BAM Outlook Raised to Stable by S&P

Standard and Poor’s has announced:

  • We are revising our outlook on Brookfield Asset Management Inc. to stable from negative.
  • At the same time, we are affirming our ratings on the company, including our ‘A-‘ long-term and ‘A-2’ short-term corporate credit ratings.
  • We base the outlook revision on our view that Brookfield’s credit measures have improved to levels within our target range for the rating on a sustainable basis, primarily because of improved funds from operations (FFO) generation.
  • Our estimate of Brookfield’s year-end 2013 FFO incorporates strong growth (before gains), driven by improved performance across most of the company’s operating platforms.

We view Brookfield’s portfolio diversity favorably and believe that the considerable level of diversification in the cash-generating assets of the investment platforms provides the company with strong insulation against geographic or asset-type-specific underperformance. Furthermore, Brookfield has a global investment portfolio with 80% of assets located in developed countries, with relatively more stable economic, political, and legal frameworks, such as the U.S., Canada, and Australia, and 20% in the growing and more volatile markets in Asia and South America. We believe the flexibility of having a high percent of invested assets in listed entities provides an additional level of liquidity that supports Brookfield’s ability to pay its corporate obligations in case of a sharper-than-expected decline in FFO or an unexpected cash need. In our opinion, Brookfield management has substantial noncore assets and financial instruments that can be quickly monetized.

The stable outlook reflects our view that debt at the corporate level has steadied and that FFO from investments has improved and should continue to increase modestly. Hence, FFO to debt at the company has improved to levels within our targets on a sustainable basis. We view Brookfield as an operating holding company and our target credit measure ranges recognize that its investments have become increasingly more liquid and provide strong financial flexibility. At the current rating level, we expect Brookfield to maintain FFO to debt of between 28%-38% and FFO coverage between 4.2x-5.5x as well as for it to maintain an investment strategy consistent with an operating holding company.

Coincidentally, this happened on the same day as Desjardins rhapsodized over the common stock:

Desjardins Securities reiterated its “top pick” rating on Brookfield Asset Management Inc., saying it is “comfortable” the Toronto-company’s shares have the potential to double in price within five years.

The company’s focus on real estate, infrastructure, power generation and asset management make it attractive to institutional and retail investors who are in search of yield but wary of “fragile” equity markets, Desjardins analysts Michael Goldberg and Bradley Romain wrote in a research report today.

Brookfield Asset Management is the proud issuer of:

RatchetRate BAM.PR.E
FixedFloater BAM.PR.G
OperatingRetractible BAM.PR.J
Straight Perpetual BAM.PR.M, BAM.PR.N, BAM.PF.C

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