BAM: Trend Revised to Stable by DBRS

DBRS has announced:

The trend change reflects the combination of (1) increased financial flexibility to BAM, as 85% of its invested capital is now in listed companies (compared to DBRS’s estimate of 70% a year ago); (2) increased proportion and predictability of its asset management fees under the current corporate structure, a large proportion of which are fixed or based on sizes of investment under management, rather than performance or investment gains; and (3) improved financial metrics in 2013 due to strong operating cash flows from its investments and asset management fees, reduced corporate debt level and settlement of its contingent swap liabilities. With the improvements in 2013, BAM’s financial metrics with funds from operations (FFO, as defined by the Company) to debt of 38% and FFO interest coverage of 6.0 times (x) in 2013 (adjusted to exclude from FFO the one-time carried interests on private funds of $565 million) have exceeded the respective levels of 35% and 5.5x, targets DBRS had indicated in its previous report as necessary to maintain the current rating (“Funds from operation” are defined by BAM as “net income prior to fair value changes, depreciation and amortization, and deferred income taxes, and it also includes BAM’s proportionate share of FFO in its equity accounted investments”). The trend revision also factors into DBRS’s expectation that the Company will maintain these financial metrics generally in line with these targets for the foreseeable future.

BAM’s rating remains supported by its strong liquidity and financial flexibility, which has been further strengthened in the past two years with the listing of all its flagship companies. At a company level, BAM had access to $814 million of cash and financial assets and unused committed bank facilities of about $2.0 billion as at December 31, 2013. After the listing of Brookfield Property Partners, 85% of BAM’s invested capital is now invested in listed assets. Total market valuation of these listed assets (as at March 28, 2014) and its cash balance will be adequate to cover 5.5x of company-level debt of $3.980 billion at year-end 2013, compared to 4.6x a year ago.

This trend change follows a similar move by S&P last September.

Brookfield Asset Management is the proud issuer of:

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

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