Fitch Ratings has assigned a commercial paper (CP) rating of 'F2' to Brookfield Corporate Treasury Ltd. (BCTL), a debt-issuing subsidiary of Brookfield Asset Management, Inc.'s (BAM; A-/F2/Stable).

With the pending spin of 25% of BAM's asset management business, BCTL will replace Brookfield US Holdings Inc. as the firm's issuer of CP.

BCTL has a long-term Issuer Default Rating (IDR) of 'A-' and a short-term IDR of 'F2'. The Rating Outlook is Stable.

Key Rating Drivers

The 'F2' CP rating is equalized with BCTL's short-term IDR of 'F2'. A Long-Term IDR of 'A-' corresponds to an 'F1' or 'F2' Short-Term IDR, according to Fitch's 'Non-Bank Financial Institutions Rating Criteria' dated Jan. 31, 2022. In order to achieve the higher short-term rating, an issuer would need to have a Funding, Liquidity and Coverage (FLC) factor score of at least 'a'. BAM's FLC factor score is 'bbb+', resulting in the lower of the two 'F2' Short-Term IDRs.

The ratings of BCTL are equalized with that of BAM, the parent, as all debt issued by the entity benefits from a corporate guarantee from BAM.

BAM's ratings reflect its strong competitive position as a global alternative investment manager (IM), solid investment track record, significant fee-bearing assets under management (FAUM), strong operating margins, distribution-generating capacity from listed affiliates, low leverage on a balance sheet basis, strong funding flexibility and a solid liquidity profile.

Rating constraints specific to BAM include above-average exposure to management fees charged on the basis of net asset value (NAV); relatively high leverage and low interest coverage on a fee-related EBITDA (FEBITDA) basis; a large balance sheet, which exposes the capital base to potential valuation declines; and a more complex organizational structure, given the ownership stakes in listed affiliates, Brookfield Asset Management Reinsurance Partners Ltd. (BAMRe) and Brookfield Property Partners L.P. (BPY).

RATING SENSITIVITIES

The CP rating is expected to move in tandem with the Short-Term IDR of BCTL.

The Short-Term IDR is primarily sensitive to the Long-Term IDR and would be expected to move in tandem. However, a material improvement in BAM's FLC profile, resulting in an upgrade of the sub-factor score to 'a' could result in an upgrade of the Short-Term IDR to 'F1'.

Factors that could, individually or collectively, lead to positive rating action/upgrade of the long-term IDR include a decline in balance sheet and/or cash flow leverage, such that these metrics approach 0.25x and 1.50x, respectively, under Fitch's hybrid leverage analysis, an improvement in interest coverage on a FEBITDA-only basis approaching or above 4.0x, a reduction in balance sheet risk, increased carried interest-generating capacity with demonstrated stability through a variety of market cycles, and enhancement of the liquidity profile.

Factors that could, individually or collectively, lead to negative rating action/downgrade of the long-term IDR include material changes in leverage and/or interest coverage following the partial spin-off of the asset management business or resulting from a material degradation of balance sheet assets and/or weaker investment performance which adversely impacts the firm's ability to generate FEBITDA or support listed affiliate distributions. More specifically, increases in balance sheet and/or cash flow leverage, such that these metrics approach 0.40x and 3.0x, respectively, under Fitch's hybrid leverage analysis, could negatively affect ratings. A narrowing of the firm's product set, a key person or reputational event that challenges fundraising and FAUM growth and/or an impairment of the liquidity profile as it relates to operating needs, debt maturities, and co-investment commitments could also yield negative rating momentum.

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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