Standard & Poors has announced:
it revised its outlook on Brookfield Asset Management Inc. to negative from stable. At the same time, we affirmed the ratings, including the ‘A-‘ long-term corporate credit rating on the company.
“The outlook revision reflects what we view as pressure on the credit risk profile of Brookfield’s core subsidiaries, Brookfield Properties Corp. and Brookfield Renewable Power Inc., as well as our expectation of weaker operating cash flows, in particular, a lower level of investment gains,” said Standard & Poor’s credit analyst Greg Pau.
In the past two months, we have revised the outlook on the ‘BBB’ ratings on both Brookfield Properties (BBB/Negative/–) and Brookfield Renewable Power (BBB/Negative/A-3) to negative from stable to reflect the pressure on their respective credit standings. In the case of Brookfield Properties, we expect that valuation declines on its commercial properties and stricter lender underwriting could heighten refinancing risks of maturing debt, particularly that in the pro rata US$1.6 billion debt maturing in its U.S. fund in 2011. With the generally weak state of commercial property market in major U.S. cities and financial centers, we believe that any recovery in valuation could be slow and modest.
The negative outlook reflects our expectation that pressures on Brookfield’s core subsidiaries’ credit risk profile, cash flow volatility from potentially lower investment gains, and the challenging market conditions could weaken the company’s own financial risk profile. Standard & Poor’s could consider lowering the rating if the credit risk profiles of Brookfield Properties and Brookfield Renewable Power deteriorate further. We could also lower the rating if remitted cash flows further weaken to result in remitted OCF interest coverage falling below 4x or OCF to total debt falling below 20%. Conversely, we could revise the outlook to stable when the company’s cash flows strengthen again when market conditions improve or the company materially reduces its corporate level debts, resulting in OCF coverage measures returning to levels similar to those attained in 2008.
On a perhaps not entirely unrelated note, DBRS has confirmed Brookfield Renewable Power following a shuffling of assets down the line:
DBRS has today confirmed the Senior Unsecured Debentures and Notes rating of Brookfield Renewable Power Inc. (BRP or the Company) at BBB (high), with a Stable trend. This action follows today’s announcement that BRP intends to sell substantially all of its renewable generating facilities in Canada with a total capacity of 387 MW to its 50.01% owned Great Lakes Hydro Income Fund (the Fund, rated STA-2 (high)). BRP will also amend two existing power purchase arrangements (PPAs) under which it acquires power from two of the Fund’s generating assets, and will provide a price guarantee in connection with the bulk of the transferred assets.
Total consideration payable by the Fund to BRP is $945 million, to be funded with the net proceeds from the sale of $760 million of Fund units, and a $200 million senior unsecured note to BRP. BRP will subscribe for 50.01% of the $760 million equity offering in order to maintain its current ownership percentage. Initial cash proceeds to BRP will be approximately $365 million, with an additional $200 million when the note matures.
BRP’s consolidated financial profile is not expected to be materially changed as a result of the Transaction as the Company will continue to consolidate the Fund’s results. On a non-consolidated basis, while BRP would lose a modest amount of operating cash flow from the sale of the physical generating assets, and will take on additional price exposure through the additional/amended power purchase agreements with certain of the Fund’s assets, these challenges are viewed as largely offset by the considerable Transaction consideration to be received, the expectation of BRP continuing with a prudent hedging strategy, and the Company maintaining its ownership position in the Fund.
The following BAM issues are tracked by HIMIPref™: BAM.PR.B, BAM.PR.E, BAM.PR.G, BAM.PR.H, BAM.PR.I, BAM.PR.J, BAM.PR.K, BAM.PR.M, BAM.PR.N, BAM.PR.O & BAM.PR.P.
Additionally, the ratings of BAM Split Corp are capped by BAM’s rating: BNA.PR.A, BNA.PR.B, BNA.PR.C and the new issue that closes 2009-7-9.