GMP.PR.B & GMP.PR.C Downgraded to Pfd-4(high) by DBRS

DBRS has announced:

has today downgraded the Cumulative Preferred Shares rating of GMP Capital Inc. (GMP or the Company) to Pfd-4 (high) from Pfd-3 (low). The trend is now Stable. This concludes the review of the rating that was initiated on January 14, 2016, following GMP’s announcement that it is undertaking a series of fundamental organizational changes.

The downgrade reflects DBRS’s view that GMP’s franchise positioning and earnings are weakened relative to past levels at a time when the headwinds facing GMP remain challenging. Indeed, GMP has reported net losses attributable to common shareholders in three out of the past four fiscal years, as well as a loss in Q1 2016. To cope with the difficult operating environment, the Company is executing a restructuring plan to reduce costs and refocus its franchise on its core competencies and markets. While DBRS views the restructuring as prudent, it reduces the scope of the Company’s capital markets franchise and diversity of its revenue streams, both of which had previously supported the rating. Moreover, DBRS expects that the Company will continue to face significant headwinds given its focus on commodities-related sectors, limiting the Company’s ability to generate capital through retained earnings.

The Stable trend reflects DBRS’s view that the restructuring, combined with the run-off of certain guaranteed compensation arrangements in 2016, has better positioned GMP’s franchise to return to sustainable profitability.

This downgrade has been in the wind since the January 2016 restructuring announcement and DBRS Review-Negative. There was recently a 22% conversion from GMP.PR.B to GMP.PR.C.

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