DBRS Places GMP Capital Inc.'s Preferred Share Rating Under Review with Developing Implications Following Capital Markets Business Sale Announcement

DBRS, Inc. (DBRS) placed GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares rating of Pfd-4 (high) Under Review with Developing Implications. The rating action follows the announcement that GMP has agreed to sell substantially all of its capital markets business to Stifel Financial Corp. (Stifel).

KEY RATING CONSIDERATIONS
The Under Review with Developing Implications status reflects uncertainty surrounding the transaction, including shareholder and regulatory approval that are still required for the transaction to close as well as other strategic initiatives that are occurring in tandem. While certain assets and liabilities will transfer to Stifel with the capital markets business divestiture, the Cumulative Preferred Shares rated by DBRS will remain with GMP.

The Company also announced that it is in discussions to acquire 100% of Richardson GMP, its wealth management joint venture in Canada. GMP’s divestiture of most of its capital markets business to Stifel should result in excess working capital to accelerate the wealth management growth strategy.

The GMP shareholder vote is expected to occur in August 2019 and the Stifel transaction is expected to close in the second half of 2019 (H2 2019). DBRS expects to conclude the Under Review period in H2 2019 upon the close of the transaction.

RATING DRIVERS
DBRS will assess GMP’s pro-forma structure at the close of the transaction, including the remaining assets and liabilities as well as the Company’s future strategic direction and management’s ability to execute on this plan. DBRS notes that Harris Fricker, Chief Executive Officer of GMP, and other key personnel have agreed to join Stifel.

The rating could be upgraded if GMP’s pro-forma financials post-transaction are deemed to be stronger as a result of shedding the capital markets business, which has been highly volatile and loss-making. The rating could be downgraded if GMP’s credit fundamentals post-transaction are deemed to be weaker or if GMP is not able to acquire majority control of Richardson GMP, limiting its wealth management growth strategy.

Notes:
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2019) and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2018), which can be found on our website under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

For more information on this credit or on this industry, visit www.dbrs.com.

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