PrefBlog

Great-West Lifeco Inc. has announced:

that holders of 1,475,578 Lifeco Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) have elected to convert their Series N Shares on a one-for-one basis into Non-Cumulative Floating Rate First Preferred Shares, Series O (the “Series O Shares”) on December 31, 2015.

Consequently, on December 31, 2015, Lifeco will have 8,524,422 Series N Shares and 1,475,578 Series O Shares issued and outstanding. The Series N Shares and Series O Shares will be listed on the Toronto Stock Exchange under the symbols GWO.PR.N and GWO.PR.O respectively.

It will be recalled that I recommended against the conversion and

GWO.PR.N will reset to 2.176% effective December 31. Holders of GWO.PR.N have the option to convert to FloatingResets, which will pay 3-month bills plus 130bp, reset quarterly.

The Bank of Nova Scotia has announced:

that it has completed the domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 34 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 34”).

Scotiabank sold 14 million Preferred Shares Series 34 at a price of $25.00 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2021 yielding 5.50% per annum, as and when declared by the Board of Directors of Scotiabank. The gross proceeds of the offering were $350 million.

The offering was made through a syndicate of underwriters led by Scotia Capital Inc. The Preferred Shares Series 34 commence trading on the Toronto Stock Exchange today under the symbol BNS.PR.E.

On April 26, 2021 and on April 26 every five years thereafter, Scotiabank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem all or any part of the Preferred Shares Series 34 then outstanding at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.51% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 34 will, subject to certain conditions, have the right to convert all or any part of their shares to Non-cumulative Floating Rate Preferred Shares Series 35 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 35”) of Scotiabank on April 26, 2021 and on April 26 every five years thereafter.

Holders of the Preferred Shares Series 35 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.51%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 35 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 34 on April 26, 2026 and on April 26 every five years thereafter.

BNS.PR.E is a FixedReset 5.50%+451, announced 2015-12-8. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,123,441 shares today in a range of 25.12-28 before closing at 25.20-26, 2×15. Vital statistics are:

DBRS finalized the rating at Pfd-2.

Dundee Corporation has announced:

that Glass Lewis & Co. (“Glass Lewis”), a leading, independent, governance analysis and proxy voting firm, has recommended that holders of Dundee’s First Preference Shares, Series 4 (the “Series 4 Preferred Shares”) vote FOR the special resolution to approve the proposed preferred share exchange transaction whereby each of its Series 4 Preferred Shares would be exchanged for 0.7136 of a First Preference Share, Series 5 (the “Series 5 Preferred Shares”) pursuant to a statutory plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). The resolution will be considered at the upcoming special meeting of holders of Series 4 Preferred Shares to be held on January 7, 2016 at 9:00 a.m. (Toronto time) at the offices of Dundee Corporation, 1 Adelaide St. East, Suite 2100, Toronto, Ontario, Canada.

In its recommendation, Glass Lewis noted that while “the retraction date of the Series 4 Preferred Shares will be effectively extended three years through the Arrangement, the par value of the Series 5 Preferred Shares is functionally equivalent to that of the Series 4 Preferred Shares, their cumulative dividend rate is greater, and the redemption features of the Series 5 Preferred Shares are more generous”. Glass Lewis also stated that it believes that “decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board” and that “the arrangement resolution proposed by the board is reasonable and consistent with standard market practice”.

The Company continues to seek dialogue with significant institutional holders who have expressed concerns about the proposal, and there can be no assurance that such discussions will be successful or that the proposal will proceed as currently proposed or at all.

I am unable to find a copy of the report on-line (not surprising, since Glass, Lewis is Subscriber-Pay), so I am unable to comment regarding what the report may contain that Dundee did not choose to highlight. I will note that the quoted sections do not address the investment merits of the potential new issue compared to those of the old one.

