DBRS Confirms the Caisse at AAA and CDP Financial Inc. at AAA and R-1 (high)

DBRS Limited (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. The ratings are supported by the Caisse’s exclusive investment mandates with its largest depositors, its low recourse debt burden, large base of unencumbered assets and substantial liquidity position.

The Caisse delivered a total investment return of 13.1% in 2013, exceeding its benchmark by 50 basis points. Strong equity market performance and steady double-digit returns from illiquid assets were large contributors to returns and helped to offset weakness in fixed income portfolios. Net assets rose by 13.6% to $200.1 billion at year-end 2013, supported by a sizeable increase in investment and continued net contribution inflows. Financial markets maintained their momentum through the first half of 2014. The Caisse generated a 6.7% total investment return, and net assets totalled $214.7 billion at June 30, 2014. However, financial market volatility has picked up in the second half of the year, as the investment climate has become more challenging.

Debt with recourse to the Caisse rose by 5.5% to $9.8 billion, representing 4.7% of adjusted net assets, at year-end 2013, as issuance under the USD commercial paper (CP) program rose. In July 2014, CDP Financial Inc. issued a ten-year USD 2 billion Senior Notes with net proceeds used to redeem term notes that matured in November 2014. CP outstanding has increased thus far in 2014. As such, DBRS expects that the Caisse’s recourse debt burden will likely tick up slightly by year-end 2014, though recourse leverage is expected to remain notably lower than the internal limit of 10% of net adjusted assets for the foreseeable future, which is commensurate with the current ratings. Liquidity remained substantial with highly liquid assets, as measured by DBRS, exceeding $45 billion throughout 2013 and into 2014. This level is well above DBRS’s requirement of 1.5 times the size of the aggregate CP program limit, which is illustrative of the Caisse’s considerable financial flexibility.

While global risks have moderated, global economic growth remains fragile outside of the U.S., and the prospect of divergent monetary policy globally and heightened geopolitical risks are likely to lead to more subdued investment returns than have been seen over the past two years. Nevertheless, the Caisse’s long-term investment horizon, scale and revised investment strategy, which focuses on absolute return strategies, the use of less complex instruments, investments in private market assets and an actively managed emerging markets approach, position it well to generate returns in line with depositors’ expectations and continue to grow its assets base.

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 methodologies are Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (May 2014), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014) and DBRS Criteria: Guarantees and Other Forms for Explicit Support (May 2014), which can be found on our website under Methodologies.

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