DBRS Assigns AAA Rating to Euro Debt Issue of CDP Financial
DBRS has today assigned a rating of AAA, with a Stable trend, to the EUR 750 million note issue of CDP Financial Inc. The debt issue is a ten-year fixed-rate note at 3.5% and is expected to close on June 23, 2010. All notes are irrevocably and unconditionally guaranteed by the Caisse de dépôt et placement du Québec (the Caisse) and rank pari passu with all other unsecured and unsubordinated indebtedness of CDP Financial Inc. (CDP). DBRS notes that the debt issue was expected and constitutes the last portion of the $8 billion borrowing program announced by the Caisse on November 13, 2009, and aimed at replacing certain short-term debt with longer-term debt. This issue follows the US$5 billion in senior notes issued in November 2009 and the $2 billion in senior notes issued in January 2010.
Based on recently released year-end results, investment performance substantially improved in 2009, with a return of 10%, driven by the solid performance of the public equities, private equities and fixed income portfolios. Nonetheless, the returns missed benchmark by 4.1 percentage points due to a lower-than-target weighting in equities and provisions in the real estate debt portfolio.
Since the beginning of 2010, debt has increased by roughly $2 billion due to the Canadian issue of senior notes. The completion of this borrowing program will push total recourse leverage as measured by DBRS to an estimated $9.5 billion. At 6.7% of adjusted net assets (based on year-end asset figures), however, recourse debt remains affordable in light of the sizable liquidity position and large base of unencumbered assets, and it is well within the level DBRS views as adequate for the rating. The Caisse does not foresee any substantive debt needs and notes that it does not intend to increase recourse leverage beyond a 7.5% level despite having its internal recourse debt limit set at 10% of adjusted net assets. Furthermore, the proposed financing will help reduce short-term refinancing risk, provide a better maturity and interest rate match between assets and liabilities and allow the Caisse to reduce the use of currency swaps, adding resilience to the AAA credit profile of the organization.
Note:
All figures are in Canadian dollars unless otherwise noted.
DBRS ratings on public pension funds and asset managers are primarily based on the funding status, membership fundamentals and cash flow outlook of the public pension plan or pension plan depositors; the net asset and liquidity position of the fund or asset manager in relation to outstanding recourse debt; the investment track record and portfolio management strategy; and the financial strength of plan contributors.
This is a Corporate (Public Finance) rating.
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