Update, 2015-12-18: I sent Glass, Lewis the following eMail:

Subject: Recommendation Regarding Dundee Corporation Preferred Shares

Sirs,

I was astonished to read that you have recommended that holders of Dundee’s First Preference Shares, Series 4 vote FOR the special resolution to approve the proposed preferred share exchange transaction (http://www.dundeecorp.com/pdf/2015-12-17-Glass-Lewis.pdf )

How may I obtain a copy of your full report?

Sincerely,

A few hours later I received the reply:

Hello James,

If you are interested in our research the fee for the report, based on Dundee’s market cap, is $3,500.

Please let me know if you are interested or if you have any other questions.

Best,

I’m not particularly surprised, but I will say that I eagerly await the comments of those Assiduous Readers who are convinced that “Subscriber Pay” is the only way to go for Credit Rating Agencies.

I will not comment much on the Glass, Lewis recommendation, since I have not seen anything of it other than the very short quotations provided by Dundee. However, I will reiterate that the quotations do not address the investment merits of the Series 5 shares vs. the Series 4 and that while it is of course true that:

“decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board”

it is also true that decisions regarding an investors portfolio are best left to the judgment of the investor!

It will be recalled that Shaw Communications Inc. recently announced:

it has agreed to acquire a 100% interest in Mid-Bowline Group Corp. and its wholly-owned subsidiary, WIND Mobile Corp. (“WIND” or the “Company”) for an enterprise value of approximately $1.6 billion (the “Transaction”).
…
Under the terms of the Transaction, Shaw will acquire 100% of the shares of WIND‟s parent company, Mid-Bowline Group Corp., by plan of arrangement, for an enterprise value of approximately $1.6 billion based on quarterly financial statements as of September 30, 2015. Shaw has executed a fully-committed bridge financing facility with the Toronto Dominion Bank and the Canadian Imperial Bank of Commerce. Shaw is committed to a financing plan that maintains its investment grade status and accordingly will optimize the significant flexibility available to it, including potential debt issuance, asset sales, the issuance of preferred or common equity or any combination thereof. Additional details regarding the longer term financing of the Transaction will be provided prior to close.

Tim Kiladze of the Globe commented:

The missing segment of Shaw’s earnings mix was becoming a bigger sore spot. When the company last reported earnings in October, the bottom line was fine, but investors and analysts worried about the pace at which Shaw is losing subscribers, particularly for cable and home phones. Some of it could be shrugged off, because Shaw is big in Alberta, and that province has some economic woes. Some could be chalked up to a competitive fight with Telus. But there were growing worries this was a structural issue.

So Shaw was eager to buy. And Wind was the only competitive company available. No Excel model was needed to determine a ballpark value in that scenario – it’s simple supply and demand.

Of course, there’s more to it. When Wind changed hands in 2014, the company was valued around $300-million, and it looked different than it does today. At that time, there were serious concerns about Wind’s wireless spectrum, because it was largely built to deliver 3G service, which isn’t good enough to handle massive data.

That all changed when Wind picked up valuable wireless spectrum from Mobilicity as part of Rogers’ complicated purchase this summer.

And Wind has continued to deliver encouraging earnings and subscriber growth. Earnings before interest, taxes, depreciation and amortization is expected to hit $65-million this year, and the company now has just shy of one million subscribers – the majority of which are post-paid.

And today DBRS Places Shaw Communications Inc. Under Review with Negative Implications:

Since its last rating review, DBRS believes that Shaw’s credit risk profile has deteriorated. The Company experienced greater-than-expected subscriber losses in F2015, reflecting continued technological substitution of phone and cable services, increased competition from Internet protocol television offerings, economic softness in Alberta and regulatory-driven headwinds (the removal of the 30-day cancellation notice requirement). Organic growth was weak, with much of the revenue and EBITDA gains in F2015 (4.7% and 5.2%, respectively) attributable to the full-year inclusion of ViaWest. Financial leverage (gross debt-to-EBITDA) rose to 2.38 times (x) in F2015 from 2.07x in F2014 because of the debt-financed acquisition of ViaWest. DBRS notes that when it last confirmed Shaw’s ratings, it was with the understanding that the Company would generate free cash flow after dividends of at least $200 million in each of F2016 and F2017 to carry out its deleveraging plan following the ViaWest acquisition.

