DBRS Confirms Brookfield Asset Management Inc. Ratings

DBRS Limited (DBRS) has today confirmed the ratings and Stable trend of Brookfield Asset Management Inc. (BAM or the Company) as indicated in the table below. The confirmation reflects the increasing contribution of predictable fee-based revenue to the Company following its corporate reorganization and that BAM’s core business segments have performed in line with expectation. Performance in 2014 was supported by (1) average hydrology on an enlarged capacity in the renewable energy segment, (2) improving in-place rents and occupancy rates in office properties and strong retail properties demand in the United States and (3) increased contribution from assets recently commissioned or acquired in the infrastructure segment. With its reorganization completed, DBRS expects such fees (a large proportion of which are fixed or based on sizes of fee-bearing assets) to be predictable and to increasingly contribute to company-level cash flows.

With only a moderate increase in company-level borrowings, BAM’s financial metrics remain consistent with levels DBRS expects for its ratings. Despite issuances of debt and preferred shares in 2014, company-level debt increased only modestly by about $100 million, thanks largely to the favourable exchange rate effect of a weakened Canadian dollar against the U.S. dollar, the Company’s reporting currency.

BAM defines “Funds From Operations” (FFO) as “net income prior to fair value changes, depreciation and amortization, and deferred income taxes, and BAM’s proportionate share of FFO in its equity accounted investments”. DBRS understands that cash flow distributed to BAM in fees, dividends and divestment proceeds has amounted to approximately 70% to 80% of FFO (as adjusted by DBRS to exclude non-recurring items and disposition gains) in recent years. Company-level FFO-to-debt improved modestly to 39% in 2014 from 38% in 2013, while FFO interest coverage recorded a larger improvement to 7.9 times (x) from 6.0x, as BAM refinanced maturing debt with lower-cost debt issues. On an adjusted basis, FFO-to-debt in 2014 was 33% and FFO interest coverage was 7.0x. The adjustments are in accordance with DBRS’s Preferred Share and Hybrid Criteria for Corporate Issuers, published on January 21, 2015. DBRS assesses that company-level liquidity remains strong, supported by ample cash and credit availability, a demonstrated ability to access capital markets and an ability to monetize its listed assets (with total market capitalization providing 5.5x coverage of company-level debt).

To maintain the ratings, DBRS expects BAM to maintain its company-level FFO-to-debt to at least 35% (30% on an adjusted basis) and FFO interest coverage in excess of 5.5x (5.0x on adjusted basis). In addition, DBRS expects that the Company’s business risk profiles would not materially deteriorate because of significant investments in higher-risk businesses, that cash distribution to BAM will remain at similar proportion to its annual FFO and that company-level liquidity will remain strong.

Notes:
All figures are in U.S. 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.

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

The applicable methodologies are DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, DBRS Criteria: Guarantees and Other Forms of Explicit Support, Preferred Share and Hybrid Criteria for Corporate Issuers, Rating Companies in the Independent Power Producer Industry, Rating Companies in the Pipeline and Diversified Energy Industry, Rating Companies in the Railway Industry, Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, Rating Container Terminal Operators, Rating Entities in the Real Estate Industry and Rating Holding Companies and Their Subsidiaries which can be found on our website under Methodologies.