Morningstar DBRS Comments on CI Financial Corp.'s Announced Privatization by Mubadala Capital
Funds & Investment Management CompaniesDBRS Limited (Morningstar DBRS) views positively CI Financial Corp.'s (CI or the Company; rated BBB (low) with a Negative trend) announced privatization, which will see Mubadala Capital acquire all CI's outstanding shares, while CI's debt will remain outstanding. Morningstar DBRS notes that it has downgraded the Company's credit ratings several times over the last several years as CI embarked on an ambitious growth strategy to acquire predominately U.S.-based registered investment advisor (RIA) firms while also actively engaging in large share buyback programs, resulting in increasing leverage. However, the announced privatization could potentially alleviate some concerns regarding CI's credit fundamentals.
On November 25, 2024, CI announced that it entered into a definitive agreement with Mubadala Capital to be taken private, while confirming its commitment to its expansion strategy in the U.S., where it operates under the Corient brand. The transaction is expected to close in Q2 2025, subject to regulatory approvals and other customary closing conditions.
Morningstar DBRS expects the announced privatization, once finalized, will ultimately strengthen CI's financial position. Firstly, at the transaction close, Mubadala Capital is expected to contribute up to $750 million in cash to reduce the amount of outstanding preferred equity that is subject to complex and highly favourable terms for the preferred equityholders. Furthermore, cash flow that was previously used for share buybacks and dividends is expected to remain within the firm, thereby enhancing CI's financial flexibility and liquidity. Moreover, assuming no other significant structural changes following the transaction close, Morningstar DBRS does not foresee a significant increase in operational risk, apart from that related to the integration of newly acquired RIA firms. Lastly, Morningstar DBRS expects that ownership by Mubadala Capital will enhance CI's access to financial resources given the substantial scale of Mubadala Capital's parent, Mubadala Investment Company, which is a global sovereign investor based in Abu Dhabi, United Arab Emirates, with more than USD 300 billion in assets. However, the announced transaction does not alleviate the Company's heavy debt burden, which increased further in Q3 2024 following another debt issuance, and it also does not materially reduce the execution risk related to its many acquisitions.
Confirming its ongoing expansion strategy, on December 17, 2024, CI announced its acquisition of H.M. Payson, the largest RIA in Maine with USD 7.9 billion in assets under management. The terms of the deal are not publicly available, so Morningstar DBRS is not yet able to assess the transaction's impact on CI's credit profile, but the deal is expected to close in 2025.
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All figures are in Canadian dollars unless otherwise noted.
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