DBRS Confirms CPPIB and CPPIB Capital Inc. at AAA and R-1 (high)

DBRS Limited (DBRS) has today confirmed the AAA Issuer Rating of the Canada Pension Plan Investment Board (CPPIB or the Fund), the non-agent federal Crown corporation responsible for managing the assets of the Canada Pension Plan (CPP or the Plan). The R-1 (high) ratings on the Short-Term Promissory Notes (Canadian Notes) and Commercial Paper Notes (U.S. Notes) programs of CPPIB Capital Inc. are also confirmed. The trends on all ratings remain Stable. DBRS notes that the ratings on the short-term notes programs are predicated on the unconditional guarantees provided by the CPPIB on issuances. Furthermore, the strong ratings are primarily reflective of CPPIB’s exclusive legislated mandate to manage CPP assets, its robust liquidity position, its low recourse debt burden and the strong fundamentals of the CPP.

CPPIB generated an 8.4% total portfolio return through the first nine months of F2015. This is on the back of a very strong 16.5% return in F2014, the second highest annual return achieved since the Fund’s inception. Strong investment income and sizable net contribution inflows drove net assets to $238.8 billion by December 31, 2014, up from $219.1 billion at fiscal year-end 2014, making it one of Canada’s largest pension fund managers. Recourse debt, which consisted solely of commercial paper (CP) outstanding, ended Q3 F2015 at $9.7 billion, or 3.9% of adjusted net assets, down from 4.2% just nine months earlier. DBRS notes that in early 2015, the Fund increased the authorized limit of CP issuance through the two programs to an aggregate principal amount of $15 billion, up from $10 billion, with the majority of new issuance expected in the much deeper U.S. CP market. Combined with new term debt issuance expected sometime in F2016, DBRS expects that recourse leverage will increase over the near term. However, overall recourse debt is expected to remain well below 10% of adjusted net assets, which provides considerable room for cyclical fluctuations in asset values.

The Fund’s liquidity position remains sound, with highly liquid assets, as defined by DBRS, of over $26 billion as of March 31, 2015, which is above 1.5 times the Fund’s new authorized CP limit and provides considerable financial flexibility. CPPIB is revisiting its investment strategy to reflect the findings of the latest actuarial valuation, which will likely result in changes to the Fund’s asset composition in the years ahead in light of relatively robust projected cash inflows and a long investment horizon, which enable CPPIB to absorb greater short-term risk and market volatility 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 methodologies are Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (May 2014). Applicable criteria are Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015) and Guarantees and Other Forms of Explicit Support (February 2015), which can be found on our website under Methodologies.

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