PrefBlog

Brookfield Asset Management has announced:

an offering of C$425 million of medium term notes (unsecured) (“notes”) with a March 2023 maturity and a yield of 4.546%.

The notes have been assigned a credit rating of Baa2 (stable outlook) by Moody’s; A – (negative outlook) by Standard & Poor’s; BBB (stable outlook) by Fitch; and A low (stable outlook) by DBRS. The notes are being offered through a syndicate of agents led by CIBC World Markets Inc., Scotia Capital Inc. and TD Securities Inc.

The company intends to use the net proceeds of the issue to redeem or repurchase $350 million of 8.95% notes that mature on June 2, 2014 and for general corporate purposes.

However, the item that most caught my eye was the rating announcement from DBRS (bolding added):

DBRS has today assigned a rating of A (low) to the $425 million Unsecured Medium-Term Notes (MTN) maturing March 31, 2023, issued today by Brookfield Asset Management Inc. (Brookfield). The trend is Stable.

The MTN will rank pari passu with all of Brookfield’s other senior unsecured debt obligations. The Company intends to use the net proceeds to redeem or repurchase $350 million of its 8.95% MTNs that will mature June 2, 2014 and for general corporate purposes.

The new issue will result in a modest increase in Brookfield’s long-term debt. As expressed in our Rating Report published April 24, 2012, DBRS considers that the current corporate-level financial measures at Brookfield are weak for its ratings and believes that there is currently minimal room for further deterioration without pressuring the ratings. We re-iterate our expectation (as expressed in our Rating Report published on April 24, 2012) that Brookfield will improve its cash flow coverage metrics to their 2010 level by the end of 2012. These levels are: funds from operation (FFO) coverage of debt of 30% and FFO coverage of interests of 5.0x. We understand that Brookfield intends to achieve a lower debt level mainly through reducing its outstanding commercial paper issuance and drawdown in credit facilities.

If one of the following scenarios were to materialize, DBRS will review and base our rating decision on an assessment of the contributing causes, the Company’s remedial plan and other relevant circumstances. These scenarios are: (1) material increase in the proportion of BAM’s invested capital in less-stable opportunistic investments and private equity, leading to debt increases; (2) material deterioration or rating downgrade in one or more of the core businesses in renewable power, property investments and infrastructure; (3) inability to improve cash flow coverage metrics (which could include FFO-to-debt and FFO fixed charge coverage) to their 2010 levels by the end of 2012.

This is new information, as far as I can tell. The only mention of commercial paper in the 12Q2 Financials is:

We completed the refinancing of the majority of our corporate level, $2.2 billion committed revolving term credit facilities subsequent to the end of the quarter. At June 30, 2012, approximately $1.6 billion of the facilities was utilized in respect of short-term bank or commercial paper borrowings and $0.2 billion utilized for letters of credit issued to support various business initiatives. Approximately $1.9 billion of the new facilities have a five-year term, and the remaining $300 million have a three-year term.

This is good news, because BAM is skating pretty near the water in terms of maintaining an investment-grade rating on its preferreds. The negative outlook from S&P is still in place.

BAM has a plethora of preferred share issues outstanding: BAM.PR.B & BAM.PR.C (Floater), BAM.PR.E (RatchetRate), BAM.PR.G (FixedFloater), BAM.PR.I (called for redemption) & BAM.PR.J (OperatingRetractible), BAM.PR.K (Floater), BAM.PR.M & BAM.PR.N (PerpetualDiscount), BAM.PR.O (OperatingRetractible), BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X, BAM.PR.Z and BAM.PF.A (FixedReset) … and one in the oven (FixedReset).

This entry was posted on Friday, September 7th, 2012 at 8:20 pm 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.