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Standard & Poor’s has announced:

• •IGM Financial Inc. today announced that its subsidiary, Mackenzie Financial Corporation, has entered into an agreement to acquire a 10% interest in China Asset Management Co., Ltd. for approximately CAD$468 million.
• •In our view, given that IGM may finance a significant portion of the acquisition through the issuance of debt and/or preferred shares, we would expect the company to operate with debt to EBITDA levels closer to 1.5x compared with our previous projections of 1.0x.
• •We are placing our ‘A+/A-1+’ issuer credit ratings on IGM on CreditWatch with negative implications.
• •The CreditWatch negative indicates that we could lower the ratings of IGM upon the close of the transaction due to higher leverage. We expect to resolve the CreditWatch once the transaction is consummated, or in the event the minority acquisition plans are called off.

S&P Global Ratings said today it placed its ‘A+/A-1+’ issuer credit ratings on IGM Financial Inc. on CreditWatch with negative implications. We also placed our ‘A+’ issue-level rating on IGM’s senior unsecured debt, ‘A-‘ issue-level rating on IGM’s preferred stock, and ‘P-1 (Low)’ Canadian national scale preferred share rating on CreditWatch negative.
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As we believe, IGM intends to finance a significant portion of the acquisition through the issuance of debt and/or preferred shares, we would expect the company to operate with debt to EBITDA levels closer to 1.5x compared with our previous projections of 1.0x, and EBITDA coverage metrics between 9x and 10x compared with our previous assessment of 10x to 11x. As a result of the modest deterioration of credit protection measures, we would assess IGM’s financial risk profile to be more in line with the “modest” category compared with our previous assessment of “minimal” upon the close of the transaction. IGM does have a sizeable portfolio of investments on its balance sheet to provide additional credit protection measures beyond these metrics.

The IGM Press Release notes:

Mackenzie Investments’ interest in China AMC leverages Power Corporation of Canada’s long term presence and investment record in China which includes a 10% ownership in China AMC acquired in 2011.

The proposed transaction is expected to be accretive to IGM Financial’s earnings in the first full year of ownership. IGM Financial expects to finance the transaction with a combination of existing cash and the issuance of debt and/or preferred shares in the first half of 2017.

The transaction is expected to close in the first half of 2017, and is subject to customary closing conditions, including Chinese regulatory approvals.

Update, 2016-12-30: DBRS is more sanguine, but they’ve already got IGM a notch lower!

DBRS Limited (DBRS) today notes that it does not expect to be taking any action on IGM Financial Inc.’s (IGM) ratings following the December 29, 2016, announcement of an agreement by IGM’s subsidiary, Mackenzie Financial Corporation, to acquire a 10% interest in China Asset Management Co. Ltd (China AMC) and potentially acquire an additional 3.9% interest. The value of the acquired 10% share will be approximately $468 million.

Currently, IGM’s Issuer Rating and Unsecured Debentures rating are both A (high) and its First Preferred Shares rating is Pfd-2 (high). All trends are Stable.

This entry was posted on Friday, December 30th, 2016 at 1:32 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.