DBRS Maintains GMP Capital Inc.’s Under Review with Developing Implications Status

DBRS Limited (DBRS) announced that the Under Review with Developing Implications status has been maintained for GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares at Pfd-4 (high). The rating was put Under Review with Developing Implications on June 18, 2019, following the announcement that GMP had agreed to sell substantially all of its capital markets business to Stifel Financial Corp. (Stifel).

On June 17, 2019, GMP announced that it was selling substantially all of its capital markets business to Stifel for a cash consideration of tangible book value of the business plus $45 million, subject to adjustment and pending shareholder and regulatory approval. It was later announced that Harris Fricker, then Chief Executive Officer (CEO) of GMP, and other key personnel agreed to join Stifel. On August 6, 2019, the majority of shareholders voted to approve the sale during a special meeting.

Furthermore, under the leadership of Interim President and CEO, Kish Kapoor, the Company announced that it is in discussions to consolidate the ownership of Richardson GMP. Richardson GMP is the Company’s wealth management joint venture in Canada, which will become a wholly owned subsidiary and the cornerstone of GMP’s business upon closing this second transaction. The acquisition will only take place once the capital markets business transaction closes and is also subject to separate shareholder and regulatory approval.

KEY RATING CONSIDERATIONS
The continuation of the review period takes into consideration that the future ownership and structure of GMP is still contingent upon the transactions successfully closing. The transactions are awaiting regulatory approval, with the first transaction (sale to Stifel) expected to close in the fourth quarter of 2019. While certain assets and liabilities will transfer to Stifel with the capital markets businesses divestiture, the Cumulative Preferred Shares rated by DBRS will remain with GMP.

DBRS will assess GMP’s pro forma structure at the close of the transactions, including the assets and liabilities remaining with GMP, and the Company’s ownership, as well as the Company’s future strategic direction and management’s ability to execute on this plan.

RATING DRIVERS
The rating could be upgraded if GMP’s franchise prospects and its pro forma financials post-transactions are deemed to be stronger as a result of shedding the capital markets businesses, which have been highly volatile and loss-making.

The rating could be downgraded if the transactions fail to be completed as proposed — including if GMP is not able to acquire majority control of Richardson GMP, which might limit its wealth management growth strategy — or if GMP’s credit fundamentals post-transaction are deemed to be weaker.

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

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 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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