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.

KEY CREDIT RATING CONSIDERATIONS
The ratings confirmation reflects the strength of POW’s and PWF’s operating company, Great-West Lifeco Inc. (GWO; rated A (high) with a Stable trend by DBRS Morningstar), and its strong global franchise in life insurance, retirement services, wealth and asset management and reinsurance across several jurisdictions, including key markets in Canada, the United States, the UK and Ireland. IGM Financial Inc. (IGM; rated A (high) with a Stable trend by DBRS Morningstar), provides an additional source of consistent earnings and is a leading wealth and asset manager, operating primarily in Canada with growing global operations, including investments in the US and China. Both holding companies (POW and PWF) benefit from healthy levels of liquidity, low leverage levels, prudent risk management, and steady dividend flows from their publicly traded operating companies.

PWF’s rating is equal to its main operating companies’ ratings: GWO and IGM. The equalization is based on the historical stability of dividends provided by GWO and the industry diversification among the operating companies 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.

CREDIT RATING DRIVERS
The ratings of POW and PWF primarily 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 a decline in coverage ratios, or evidence of deterioration in governance controls would also result in a ratings downgrade.

CREDIT 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 life insurance and wealth and asset management industries, respectively. In addition to GWO and IGM, PWF also has significant holdings in a portfolio of global companies based in Europe through its investment in Groupe Bruxelles Lambert (GBL), a Belgian-based, publicly traded investment holding company. While the presence of multiple operating companies provides strength to the ratings assessment, PWF’s, and consequently POW’s rating is largely derived from the rating of GWO, given that it is the consistently the largest contributor to earnings and to the overall strength of the Power Group of Companies.

DBRS Morningstar deems POW’s debt to be structurally subordinated to PWF’s in a liquidation scenario, which explains the one-notch differential between the two 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’s 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 its two alternative asset investment platforms: Sagard (a global multi-strategy alternative asset manager active in venture capital & growth private equity, private credit, real estate and royalties with US$15.0 billion in assets under management as at June 30, 2023) and Power Sustainable (a sustainability-led global alternative asset manager active in energy infrastructure, China public equities, Infrastructure credit and Agri-food private equity with C$3.3 billion in assets under management as at June 30, 2023).

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 positively in the first six months of 2023 and negatively in 2022. The Company’s liquidity position is strong, with $1.7 billion in cash and cash equivalents as at June 30, 2023, on a combined basis for POW and PWF.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Passed-through environmental credit considerations are relevant to the rating or trend assigned to POW but did not affect the assigned rating or trend. 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 are supporters of the Task Force on Climate-Related Financial Disclosures.

Credit rating actions on GWO are likely to have an impact on this credit 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/416784 (July 04, 2023)

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/421119 (September 27, 2023), Global Methodology for Rating Insurance Companies and Insurance Organizations https://www.dbrsmorningstar.com/research/417109 (July 14, 2023) and Global Methodology for Rating Investment Management Companies https://www.dbrsmorningstar.com/research/407010 (December 7, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/416784 in its consideration of ESG factors.

The following methodologies have also been applied:
• DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 19, 2023) was used to rate preferred shares.

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

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 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.

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 credit ratings are under regular surveillance.

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

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