DBRS has announced:
has today confirmed the ratings on Great-West Lifeco (GWO or the Company) and its affiliated operating subsidiaries at current levels with Stable trends. The ratings on GWO are no longer Under Review with Developing Implications where they were placed on February 1, 2007 with the announcement that GWO was making a largely debt-financed US$3.9 billion acquisition of Putnam Investments Trust (Putnam).
Over the past year, the Company has made significant progress in reducing the debt incurred to acquire Putnam. Most notably, in November 2007, GWO announced the sale, which closed on April 1, of its U.S. health-care business with almost $1.6 billion in cash proceeds being made available to pay down outstanding credit facilities. In addition, the Company has also issued $1 billion of innovative subordinated debentures, the proceeds of which have been used to retire the bridge financing facilities. Giving some equity treatment to the hybrid subordinated debt issues, DBRS calculates a reported double leverage, pro forma the sale of the U.S. health care segment, which is not significantly higher than that of its peers. While Great-West Lifeco continues to be more aggressively capitalized than its peers at the holding company level, debt-service coverage remains adequate for the rating on a consolidated basis and on a cash flow basis at the holding company level. However, DBRS observes that the Company’s financial flexibility is currently impaired by relatively high financial leverage and the intense use of innovative debt instruments. Should financial leverage increase from current levels, the ratings on the Company are likely to come under downward pressure.
The existing ratings for the Company and its operating subsidiaries reflect the contribution from a diversified portfolio of businesses, including leading market shares across the Canadian insurance industry and attractive market niches in Europe, in the U.S. financial services market and in reinsurance. Although it accounts for a relatively small portion of the total earnings, Putnam should, in the long run, represent an attractive opportunity in the wealth management space given its entrenched distribution network of independent financial advisors, even though current market developments and lagging fund performance has recently reduced Putnam’s level of assets under management (AUM) and reduced prospects for an early recovery. DBRS believes that the Putnam acquisition has better strategic fit and is more complementary with the Company’s chosen strategy than the U.S. healthcare platform.
As an integral component of the Power Financial group of companies, the Company benefits from its parent’s implicit financial support and its strong governance and risk management controls and procedures.
The financing of the Putnam purchase has been previously discussed, as was the DBRS response to the purchase itself.
GWO has the following direct issues outstanding: GWO.PR.E, GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I & GWO.PR.X, all of which remain at Pfd-1(low). S&P has rated them P-1(low) all along.
Related issuers are POW, PWF & CL.