Going forward, the risks to the core business are expected to persist and will likely be compounded by pending regulatory changes (including the regulatory-driven move to skinny basic and pick-and-pay TV offerings in 2016) and ongoing softness in the media segment. As a result, DBRS is concerned that growth in operating income and levels of free cash flow will not be sufficient to meet the debt reduction targets stated above. As such, DBRS believes that Shaw’s ratings were already under pressure independent of the WIND transaction.
…
In its review, DBRS will focus on (1) assessing the business risk profile of the combined entity, including the potential benefits and the risks associated with integration and realization of synergy potential; (2) the Company’s longer-term business strategy; (3) financial management intentions of the combined entity going forward, including the amount of equity used to finance the transaction; and (4) the impact that any additional dividend payments resulting from newly issued shares will have on free cash flow after dividends. Upon its review, DBRS will likely downgrade Shaw’s ratings by one notch, in light of the current forces pressuring subscribers, EBITDA and free cash flow within its core operations. However, DBRS believes that if the proposed transaction is financed appropriately, the Company has the ability to maintain an investment-grade rating at the BBB (low) level.

S&P also expressed concern:

• •We are placing all of our ratings on Shaw Communications Inc. on CreditWatch with negative implications.
• •The company announced an agreement to acquire mobile operator WIND Mobile Corp. for C$1.6 billion.
• •The transaction will increase Shaw’s pro forma consolidated adjusted debt leverage to above 3x, which would be high for our investment-grade rating.
• •We could lower the rating on Shaw by one notch if we believe the acquisition will weaken profitability and cash flow such that we consider a weaker business risk assessment, or if the company cannot sustain leverage below 3x as it develops its mobile presence.

…
The company has not detailed its financing plans, but we assume that the acquisition will be substantially debt- and cash-financed. “The CreditWatch placement reflects our opinion that this transaction will increase Shaw’s pro forma consolidated adjusted debt leverage to above 3x, which would be high for our investment-grade rating, while weakening the company’s free cash to debt measure significantly,” said Standard & Poor’s credit analyst Donald Marleau.

Moreover, we believe that the acquisition would have a mixed effect on Shaw’s business risk profile, adding a key segment in wireless to support the competitive position of its core cable and internet offerings, but weakening margins and increasing earnings and cash flow volatility during a period of elevated debt leverage and higher capital expenditure requirements to upgrade WIND’s network to competitive standards LTE. We believe that the strategic defensiveness of the acquisition could be blunted by the intense competition WIND will face in increasing its subscriber base over the next few years, considering the strong wireless product offerings in western Canada from larger incumbents like Telus Corp. , BCE Inc., and Rogers Communications Inc. WIND is concentrated in Ontario, where Shaw has almost no cable or internet operations, such that most efficiencies and the marketing enhancements will be from integrating WIND’s small market share in Western Canada with Shaw’s solid cable platform.
…
We could lower the corporate credit rating on Shaw by one notch if we believe the acquisition will weaken Shaw’s profitability and cash flow such that we consider a weaker business risk assessment, or if the company cannot sustain leverage below 3x as it develops its mobile presence. On the other hand, we could affirm our ‘BBB-‘ rating on Shaw if we expect the company to improve leverage to about 2.5x while integrating and building out WIND’s relatively small and outmoded network.

Shaw has one issue of preferred shares outstanding, SJR.PR.A

Update, 2016-1-13: To be financed by the sale of media assets to the related company, Corus Entertainment. See January 13, 2016.

