DBRS Morningstar Confirms Ratings on Power Corporation of Canada at “A” and Power Financial Corporation at A (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed all ratings on Power Corporation of Canada (POW or the Company) and Power Financial Corporation (PWF), including POW’s Issuer Rating at “A” and PWF’s Issuer Rating at A (high). The trends on all ratings are Stable. DBRS Morningstar has also discontinued the rating on POW’s Cumulative Redeemable First Preferred Shares, 1986 Series because all outstanding shares were redeemed.

KEY RATING CONSIDERATIONS
The rating confirmations reflect POW’s and PWF’s strong franchise in life insurance and asset management across several key markets in Canada, Europe, the United States, and China, and their prudent risk profile. Both holding companies benefit from healthy levels of liquidity, relatively low leverage levels, and steady dividend flows from their publicly traded operating companies. PWF’s rating is equal to its main operating companies’ ratings: Great-West Lifeco Inc. (GWO; rated A (high) with a Stable trend by DBRS Morningstar) and IGM Financial Inc. (IGM; rated A (high) with a Stable trend by DBRS Morningstar). The equalization is based on the historical stability of dividends provided by GWO and the industry diversification among the subsidiaries supporting PWF. The notching differential between POW and PWF reflects the structural subordination of POW’s debt to PWF’s. POW’s and PWF’s Stable trends correspond to the Stable trends of their main operating companies.

RATING DRIVERS
The ratings of POW and PWF reflect those of their main operating company, GWO. An upgrade of GWO’s ratings would likely result in an upgrade for both POW and PWF.

Conversely, a downgrade of GWO’s ratings would likely result in a downgrade of POW’s and PWF’s ratings. Additionally, a sizable shift in the risk profile, a material increase in unconsolidated financial leverage, or evidence of deterioration in governance controls would also result in a ratings downgrade.

RATING RATIONALE
DBRS Morningstar’s rating assessment of POW is largely derived from the Company’s 100% equity interest in PWF, which, in turn, has controlling interests in GWO and IGM, two of Canada’s largest financial institutions in the insurance and asset management industries, respectively. Additionally, PWF has significant holdings in a portfolio of global companies based in Europe through its investment in Groupe Bruxelles Lambert (GBL). However, GWO is consistently the largest contributor to the earnings and overall strength of PWF and, consequently, of POW. DBRS Morningstar deems POW’s debt to be structurally subordinated to PWF’s in a liquidation scenario, which explains the one-notch differential between holding companies. Moreover, both POW and PWF have debt outstanding and can issue additional debt, preventing the application of a Consolidated Credit Approach as per “DBRS Morningstar Global Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships.” If PWF stopped issuing debt and its outstanding debt became immaterial, then the Consolidated Credit Approach would be warranted, resulting in the ratings being equalized at A (high).

POW’s key asset is its 100% equity interest in PWF. Aside from PWF, other interests include Sagard (a multistrategy alternative asset manager with a presence in North America and Europe); Power Sustainable (sustainability-led global alternative assets manager); a minority ownership in ChinaAMC (a leading Chinese asset management company); and other investments. The Company expects to consolidate its investment in ChinaAMC under IGM by the end of the year, thereby simplifying POW’s corporate structure.

DBRS Morningstar believes POW and PWF benefit from strong financial positions and prudent decision-making, supported by healthy levels of liquidity and steady dividend flows from their publicly traded operating companies. The consistency and the strength of earnings is mostly coming from GWO and IGM, while GBL’s investment earnings are more volatile, contributing negatively in the first nine months of 2022 and positively in 2021. The Company’s liquidity was strong, with $1.4 billion in cash and short-term investments as at September 30, 2022, on a combined basis for POW and PWF.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Passed-through environmental credit considerations are relevant to the ratings or trends assigned to POW but did not affect the assigned ratings or trends. Passed-through environmental credit considerations are indirect in nature, primarily through GWO’s business, which has some exposure to property and casualty catastrophe retrocession as well as through its investments. GWO, IGM, and GBL adopted the processes of the Task Force on Climate-Related Financial Disclosures.

Rating actions on GWO are likely to have an impact on this rating. ESG factors that have a significant or relevant effect on the credit analysis of GWO are discussed separately at https://www.dbrsmorningstar.com/issuers/3172.

There were no social and governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodologies are the DBRS Morningstar Global Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships https://www.dbrsmorningstar.com/research/404334 (October 26, 2022) and Global Methodology for Rating Insurance Companies and Insurance Organizations https://www.dbrsmorningstar.com/research/402220 (August 31, 2022).

Each of the methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/396929 (May 17, 2022) was used in consideration of ESG factors. DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers https://www.dbrsmorningstar.com/research/404248 (October 20, 2022) was used to rate preferred shares.

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.dbrsmorningstar.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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

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