DBRS Morningstar Assigns Issuer Rating of AAA to British Columbia Investment Management Corporation

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating to British Columbia Investment Management Corporation (BCI or the Corporation) of AAA with a Stable trend. The credit rating is supported by a substantial and stable asset base, independent governance framework, low leverage and expected low-recourse debt burden, ample liquidity and prudent risk management framework, strong operating performance, and the financial strength of the Government of British Columbia as plan employer partner for the four largest pension funds managed by BCI, which provides considerable stability and certainty of cash flows.

BCI was created in 1999 under the Public Sector Pension Plans Act (the Act), as an agent of the Province of British Columbia, but remains at arm's length from government decision making and has a governance structure that limits political interference. BCI was incorporated as a trust company authorized to carry on trust business and investment management services for the College Pension Plan, the Municipal Pension Plan, the Public Service Pension Plan, the Teachers' Pension Plan, and other public sector entities and programs. As of March 31, 2023, BCI was managing $215.0 billion in net assets (assets under management (AUM)) for 32 clients that included public-sector pension, insurance plans, and some government entities. The majority of the AUM were held in pooled investment portfolios that were established pursuant to the Pooled Investment Portfolio Regulation (B.C. reg. 447/99), issued pursuant to the Act, which requires, among other things, that BCI holds all the assets in trust and ownership in any asset must not be attributed to any participating client.

BCI plans to launch a medium-term note (MTN) program that will result in further diversification of its funding sources and enhanced liquidity. Debt issuance (recourse debt) under the MTN program will be direct, unsecured, and unsubordinated obligations of BCI and debtholders will have recourse to all the pooled investment portfolios, excluding pooled real estate and real estate debt investments managed by BCI's wholly owned real estate arm, QuadReal Property Group Limited Partnership and QuadReal Finance LP (together, QuadReal; the Combined Funds or Recourse AUM). In addition to pooled real estate and real estate debt investments, AUM held outside of the pooled investment portfolios are also excluded from the Recourse AUM. All Combined Funds will be backing the recourse debt even if the proceeds of such debt are not used by all the Combined Funds. BCI maintains access and control over the assets in all of its pooled investment portfolios, including to facilitate meeting funding obligations. Recourse could only be available if BCI defaulted on its obligations in respect of such debt and such default was not cured within any applicable grace period. Limitations, with respect to total recourse leverage, will provide a limit to the amount of recourse debt that can be outstanding relative to BCI's Combined Funds.

BCI has a proven track record of delivering strong investment returns. In fiscal year ended March 31, 2023, BCI delivered an annual combined pension plan return of 3.5%, net of all fees, against a combined benchmark (BM) of 0.3%, representing $4.6 billion of value-added activity, despite heightened market volatility, inflationary pressures, and record-high interest rates. BCI attributes much of this success to its efforts to enhance the investment selection process, its globalization strategy, diversification of investments through illiquid asset class opportunities, and its focus on quality assets.

On a 10-year average, BCI has achieved an average annual return of 8.5%, exceeding the BM average return of 7.2%, resulting in $16.3 billion of cumulative value-added activity. The longer term returns have exceeded the nominal actuarial discount rates used in the most recent funding valuations for all major pension plan clients, thereby, enabling them to maintain fully funded ratios in the range of 103% to 133%.

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/416784 (July 4, 2023).

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

The principal methodology applicable to the credit rating is Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 27, 2023; https://www.dbrsmorningstar.com/research/413011).

Other methodologies referenced in this transaction are listed at the end of this press release.

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

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

This is a solicited credit rating.

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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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