DBRS Morningstar Confirms Caisse de dépôt et placement du Québec at AAA and CDP Financial Inc. at AAA and R-1 (high)

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Caisse de dépôt et placement du Québec (CDPQ) at AAA. DBRS Morningstar also confirmed CDP Financial Inc.’s (CDP Financial) Long-Term Debt rating at AAA as well as its Canadian Short-Term Promissory Notes, U.S. Commercial Paper Notes, and Euro Commercial Paper Notes ratings at R-1 (high). All trends are Stable. The ratings are supported by a legislative framework that results in a substantial and captive asset base, a low-recourse debt burden, ample liquidity, and strong operating performance.

Despite the strong performance from real assets (including real estate and infrastructure), CDPQ experienced a loss of 5.6% in 2022, driven mainly by the negative returns of fixed income and public equities. On a relative basis, the overall portfolio outperformed its benchmark (BM) by 270 basis points (bps), primarily because of the exceptional performance of private investments under real assets and private equities. Net assets decreased by $17.9 billion to $401.9 billion in 2022 as a result of $23.7 billion in net investment losses and $0.9 billion in operating expenses, offset by $6.7 billion in net contributions received from depositors. Returns measured over both a five-year and a 10-year investment horizon have outperformed their BMs by 90 and 100 bps, respectively.

CDPQ’s strategic orientations have remained largely unchanged in recent years. The key pillars of the strategy are (1) optimizing performance for clients, which contributed to the strong relative investment performance achieved in 2022; (2) contributing to the economic development of Québec; (3) increasing CDPQ's global presence, which is now being approached in a concerted effort through CDPQ Global; (4) affirming the leadership in sustainable investing, which showed through CDPQ's commitment to follow through with its environmental plan set at the end of 2021 of exiting from oil production activities and the continued goal of achieving a net-zero portfolio by 2050; and (5) investing in leading technology companies, managing technology risk, and seeking idea generation tools supported by augmented intelligence. CDPQ’s credit profile continues to benefit from a diverse and captive group of depositors. Management continues to strengthen its risk management and depositor relationship management functions.

Debt with recourse to CDPQ increased to $32.8 billion in 2022, bringing the recourse debt level relative to adjusted net assets to 7.5%. However, it remained well below the board-approved limit of 10% of adjusted net assets, providing considerable room for cyclical fluctuations in asset values. CDPQ meets the DBRS Morningstar criteria for commercial paper (CP) liquidity support, as outlined in the Appendix to the DBRS Morningstar methodology “Rating Canadian Public Pension Funds & Related Exclusive Asset Managers” under the heading “Self-Liquidity for Canadian Public Pension Funds and Related Exclusive Asset Managers’ CP Programs.” CDPQ’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, which is consistent with DBRS Morningstar’s policy on backup liquidity support for pension funds and provides considerable short-term financial flexibility.

As an additional source of liquidity, CDPQ maintains a USD 4.0 billion credit facility for general corporate purposes. The credit facility was renewed in 2022 and remained undrawn as at year end.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) 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 (May 17, 2022).

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

The principal methodologies applicable to the ratings are Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 27, 2023; https://www.dbrsmorningstar.com/research/413011) and North American Structured Finance Flow-Through Ratings (November 22, 2022; https://www.dbrsmorningstar.com/research/405619).

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on these issuers took place on June 30, 2022, when DBRS Morningstar confirmed the outstanding ratings with Stable trends.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Clara Vargas, Senior Vice President, Canadian Structured Finance
Rating Committee Chair: Tim O'Neil, Managing Director, Head of Canadian Structured Finance
Initial Rating Date: September 23, 2002

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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-- Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 27, 2023) https://www.dbrsmorningstar.com/research/413011
-- North American Structured Finance Flow-Through Ratings – (November 22, 2022)
https://www.dbrsmorningstar.com/research/405619

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].