DBRS Confirms OMERS and Related Ratings at AAA and R-1 (high), Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating of OMERS Administration Corporation (OMERS or the Fund) at AAA, the Series D Debentures (guaranteed) rating of OMERS Realty Corporation (ORC) at AAA and the Commercial Paper (CP) rating of OMERS Finance Trust at R-1 (high). The trends on all ratings remain Stable. DBRS notes that the ratings on the Series D Debentures and the CP are predicated on the unconditional and irrevocable guarantees provided by OMERS on issuances. Despite the funding deficit in the OMERS Primary Pension Plan (the Plan), the ratings continue to be supported by the Fund’s high level of assets, low recourse-debt burden, large base of financially sound employers and healthy demographic profile, which result in sustained net contribution inflows.

OMERS delivered a 7.3% gross total fund return (6.7% net return) in 2015, underperforming its benchmark by 135 basis point as strong private market returns were offset by weak returns in the public market portfolio. The public market portfolio generated only a 0.7% net return compared with private market assets, which collectively returned 14.5% in 2015, stronger than the prior year. Net investment income of $4.8 billion and net contribution inflows drove net assets to $76.7 billion by December 31, 2015 (excluding the Retirement Compensation Arrangement and the Additional Voluntary Contributions component). This increase helped to slightly reduce the Plan’s funding deficit to $7.0 billion as of YE2015 on a going-concern basis; the Plan is on track to be fully funded by 2025.

Higher outstanding CP increased debt with recourse to the Fund to $4.2 billion from $3.6 billion, or 5.2% of adjusted net assets by YE2015, comfortably below the internal 10.0% limit set by management. Current recourse-debt levels remain commensurate with the assigned ratings and add financial flexibility. While overall leverage is expected to increase as the Fund broadens its global reach in private market assets and seeks to capitalize on the low interest-rate environment, DBRS expects recourse debt to grow in a more measured fashion.

The long-term asset-mix strategy remains unchanged at 53% public market assets and 47% private market investments as of December 31, 2015. OMERS has experienced considerable transition over the past few years. There have been several notable changes at the senior management level as well as portfolio restructurings and investment team consolidation. In 2015, OMERS Administration Corporation and OMERS Sponsors Corporation developed a new joint strategy for the next five years (covering the 2016 to 2020 period), which addresses aging plan members and an uncertain investment climate. The strategy focuses on becoming fully funded by 2025; improving member, employer and stakeholder satisfaction; and managing expenses and costs per member.

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 Public Pension Funds & Related Exclusive Asset Managers, DBRS Criteria: Guarantees and Other Forms of Explicit Support and DBRS Criteria: Commercial Paper Liquidity for Non-Bank Financial Issuers, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.