Morningstar DBRS Confirms Credit Ratings on IGM Financial Inc. at A (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed IGM Financial Inc.'s (IGM or the Company) Issuer Rating and Unsecured Debentures credit rating at A (high). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations and Stable trends take into consideration IGM's market position as one of Canada's leading independent investment management companies, with a significant presence in the asset management and wealth management segments. IGM's credit ratings also benefit from its growing portfolio of strategic investments that have performed well and have added diversification. The Company has a resilient assets under management and advisement (AUM&A) base, despite macroeconomic challenges and broader industry trends. Additionally, IGM consistently showcases strong earnings and profitability, as measured by its EBITDA margin and return on equity. The Company's financial profile is conservative, with a moderate amount of leverage and a strong ability to service its interest and debt obligations. The credit ratings are also affected by the nature of the Company's business model, which remains vulnerable to broader macroeconomic conditions and industry trends that pressure active asset managers.

CREDIT RATING DRIVERS
A further increase in scale, as evidenced by higher AUM&A, and a reduction in leverage while maintaining strong profitability and balance sheet metrics would result in a credit ratings upgrade. Conversely, sustained net outflows affecting the Company's profitability or material losses related to strategic investments that significantly affect earnings and capital would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Building Block Assessment: (Very Strong/Strong)
IGM is one of the largest independent asset and wealth management companies in Canada with $252 billion in total AUM&A as of June 30, 2024 (not including its proportionate share of AUM&A through strategic investments). The Company benefits from a strong franchise in Canada through its main operating subsidiaries, Mackenzie Financial Corporation (Mackenzie) and IG Wealth Management. In addition, its strategic investments in China Asset Management Co. Ltd., Great-West Lifeco Inc. (Great-West; rated A (high) with a Stable trend), Wealthsimple, Northleaf Capital Partners Ltd., and U.S.-based Rockefeller Capital Management (RCM) offer geographic and product diversification. IGM is ultimately controlled by Power Corporation of Canada (rated "A" with a Stable trend).

Earnings Building Block Assessment: (Strong)
IGM has been generating solid operating cash flow and profitability metrics, including a consistent mid-teens return on common equity and EBITDA margins above 40% over the last three years. The Company's strong earnings can be attributed to a resilient AUM&A base, a diversified and expanding product suite, good expense management, and a business model that incentivizes the stickiness of assets. Profitability, as measured by net income available to shareholders, was particularly strong in 2023 owing to several one-time gains, including those related to the sale of IPC and the disposition of Great-West shares.

Risk Building Block Assessment: (Good)
IGM has also enhanced its enterprise risk management framework over the past few years and has diversified its traditional business focus by strategically investing outside of Canada and in private markets. The Company's recent investment in RCM furthers its strategic plan by diversifying its earnings with the presence in the U.S. hybrid registered investment advisor market and in growing its expertise in products targeted at the high-net-worth and ultra-high-net-worth market segments. Assets managed by the Company and assets on the balance sheet are largely liquid and/or low risk, reducing market and credit risk.

Funding and Liquidity Building Block Assessment: (Strong/Good)
IGM has proven strong access to the capital markets and has a well-managed funding and maturity profile, mostly using well laddered long-term debt. IGM's most recent debt issuance was in the form of debentures with a 30-year term. The Company has ample cash and cash equivalents on its balance sheet, as well as committed lines of credit with major Canadian banks. Being part of the Power group of companies further enhances its financial resilience and ability to withstand a stressed environment.

Capitalization Building Block Assessment: (Strong)
IGM's strong EBITDA margins reflect its diversified operating model and good expense management, which allows for sustained capital generation. The Company has a moderate amount of leverage and a strong ability to service its interest and debt obligations with a fixed-charge ratio of 10.9 times (x) in 2023. Its debt-to-EBITDA ratio remained conservative at below 2x in 2023, improving to 1.6x as of Q1 2024. The Company is able to comfortably meet all its various regulatory capital requirements.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

The principal methodology is the Global Methodology for Rating Investment Management Companies (April 15, 2024) https://dbrs.morningstar.com/research/431182. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

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

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

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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