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

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of Caisse de dépôt et placement du Québec (CDPQ) at AAA. Morningstar DBRS 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 (CP) 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.

Thanks to the strong performance from public equities and infrastructure, CDPQ bounced back from the negative return in 2022. On a relative basis, the overall portfolio underperformed its benchmark (BM) by 10 basis points (bps), primarily because of the underperformance of private equities. Net assets increased by $32.4 billion to $434.2 billion in 2023 as a result of $28.0 billion in net investment income net of $0.8 billion in operating expenses, offset by $4.3 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 50 bps and 90 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 investment performance achieved in 2023; (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 deployed in 2017, its updated environmental target set at the end of 2021, 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.

In 2024, CDPQ announced the integration of its real estate subsidiaries Ivanhoe Cambridge and Otéra Capital to further support its strategy and optimize its activities. Both Ivanhoe Cambridge and Otéra Capital will become investment groups within CDPQ. The integration will bring several benefits, including efficiency gains, a consolidated global presence across all asset classes, harmonization of governance, and strengthening of analytical capabilities. This process was initiated in January 2024, and CDPQ estimates it will take 18-24 months to be completed.

Debt with recourse to CDPQ increased to $36.2 billion in 2023, bringing the recourse debt level relative to adjusted net assets to 7.7%. 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 Morningstar DBRS criteria for commercial paper (CP) liquidity support, as outlined in the Appendix to the Morningstar DBRS 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 Morningstar DBRS' 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 2023 and remained undrawn as at year end.

Morningstar DBRS' credit rating on the Long-Term Debt and CP addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each Long-Term Debt and CP are the related principal amount and coupon payments.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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 16, 2024; https://dbrs.morningstar.com/research/431261) and North American Structured Finance Flow-Through Ratings (November 13, 2023; https://dbrs.morningstar.com/research/423240).

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

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 info-DBRS@morningstar.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.

Morningstar DBRS 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.

This credit 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 credit ratings:

The last rating action on these issuers took place on June 29, 2023, when Morningstar DBRS confirmed the outstanding ratings with Stable trends.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Clara Vargas, Senior Vice President, Canadian Structured Finance
Rating Committee Chair: Tim O'Neil, Managing Director, 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 Research below or by contacting us at info-DBRS@morningstar.com.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

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

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.