DBRS has announced that it:

has today upgraded the Issuer Rating and Senior Unsecured Debt rating of Intact Financial Corporation (Intact or the Company) to “A” from A (low) as well as its Non-Cumulative Preferred Shares rating to Pfd-2 from Pfd-2 (low). DBRS has also assigned an Issuer Rating of AA (low) and a Financial Strength Rating (FSR) of AA (low) to Intact Insurance Company, Intact’s major operating subsidiary. In addition, DBRS has assigned FSRs of AA (low) to various other operating insurance company subsidiaries of Intact. All trends are Stable. All rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The upgrade of Intact’s ratings primarily reflects the application of the Global Insurance Methodology and the assignment of an FSR of AA (low) to its operating insurance companies. As the parent holding company, Intact’s Issuer Rating of “A” is positioned two notches below this FSR. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In assigning the FSR of AA (low), DBRS takes into account Intact’s excellent franchise strength and risk profile, its consistently strong earnings and liquidity as well as its very good capitalization. The new methodology gives greater recognition to Intact’s market franchise, distribution, risk management and asset quality. Indicative of Intact’s franchise strength, the Company is the largest property and casualty (P&C) insurer in Canada in terms of market share based on 2014 direct written premiums. Intact’s very strong market position and large scale have enabled it to generate consistently strong earnings and expand through premium growth and strategic acquisitions.

Intact has also benefited from prudent capital and risk management policies that are reflected in its strong risk profile and capitalization. Overall, the Company has exhibited strong and stable key financial metrics, with positive trends that DBRS believes are likely to be sustained. Indicative of this profile, at Q3 2015, Intact had an above-peer return on equity of 13.2%, a low combined ratio of 92.7%, a high fixed-charge coverage value of 9.8x and a financial leverage ratio of 24.7%. The Company’s operating subsidiaries also rank highly in the Canadian P&C market based on their underwriting capabilities and overall profitability.

The Stable trend considers Intact’s well-executed strategy focused on claims and underwriting efficiency; technological innovation; and its expansion through organic growth and successful acquisitions. Positive ratings pressure could occur if the Company improves its market shares across all lines of business and reduces financial leverage. Negative ratings pressure could arise as a result of risky or improperly integrated acquisitions or a sustained increase in the combined ratio caused by poor underwriting or high expenses.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Affected issues are: IFC.PR.A and IFC.PR.C.

DBRS has announced that it:

has today upgraded the Non-Cumulative Preference Shares rating of Co-operators General Insurance Company (CGIC or the Company) to Pfd-2 (low) from Pfd-3 (high). DBRS has also assigned an Issuer Rating of A (low) and a Financial Strength Rating (FSR) of A (low) to the Company. All trends are Stable. All the rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

DBRS’s upgrade of CGIC reflects the evaluation of the Company’s fundamentals using the Global Insurance Methodology, which places greater value on the Co-operators’ sizable controlled distribution model as well as property and casualty (P&C) product diversification. CGIC is the main subsidiary of Co-operators Financial Services Company (CFSL). They both form part of The Co-operators Group Limited (the Group), a co-operative financial services organization with complementary interests in life insurance and investment management. As part of a larger financial services group, CGIC enjoys a strong franchise in the co-operative space and ranks fifth in property & casualty insurance products in Canada with a 5.1% market share based on 2014 direct written premiums. The Company is beginning to benefit from recent management initiatives to reduce costs, support better underwriting results and cultivate deeper customer relationships. CGIC has been improving its customer segmentation and, consequently, its ability to differentiate pricing, which creates a more favourable platform for enhancing its earnings ability. The earnings ability evaluation considers the return on equity performance of the Group at the CFSL level where the earnings from CGIC are partially offset by lower earnings from the associated life subsidiary.

