Morningstar DBRS Confirms Credit Ratings on Brookfield Corporation and Its Subsidiaries at "A," R-1 (low), and Pfd-2 With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on Brookfield Corporation (BN or the Company) and its guaranteed subsidiaries, including BN's Issuer Rating and Senior Notes and Debentures at "A," its Preferred Shares at Pfd-2, and its Commercial Paper at R-1 (low). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings on BN and its guaranteed subsidiaries reflect the Company's (1) position as the parent company of Brookfield Asset Management Ltd. (BAM, 73% ownership); (2) position as the substantial owner of Brookfield Wealth Solutions Ltd. (BWS, majority economic interest); (3) position as the parent company of Brookfield Property Partners L.P. (BPY, rated BBB (low) with a Stable trend by Morningstar DBRS; 100% ownership); (4) position as the parent company of Brookfield Renewable Partners L.P. (BEP, rated BBB (high) with a Stable trend by Morningstar DBRS; 46% ownership); and (5) strong consolidated credit metrics, liquidity profile, and industry diversification. For each BN business that contributes a material portion of the Company's consolidated distributable earnings or already has a Morningstar DBRS public credit rating, Morningstar DBRS assesses its credit quality based on its proportionate contribution, adjusted for BN's ownership interest in the subsidiary (the Composite Rating). Morningstar DBRS then adjusts the Composite Rating for the following overlay factors: (1) the structural subordination on the leveraged cash flows from BWS, BPY, and BEP; (2) the Company's superior industry diversification; and (3) BN's very strong liquidity. The result is an overall Issuer Rating of "A."

CREDIT RATING DRIVERS
The credit ratings on the Company and its guaranteed subsidiaries reflect those of its primary business units and operating companies, namely BAM, BWS, BPY, and BEP. Morningstar DBRS could upgrade BN's credit ratings if there is significant improvement in the credit risk profiles of one or more of these businesses.

Conversely, Morningstar DBRS could downgrade BN's credit ratings if there is debt issued at BAM that causes debt at BN to be structurally subordinated to a greater percentage of its cash flows, there is a deterioration in the credit risk profile(s) of BAM or BWS, the proportionate share of distributable earnings from BWS increases without a proportionate increase in its credit risk profile, there is a material increase in debt at the Company or a deterioration in governance controls.

CREDIT RATING RATIONALE
These credit rating actions reflect Morningstar DBRS' assessment of BN's key subsidiaries and overlay factors, including the following:

Subsidiaries
BAM -- BAM is one of the largest alternative asset managers in the world, managing more than $514 billion of fee-bearing capital, the majority of which is long term (10+ years) or perpetual in nature. BAM has a long-dated reputation as a leader in the alternative asset management sector and deep relationships with many of the largest institutional investors globally. BAM's assets under management have grown significantly in recent years, indicative of its strong fundraising results, extensive asset management capabilities, and good investment track record. BAM is on track to achieve its goal of $1 trillion of fee-bearing capital by 2028. BAM's resilient fee structure and the long-term capital commitments to its investment vehicles have generated consistent growth in fee income and high profit margins. With its size, BAM's investment strategies are exposed to a multitude of risks and directly linked to the global economy's performance. Still, BAM itself is relatively protected from short-term fluctuations in economic conditions as the impact of potential poor performance of its funds on its future fundraising would play out over the longer term. As BAM's investment portfolio grows, it is increasingly exposed to the operational risks present across its businesses, but the Company has vast financial resources to manage through any disruption. While there remains a large opportunity for growth in alternative asset management to finance the needs of the future global economy, competition for raising and deploying capital in the sector is also stronger than ever.

BAM has a good capital and liquidity position, with a substantial cash balance, steady fee inflow, and limited needs to deploy its own capital outside of major acquisitions. As an alternative asset manager, BAM's funds are largely invested in illiquid assets or generally riskier strategies. Offsetting some of the risk is the long-term nature of the assets managed and its institutional client base, which reduces liquidity risk. BAM's earnings can be susceptible to changes in the marked-to-market valuations of investments that it holds on its own balance sheet, including its large flagship real estate fund and its 75% ownership of Oaktree. Leverage within its investment vehicles is high, with the possibility of capital calls to BAM. Otherwise, BAM does not have any corporate debt on its balance sheet, and its $1.9 billion in cash provides a buffer against external stressors.

