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

DBRS Limited (DBRS Morningstar) maintained its Under Review with Developing Implications status on GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares rating of Pfd-4 (high). DBRS Morningstar initially put GMP’s rating Under Review with Developing Implications on June 18, 2019, following the Company’s announcement that it had agreed to sell substantially all of its capital markets business to Stifel Financial Corp. DBRS Morningstar first maintained its Under Review status on September 18, 2019, as the sale transaction had yet to close, then again on December 17, 2019, as the Company was still in discussions with Richardson Financial Group Limited (RFGL) to consolidate full ownership of Richardson GMP Limited (Richardson GMP).

On February 26, 2020, GMP announced that it had entered into a nonbinding term sheet with RFGL to consolidate the ownership of Richardson GMP. Under the terms of the transaction, GMP will acquire all common shares of Richardson GMP that it does not already own (65.5% stake) for a purchase price of two common GMP shares per one common Richardson GMP share. RBC Capital Markets, LLC (RBC) was retained in Q4 2019 to prepare a formal valuation of Richardson GMP common shares and recently concluded that these common shares carry a value of between $4.25 and $5.15 per share while GMP common shares carry a value of between $2.20 and $2.90 per share on an en bloc basis.

As a result, GMP had called a special meeting of common shareholders on April 21, 2020, to approve the consolidation. Upon closing, RFGL would own approximately 39.7% of GMP’s common shares. The DBRS Morningstar-rated Cumulative Preferred Shares would remain with the consolidated entity. However, in light of concerns over the Coronavirus Disease (COVID-19), GMP has postponed the special meeting. In the interim, the parties involved—GMP, RFGL, and the Richardson GMP investment advisors—continue to work toward entering into a definitive agreement, but without any assurances about the outcome of these discussions.

KEY RATING CONSIDERATIONS
The continued Under Review period considers that the consolidation of GMP with Richardson GMP has yet to be finalized. DBRS Morningstar will assess GMP’s pro forma structure once it consolidates full ownership of Richardson GMP. This assessment will review the Company’s assets and liabilities composition, ownership, future strategic direction, and management’s ability to execute on this plan.

RATING DRIVERS
DBRS Morningstar could upgrade the rating on GMP if the Company’s franchise prospects and post-transaction pro forma financials are deemed to be stronger with the consolidation of Richardson GMP. Conversely, DBRS Morningstar could downgrade the rating if GMP’s credit fundamentals weaken.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 Morningstar 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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