DBRS Comments on the Acquisition of Reliance by Cheung Kong Property Holdings Limited

DBRS Limited (DBRS) today notes that Reliance LP (rated BBB (low) with a Stable trend by DBRS) and Reliance Intermediate Holdings LP (rated BB with a Stable trend by DBRS; together, Reliance or the Companies) have announced that Cheung Kong Property Holdings Limited has entered into a definitive agreement to acquire the Companies for $2.82 billion from Alinda Capital Partners (the Transaction). The Transaction is subject to approval under the Investment Canada Act and the Competition Act. DBRS notes that as part of the Transaction, there will be no incremental debt from Reliance, and the Companies will continue to be based in Ontario with the same management teams. As such, DBRS does not expect any material changes to the operations of Reliance as a result of the Transaction. Additionally, DBRS views the Companies on a stand-alone basis from its owner as (1) Reliance does not require any equity injections from its owners and (2) dividend payments are discretionary and could be curtailed if necessary. DBRS will continue to monitor the Transaction and will provide an update if there are any material changes to the Companies.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Consumer Products Industry (September 2016) and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries (December 2016), which can be found on dbrs.com under Methodologies. However, DBRS views Reliance’s strong franchise as having a superior business risk profile than that of a traditional consumer products company. As a result, the Companies are able to manage higher leverage metrics.

Overall, in DBRS’s assessment of the credit quality of Reliance, DBRS factors in the following key items: (1) competition arising from regulatory changes, (2) effects of attrition on the customer base, (3) stability of cash flow generated from the customer base, (4) flexibility to increase rental rates and (5) dependency on new home developments for growth.