CF.PR.A and CF.PR.C : Trend Negative, says DBRS

DBRS has announced that it:

confirmed its rating on Canaccord Genuity Group Inc.’s (CF or the Company) Cumulative Preferred Shares at Pfd-3 (low) and changed the trend to Negative from Stable. The Company has a Support Assessment of SA3, which implies no expected systemic support.

The trend change to Negative from Stable accounts for the impact that current stresses to the global economy and significant market volatility are having and will likely continue to have on CF’s business. Global reactions to the Coronavirus Disease (COVID-19) pandemic have caused economic stresses in the capital markets with declining market values across many asset classes. These factors were abrupt and unexpected, giving the Company minimal time to reposition its balance sheet, which will likely translate into headwinds for its earnings.

Specifically, DBRS Morningstar has the following concerns:

(1) While CF’s trading businesses may benefit from increased volatility, its investment banking activities have been largely subdued among significant global uncertainty related to the coronavirus and its ultimate impact. DBRS Morningstar expects this uncertainty to persist, which will likely adversely affect earnings in the coming quarters.

(2) DBRS Morningstar anticipates that the Company’s margin-lending business may be required to liquidate collateral at fire sale prices, as with other global financial institutions, resulting in potential losses for CF.

(3) DBRS Morningstar expects the current environment might create difficulties for CF as it manages the different businesses it has acquired in the U.S., UK, and Australia over the last few years while also paying down associated debt that will come due throughout the year.

This reverses their August, 2018, decision to upgrade the trend to Stable.

Affected issues are CF.PR.A and CF.PR.C.

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