Besides its good franchise strength, the Company has a risk profile that reflects its business mix of home, auto and small business insurance and a conservative bond portfolio invested mainly in government debt. CGIC’s capitalization benefits from its low financial leverage. It has no long-term debt and has low levels of short-term borrowing and preferred shares, yielding a low financial leverage ratio and high fixed-charge coverage ratios. The low leverage is viewed positively as CGIC is owned by a co-operative and is therefore largely dependent on internal capital generation. High combined ratios that are near 100% or higher in recent periods, partly driven by the expense of technology development projects, have affected the overall profitability of the Company. Successful implementation of these projects could strengthen CGIC’s earnings ability.

The Stable trend reflects an excellent capital solvency position and an expectation that earnings will improve modestly. A sustained erosion of CGIC’s market share or a prolonged period of higher combined ratios could place negative pressure on the ratings. Conversely, the identification and effective penetration of new market segments could result in positive ratings pressure.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Co-Operators has only one series of preferred share currently outstanding, CCS.PR.C.

It will be noted that, unusually, this is the operating company issuing preferred shares despite the presence of a holding company, Co-operators Financial Services Limited, which was confirmed at BBB.

DBRS has announced that it:

has today downgraded the long-term ratings of Manulife Financial Corporation (MFC or the Company), including downgrading its Medium-Term Notes rating to “A” from A (high). At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA (low) to The Manufacturers Life Insurance Company (Manufacturers Life Insurance) and confirmed its Issuer Rating at AA (low) and its Unsecured Subordinated Debentures rating at A (high). DBRS withdrew the Claims Paying Ability rating of Manufacturers Life Insurance, as it is being replaced by the newly assigned FSR. All trends are Stable. All the rating actions are noted in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The downgrade of the holding company ratings results from the application of the Global Insurance Methodology, under which there is typically a wider notching differential between holding company and operating company ratings than in prior methodologies. Specifically, MFC’s Issuer Rating is rated two notches below the FSR of its major operating subsidiary, The Manufacturers Life Insurance Company. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In confirming the ratings of The Manufacturers Life Insurance Company, DBRS evaluated MFC’s fundamentals utilizing the Global Insurance Methodology. In DBRS’s view, the Company has an excellent franchise. Indeed, MFC is one of the top three insurance organizations in Canada, with extensive wealth management and insurance operations in Canada, the United States and various parts of Asia. Helped by its strong distribution, product mix, global brand recognition and an increased emphasis on risk management and innovation, MFC has experienced high growth and profitability in recent years. These characteristics demonstrate the Company’s good risk profile, good liquidity and excellent earnings capacity. As indicated by its leverage ratio of 22.7% and a Minimum Continuing Capital and Surplus Requirement (MCCSR) of 226%, MFC maintains good capitalization and asset quality.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise from earnings volatility, or a deterioration in financial metrics that indicates a weakening in the Company’s franchise strength. Conversely, positive rating pressure could arise from a sustained improvement in the Company’s fixed-charge coverage ratio.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Affected issues are: MFC.PR.B, MFC.PR.C, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M and MFC.PR.N.

DBRS has announced that it:

has today confirmed Fairfax Financial Holdings Limited’s (Fairfax or the Company) ratings, including its Issuer Rating at BBB, its Senior Unsecured Debt rating at BBB and its Preferred Shares rating at Pfd-3. The trend has been changed to Positive from Stable. The rating of Fairfax (US) Inc.’s Senior Unsecured Notes, guaranteed by Fairfax, has also been confirmed at BBB. The trend has also changed to Positive, in line with Fairfax. At the same time, DBRS assigned a Financial Strength Rating (FSR) of A (low), with a Positive trend, to both Northbridge General Insurance Company (Northbridge) and Federated Insurance Company of Canada (Federated), the Canadian operating subsidiaries of Fairfax. All ratings actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

Under the Global Insurance Methodology, Fairfax’s Issuer Rating has been notched down two notches from the FSR of its operating companies. Among other factors, the notching reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation, and recognizes the reliance of the holding company on the upstreaming of earnings from its operating companies.

