DBRS Morningstar Confirms CPP Investments at AAA and CPPIB Capital Inc. at AAA, R-1 (high)

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Canada Pension Plan Investment Board (CPP Investments or the Fund) at AAA. CPP Investments is the federal nonagent Crown corporation responsible for managing the assets of the Canada Pension Plan (CPP). DBRS Morningstar also confirmed CPPIB Capital Inc.’s Canadian Short-Term Promissory Notes, U.S. Commercial Paper Notes, and Euro Commercial Paper Notes programs at R-1 (high) and CPPIB Capital Inc.’s Medium-Term Notes at AAA. All trends remain Stable. DBRS Morningstar notes that the ratings on the short-term notes programs and long-term notes are predicated on the unconditional guarantees provided by CPP Investments on issuances. Furthermore, the strong ratings are primarily reflective of CPP Investments’s exclusive legislated mandate to manage CPP assets (including the legislative protection entitling the Fund to maintain an amount at least equal to the fair market value of CPP Investments’ assets less its liabilities at any given time), its robust liquidity position, its low recourse debt burden, and the strong fundamentals of the CPP.

In December 2016, the Canada Pension Plan Act (the CPP Act), the Canada Pension Plan Investment Board Act (the CPPIB Act), and the Income Tax Act were amended to increase the amount of retirement pensions and benefits that will be paid from contributions made after 2018. Starting in January 2019, CPP Investments received and invested its first transfer of funds for the additional CPP. Although all assets are held by the Fund, contributions, benefits, and assets for the additional CPP will be accounted for separately from the base CPP. Investment returns and benefits from the contributions made at the rates established before 2018 are managed through the base CPP account, while investment returns and benefits stemming from the increased contributions are managed through the additional CPP account.

The total fund earned a net return of 3.1% in F2020, outperforming the reference portfolio’s return of -3.1% by 6.2%. The Fund generated net income of $12.1 billion, which, combined with the $5.5 billion in net contributions received, increased the Fund’s assets to $409.6 billion, corresponding to $407.3 billion in base CPP and $2.3 billion in additional CPP.

Recourse debt, consisting of commercial paper (CP) outstanding and long-term debt, ended F2020 at $38.4 billion, or 8.6% of adjusted net assets, up from 7.3% as at fiscal year-end 2019. In the second half of 2019, the Fund increased the authorized limit on unsecured debt to an aggregate principal amount of $40 billion outstanding while maintaining the $15 billion limit on outstanding unsecured debt with a remaining term of less than one year. DBRS Morningstar expects that recourse leverage may continue to increase over the near term; however, overall recourse debt is expected to remain low, providing considerable room for cyclical fluctuations in asset values.

DBRS Morningstar notes that the Fund meets the DBRS Morningstar criteria for CP liquidity support outlined in the appendix to the Rating Canadian Public Pension Funds & Related Exclusive Asset Managers methodology, entitled “Self-Liquidity for Canadian Public Pension Funds and Related Exclusive Asset Managers’ CP Programs.” The Fund’s liquidity position remains sound, with sufficient same-day available funds equal to at least five business days of upcoming liabilities and discounted assets equal to the remaining maximum authorized CP program limit, consistent with DBRS Morningstar’s policy on back-up liquidity support for pension plans, and it provides considerable short-term financial flexibility.

CPP Investments continued to deliver and progress well in its Strategy 2025, which focuses on adopting a global investment approach, including increasing its allocation to emerging markets, using more technology and data in its investment decisions, and furthering talent and culture at CPP Investments. As CPP Investments continues to place more emphasis on risk management, its integrated risk framework continues to be refined. In addition, CPP Investments recently opened an office in San Francisco to provide a local presence in the world’s largest innovation hub.

The rating includes additional analysis on the expected performance as a result of the global efforts to contain the spread of the coronavirus pandemic.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 2020), which can be found on dbrsmorningstar.com 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.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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