DBRS Limited (DBRS Morningstar) confirmed Power Financial Corporation's (PWF or the Company) Issuer Rating and Senior Debentures rating at A (high) and Cumulative First Preferred Shares (Series A) and Non-Cumulative First Preferred Shares ratings at Pfd-2 (high).
All trends are Stable.
KEY RATING CONSIDERATIONS
The rating confirmations reflect PWF's excellent franchise in life insurance and asset management across several key markets in Canada, Europe and the United States. The Company benefits from a conservative risk profile with healthy levels of liquidity, low leverage and steady dividend flows from its operating subsidiaries. PWF's Stable trends correspond to the Stable trends of its main subsidiary, Great-West Lifeco Inc. (GWO; rated A (high) with a Stable trend by DBRS Morningstar).
PWF's ratings reflect those of its main subsidiary, GWO. An upgrade of GWO's ratings could potentially benefit PWF's ratings. Conversely, negative rating pressure could result from a significant deterioration in the creditworthiness of GWO or IGM Financial Inc. (IGM; rated A (high) with a Stable trend by DBRS Morningstar). Conversely, a sizable shift in the Company's risk profile resulting from a major divestiture or acquisition, a material increase in unconsolidated financial leverage or evidence of deterioration in governance controls across the Company could put negative pressure on the ratings.
The confirmations of the Company's ratings result from the application of DBRS Morningstar's 'Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations' (the Global Insurance Methodology), which was used to confirm the Issuer Rating of GWO, the largest contributor to the Company's earnings and overall strength with a share of approximately 72% in PWF's earnings. Therefore, the primary methodology used to rate GWO, the Global Insurance Methodology, is also the primary methodology used to rate PWF. The methodology for rating IGM, 'Rating Companies in the Asset Management Industry,' is also used in the PWF rating. The diversification and overall strength of the Company's combined subsidiaries, in addition to the assessment of the financial strength of the PWF legal entity, have prompted DBRS Morningstar to conclude that the sum of the parts is sufficiently strong enough for PWF's Issuer Rating to be at the same level as GWO's.
PWF is a corporate holding company controlling two major Canadian financial services providers: GWO, the largest Canadian life insurance operation, and IGM, Canada's largest non-bank-owned wealth and asset management company. Through a 50/50 partnership with Belgium's Groupe Frere-Bourgeois, PWF also owns a 27.8% equity interest in Pargesa Holding S.A. (Pargesa), a Swiss holding company with indirect interests in a limited number of global companies based in Europe through Groupe Bruxelles Lambert S.A. PWF, in turn, is 64.1% owned by Power Corporation of Canada (rated 'A' with a Stable trend by DBRS Morningstar). Through GWO and IGM, PWF is focused on manufacturing and distributing insurance, protection, wealth management and investment products, including mutual funds. The Company's indirect equity interest in Pargesa provides some additional geographic and industry diversification. The Company is also strategically investing and sponsoring fintech initiatives to adapt to changes in consumer behaviour and leverage new technologies. PWF's focus on the financial services sector exposes it to some concentration risk, where it is subject to external market forces, including equity market volatility, potentially affecting earnings.
PFW's rating confirmations also reflect the Company's strong free cash flow generation capacity that, in turn, support its creditworthiness and debt service capacity. PWF's debt service coverage ratio (including dividend obligations on its preferred shares) remains excellent at 15.6 times as at the nine months ended September 30, 2019. Similarly, leverage remains conservative, with the Company having a debt and preferred shares-to-capitalization ratio of 15.1% as at Q3 2019, a level that has declined from 2012 levels of around 18%. On a non-consolidated basis, PWF had about $1,042 million in cash and short-term investments as at September 30, 2019, reflecting the Company's conservative financial management approach. The Company's large liquid pool of assets positions it well to handle potentially shocks and enables it to take advantage of potential acquisition opportunities.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relations (November 2019), Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (September 2019), Rating Companies in the Asset Management Industry (December 2018) and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2019), which can be found on our website under Methodologies & Criteria.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
For more information on this credit or on this industry, visit www.dbrs.com.
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Date Issued Debt Rated Action Rating Trend Issued
US = USA Issued, NRSRO
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
27-Nov-19 Issuer Rating Confirmed A (high) Stb CA
27-Nov-19 Senior Debentures Confirmed A (high) Stb CA
27-Nov-19 Cumulative First Preferred Shares (Series A) Confirmed Pfd-2 (high) Stb CA
27-Nov-19 Non-Cumulative First Preferred Shares Confirmed Pfd-2 (high) Stb CA
ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.