Morningstar DBRS Confirms Credit Ratings on Power Corporation of Canada at "A" and Power Financial Corporation at A (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed all credit 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 credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmations and Stable trends on POW and PWF reflect the financial strength of their operating companies, Great-West Lifeco Inc. (GWO; rated A (high) with a Stable trend) and IGM Financial Inc. (IGM; rated A (high) with a Stable trend). In determining the composite credit rating that is based on the operating companies' contribution to earnings, GWO's large and consistent dividend was of central importance. Benefits of industry diversification among the operating companies contributed to PWF's credit rating being the same as the composite credit rating, while structural subordination of POW's debt to PWF's debt is reflected in the one notch credit rating differential. Both holding companies (POW and PWF) benefit from healthy levels of liquidity, low leverage, prudent risk management, and steady dividend flows from their publicly traded operating companies.

CREDIT RATING DRIVERS
The credit ratings of POW and PWF primarily reflect those of their main operating company, GWO. An upgrade of GWO's credit ratings would likely result in an upgrade for both POW and PWF.

Conversely, a downgrade of GWO's credit ratings would likely result in a downgrade of POW's and PWF's credit ratings. Additionally, negative credit ratings pressure would arise as a result of a significant adverse change in the risk profile, a material increase in unconsolidated financial leverage, a decline in coverage ratios, or evidence of deterioration in governance controls.

CREDIT RATING RATIONALE
Morningstar DBRS' credit rating assessment of POW is derived from the Company's 100% equity interest in PWF, which, in turn, has controlling interests in GWO and IGM. GWO is one of Canada's largest life and health benefits providers. IGM is a leading player in the Canadian wealth and asset management industry. 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.

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 multistrategy alternative asset manager active in venture capital, private equity, private credit, and real estate) and Power Sustainable (a climate-focused investment manager offering institutional investors exposure to alternative assets that aim to accelerate and scale sustainable solutions).

POW has shown consistent profitability and strength in earnings, supported by the dividends from the publicly traded operating companies. Net earnings to participating shareholders were $1.4 billion in H1 2024 ($1.5 billion on an adjusted basis), an increase over $814 million earned in H1 2023 ($1.4 billion on an adjusted basis), primarily coming from GWO. GWO and IGM have shown the most consistency in contribution to earnings while GBL's contribution tends to be more volatile as it is focused on growing the value of its portfolio investments over time.

While the presence of multiple operating companies enhances diversification and provides strength to the credit ratings assessments, PWF's and, consequently, POW's credit rating is anchored by GWO's credit rating, given that it is consistently the dominant contributor to earnings, cash flows, and to the overall financial strength of both holding companies. Benefits of industry diversification among the operating companies contributed to the equalization of PWF's credit ratings with the composite credit rating. Since Morningstar DBRS deems POW's debt to be structurally subordinated to PWF's in a liquidation scenario, the credit rating on POW is one notch lower.

POW and PWF benefit from strong credit metrics including a conservative risk profile and strong liquidity positions, with $1.5 billion in cash and cash equivalents on a combined basis as at the first half of 2024 (H1 2024), of which $1.2 billion is available cash. Moreover, POW has access to a $500 million committed bank credit facility with additional ample access to liquidity through its main operating companies. Leverage has been low and steady over the years, amounting to 3.5% as of H1 2024 (on a combined basis, as calculated by Morningstar DBRS).

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors

The following Environmental factor(s) had a relevant effect on the credit analysis:
Passed-through environmental credit considerations are relevant to the credit ratings or trends assigned to POW but did not affect the assigned credit ratings or trends. Passed-through environmental credit considerations are indirect in nature, primarily through Great-West Lifeco Inc.'s business, which has some exposure to property and casualty catastrophe retrocessions.

There were no Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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://dbrs.morningstar.com/issuers/3172.

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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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

The principal methodologies are the Morningstar DBRS Global Corporate Criteria (April 15, 2024) https://dbrs.morningstar.com/research/431186, Global Methodology for Rating Investment Management Companies (April 15, 2024) https://dbrs.morningstar.com/research/431182 and Global Methodology for Rating Insurance Companies and Insurance Organizations (September 10, 2024) https://dbrs.morningstar.com/research/439195. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 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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