DBRS Confirms Ratings of Brookfield Asset Management Inc.

DBRS Limited (DBRS) has today confirmed the ratings and Stable trend of Brookfield Asset Management Inc. (BAM or the Company) and its subsidiaries as listed below. The confirmation reflects BAM’s increasingly predictable company-level cash flows as its corporate reorganization is nearly complete. DBRS expects the Company to generate an increasing proportion of its cash flows from asset management fees that are fixed or based primarily on the sizes committed investors’ capital and distribution from its flagship companies.

Performance in 2015 has improved despite softer global economic conditions and weak commodity prices, because of the contracted or regulated nature of a significant portion of revenue from operating assets, full-year fee contribution from flagship companies and funds established in 2014 and continued growth in fee-based capital. In addition, BAM’s property segment benefited from continued improvement in occupancy and in-place rents, while strong growth in the utility segment of BAM’s infrastructure business supported increase in funds from operation (FFO). BAM defines FFO as “net income before fair value changes, depreciation and amortization, and deferred income taxes, and BAM’s proportionate share of FFO in its equity accounted investments”. FFO increased by 8% in 2015 to $1.72 billion (excluding disposition gains and after corporate expenses) despite the adverse translation effect of cash flow from its non-U.S. operating assets. DBRS understands that cash flow distributed to BAM in fees, dividends and divestment proceeds consistently amount to 70% to 80% of FFO in recent years.

BAM’s financial metrics have improved further in 2015 as FFO-to-debt improved further to 44% from 39% in 2014, while FFO interest coverage expanded to 8.7 times (x) from 7.9x. On an adjusted basis, these metrics in 2015 were 36% and 7.8x respectively. The adjustments are made in accordance with DBRS’s Preferred Share and Hybrid Criteria for Corporate Issuers, published on January 4, 2016. DBRS assesses that company-level liquidity has remained strong, supported by ample cash and credit availability, a demonstrated ability to access capital markets and to monetize its listed assets (with total market capitalization providing 5.5x coverage of company-level debt).

The Stable trend reflects DBRS’s view that the improved financial metrics now place BAM more comfortably with the levels expected for its ratings. These levels, as indicated in previous rating reports, include company-level FFO-to-debt to exceed 35% (30% on an adjusted basis) and FFO interest coverage of more than 5.5x (5.0x on adjusted basis). The rating continues to reflect DBRS expectation 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 indicated.

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 DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Financial Issuers; DBRS Criteria: Guarantees and Other Forms of 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.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen.