed Rate Notes maturing on April 4, 2024, being issued by PSP Capital Inc. (PSP Capital). The combined aggregate principal amount of the issuances is $700 million. PSP Capital is a wholly owned subsidiary and principal financing vehicle of the Public Sector Pension Investment Board (PSPIB or the Fund), which unconditionally and irrevocably guarantees the Notes. Net proceeds will be used to repay maturing commercial paper.

To DBRS’s knowledge, no material developments have occurred since the most recent rating review of PSPIB and PSP Capital was concluded on December 20, 2013. Since the end of fiscal 2013, nearly all major equity market indices have strengthened further through April 2014, despite some weakness in the early months of 2014. Owing to its higher equities exposure, DBRS expects PSPIB to deliver another solid investment return for fiscal 2014, though some weakness in key emerging market and fixed income indices could dampen results somewhat. As such, net assets are expected to finish fiscal 2014 well above the $76.1 billion recorded as at March 31, 2013, further supported by continued net contribution inflows.

Even with the Series 6 Notes and Series 7 Notes issuances, DBRS expects recourse leverage to remain below 8% of adjusted net assets, which is well within the Fund’s internal limit of 10%. This level remains consistent with other DBRS-rated pension fund managers, and provides resilience to the credit profile. The Fund’s liquidity position remains robust, with highly liquid assets, as defined by DBRS, exceeding $15 billion as at February 28, 2014, which adds considerable financial flexibility. Bolstering this further is the expectation that the Fund will continue to receive net contribution inflows for at least the next 15 years, a favourable position relative to its peers.

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, which can be found on our website under Methodologies.

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