Fitch Affirms Brookfield Asset Management's IDR at 'BBB'; Outlook Stable
NEW YORK -- February 26, 2013
Fitch Ratings has affirmed the long-term IDR of Brookfield Asset Management
Inc. (BAM) at 'BBB'. The affirmation affects approximately $3.5 billion of
parent level long term debt issued by BAM. The rating outlook is Stable.
The affirmation reflects BAM's strong credit profile which is supported by the
equity values of BAM's subsidiaries, the largest of which are publicly traded,
as well as substantial dividends or distributions from its subsidiaries and
investments which are concentrated in the real estate and power generation
sectors. BAM receives approximately $600 million annually in dividends from
its four largest publicly traded investments, Brookfield Office Properties,
Brookfield Infrastructure Partners, General Growth Properties, and Brookfield
Renewable Energy. BAM's equity interests in these same investments has an
aggregate market value of approximately $18 billion providing substantial
interest and asset coverage to BAM's outstanding debt.
BAM is a holding company that through majority-owned or controlled operating
subsidiaries owns a diversified business portfolio, principally commercial
real estate and power generation assets, which provide a stable stream of
earnings and cash flows. BAM also derives a stable and recurring revenue
stream from its asset management business.
BAM is a holding company with a portfolio of investments, rather than an
operating company. Therefore Fitch analyzes recurring cash flows that directly
accrue to BAM in the form of dividends, distributions, and asset management
fees of approximately against parent level debt. The resulting Adjusted Parent
Only Cash Flow (APOCF, a non-GAAP or non-International Financial Reporting
Standards measure) approximates $1.1 billion and produces a debt service
coverage measure of approximately 4.5x in Fitch's models. APOCF to parent
level debt is approximately 24%. As recent investments mature, Fitch expects
coverage measures to improve 4.5x to 5.0x through 2015, and leverage to
improve slightly to 25% to 27%.
Key Positive Rating Drivers
--Diversified and stable revenue sources from a global investment portfolio
--Underlying commercial real estate and power generation assets are
individually cash flow producing enhancing liquidity
--Enhanced financial flexibility from holding company structure with key
subsidiaries publicly-listed and maintaining direct access to capital
Key Negative Rating Drivers
--Structural subordination of BAM's cash flows to debt at the project level or
--High degree of leverage at the operating entities
--Opportunistic value oriented investment strategy can alter the risk profile
BAM announced the restructuring of its real estate holdings with the majority
of its investments held by a new entity, Brookfield Property Partners (BPP).
BAM will spin-off an approximate 7% to 10% interest in BPP to its shareholders
and BPP will be listed on major U.S. and Canadian exchanges. Key assets of BPP
include a 51% interest in Brookfield Office Properties (BOP) and a 21% stake
in General Growth Properties (GGP). Fitch expects BAM to gradually monetize
its interest in BPP following a similar restructuring of BAM's power
generation assets into a majority owned subsidiary, Brookfield Renewable
Liquidity is strong. BAM maintains $2.2 billion in unsecured credit facilities
with a consortium of banks and debt maturities are manageable. In January
2013, BAM raised CAD$350 million in seven and ten year debt with coupons of
3.95% and 4.54% to primarily repay higher coupon debt.
The holding company structure, with its primary assets held in several
majority-owned publicly listed companies, enhances BAM's financial flexibility
in managing the capital structures of its operating subsidiaries, but also
subordinates its cash flow which will now be primarily derived from dividends
and distributions. BAM also receives management fees based on asset valuations
of its core operating subsidiaries which Fitch considers a stable source of
income as well as performance-based incentive distributions.
The holding company structure also protects BAM from the legal risks of its
subsidiaries and parental guarantees or other contingent supports are limited.
Additionally, there are no cross default provisions between subsidiaries or
between the parent and subsidiaries.
Positive: No positive rating actions are currently foreseen
Negative: Future developments that may individually or collectively lead to a
negative rating action include:
--A change in the risk profile of BAM's real estate and power assets which are
generally considered to be of very quality;
--A large debt financed acquisition
Fitch currently BAM as follows:
Long-term IDR 'BBB'
Senior unsecured notes 'BBB'
The Rating Outlook is Stable
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Linkage' (Aug. 8, 2012);
--'Criteria For Rating U.S. Equity REITs and REOCs' (Feb. 27, 2012);
--'Investment Manager and Alternative Funds Criteria' (Dec. 17, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Criteria for Rating U.S. Equity REITs and REOCs
Investment Manager and Alternative Funds Criteria
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