The change in the trend to Positive reflects the progress that Fairfax is making with its franchise and operations. The Company continues to develop its worldwide organization of insurance and reinsurance entities using a multi-brand strategy. The Canadian operations, through the Northbridge and Federated brands, hold a 5% market share of the Canadian commercial property and casualty (P&C) market, while through the Odyssey Re brand, Fairfax is ranked in the top 20 global P&C reinsurance writers. The Company has other brands from its successful acquisition activity that cater to particular risks, for example, workman’s compensation, pet insurance or marine. Fairfax has a strong focus on underwriting and pricing, and a willingness to avoid writing new business when it views market pricing as inadequate. The Company is noted for its expertise in active investment management, often taking controlling shares in portfolio investments, but also has a guiding principle to protect the Company from downside risks through both asset selection and hedging. Reflecting its strong liquidity position, the holding company maintains a liquid investment pool that helps to ensure that it can meet its capital servicing charges and has the mobility to move capital to recapitalize a subsidiary if required.

While Fairfax has good earnings ability, its earnings tend to be more volatile through its underwriting results and its investment portfolio because of market value changes in its bond and equity holdings. To manage its dispersed global operation, the Company maintains a lean head office based on its approach of providing a high degree of autonomy to its business units. However, Fairfax’s good risk profile reflects its centralized risk management function, which uses the risk management functions of each of the business operations to collect and monitor information regarding aggregate and emerging risks. The decentralized structure with specialized and diverse insurance risks is an operational challenge that is managed through an accounting system that provides performance information for numerous risk segments on both a local and aggregate basis.

The Positive trend considers the Company’s improving fundamentals, its recent acquisition of Brit PLC, a global Lloyd’s of London specialty insurer and reinsurer, and its ability to adapt to the current environment. Further positive ratings pressure could emerge if the Company reduces its leverage and improves its fixed charge coverage ratios, enhances its income stability and increases its market shares on a prudent basis. Negative ratings pressure could arise if the Company’s fundamentals weaken because of reduced liquidity levels and inadequate monitoring/oversight of risks.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Affected issues are: FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.K and FFH.PR.M.

DBRS has announced that it:

has today downgraded Power Corporation of Canada’s (POW or the Company) Senior Debt rating to “A” from A (high) and its Preferred Shares ratings to Pfd-2 from Pfd-2 (high) due to the application of the new insurance methodology. All trends are Stable. All the rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The downgrade of POW’s ratings results from the application of the Global Insurance Methodology. POW’s main subsidiary is Power Financial Corporation (PWF), which in turn owns Great-West Lifeco Inc. (GWO), the greatest contributor to earnings and overall strength of PWF. Hence, the Global Insurance Methodology used to rate GWO is by extension the primary methodology for rating POW.

The ratings for POW are one notch below PWF’s ratings under the holding company criteria due to structural subordination. Additionally, PWF’s rating has been set at the same level as GWO’s Issuer Rating. See the press releases for Power Financial Corporation, “DBRS Downgrades Power Financial Corporation’s Issuer Rating to A (high) from AA (low); Confirms Great West Life Assurance Co at AA”, “DBRS Confirms The Great West Life Assurance Company Ratings at AA; Downgrades Great-West Lifeco’s Debentures to A (high) from AA (low)”, for more information.

POW is an investment holding company controlled by the Desmarais family with PWF as its major holding. Other interests include Square Victoria Communications Group, Power Energy, the Sagard investment funds and other investments. POW benefits from a strong capital position, high liquidity and prudent decision-making with an emphasis on conservativeness and integrated risk management. Negative ratings pressure may arise if the subsidiaries suffer extended declines in profitability or more unlikely, if the Company deviates significantly from its value-based approach to leadership and away from its successful operational track record. POW’s ratings could also be negatively impacted by evidence of governance issues. Conversely, an upgrade of PWF could potentially benefit POW’s rating.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Affected issues are: POW.PR.A, POW.PR.B, POW.PR.C, POW.PR.D, POW.PR.F and POW.PR.G.