BW -- BWS' credit profile is supported by its growing market position and franchise strength, particularly in the Annuity and Property and Casualty insurance business lines; improved earnings stability as it develops a sizable base of recurring premium revenues; and improved capitalization because of capital injections by BN to fund acquisitions and to meet capital requirements. Morningstar DBRS' assessment of BWS' credit profile also considers the limited track record of operations to assess the consolidated entity's historical profitability; the risk and uncertainty related to its aggressive growth plans; and that the credit and market risk of its investment portfolio, its financial leverage, and its capital needs are high relative to other insurers.

BPY -- BPY's credit profile benefits from its market position as a pre-eminent global real estate company; its high-quality assets (particularly the BPY Core Office and Retail segment) with long-term leases to large, recognizable investment-grade-rated tenants; and its superior diversification by property, tenant, and geography. BPY's credit profile is constrained by its weak financial risk assessment as reflected in its highly leveraged balance sheet; a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to its Core Office segment; and a higher-risk opportunistic Limited Partnership Investments segment composed of office, retail, industrial, multifamily, and alternative assets.

BEP -- BEP's credit profile is supported by its long-term contracts with diverse, solid-credit counterparties; its diversified and large generation asset portfolio; and its low environmental risk, low-cost, and high-quality assets. Morningstar DBRS' assessment also considers BEP's expansion risk, refinancing and recontracting risk at the project level, and hydrology and wind resource risk.

Overlay Factors
Structural Subordination -- Morningstar DBRS notes that BN finances its assets on a nonrecourse basis without any parental guarantees or cross-collateralization. BN's debt is structurally subordinated to the leveraged cash flows from BWS, BPY, and BEP; however, there is no corporate debt held at BAM, which, along with Direct Investments, accounted for 49% of consolidated distributable earnings in the last 12 months ended September 30, 2024.

Diversification -- Morningstar DBRS believes that the Company benefits from cash flow stability resulting from superior industry diversification of its business units and operating companies. BN's cash flows are generated from diversified businesses comprising asset management, wealth solutions, real estate, private equity, infrastructure, and renewable power.

Liquidity -- Morningstar DBRS considers BN's liquidity to be very strong because of its $2.4 billion in cash and financial assets, $3.4 billion in undrawn and committed credit facilities, and $4.6 billion in annualized distributions at September 30, 2024. Morningstar DBRS also notes that, including perpetual affiliate liquidity and uncalled private fund commitments, BN and its subsidiaries had a total of $150 billion in liquidity as of September 30, 2024.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
Passed-through environmental credit considerations are relevant to the credit ratings or trends on BN but did not affect the credit ratings or trends. Passed-through environmental credit considerations are indirect through the Company's Wealth Solutions business, which has some exposure to weather-related losses from natural catastrophic events through its Property and Casualty business.

Social (S) Factors
There were no S factors that had a significant or relevant effect on the credit analysis.

Governance (G) Factors
Morningstar DBRS deemed BN's governance structure as relevant to the credit ratings analysis, but it had no impact on the credit ratings or trends assigned to the Company. BN's governance structure is non-traditional, where certain key senior executives control the voting rights in its public entities. The Company's organizational structure is also very complex, with many off-balance sheet arrangements and related party transactions. Mitigating these concerns, BN has a long history of being a responsible custodian of its own and its clients' capital and invests in many regulated businesses where external independent oversight is required. Moreover, there have been no reported cases of serious failures in governance as they relate to the Company in the recent past.

The G factor has changed from the prior credit rating disclosure and has arisen out of a detailed review of the Company's organizational structure.

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) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings, https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodologies have also been applied:
-- Global Methodology for Rating Investment Management Companies (April 15, 2024), https://dbrs.morningstar.com/research/431182
-- Global Methodology for Rating Insurance Companies and Insurance Organizations (September 10, 2024), https://dbrs.morningstar.com/research/439195
-- Global Methodology for Rating Companies in the Regulated Utility and Independent Power Producer Industries (June 27, 2024), https://dbrs.morningstar.com/research/435127
-- Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024), https://dbrs.morningstar.com/research/431170

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 analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 https://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' trends and credit ratings are under regular surveillance.

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

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