DBRS Confirms CI Financial Corp. and CI Investments Inc. at A (low)

DBRS has today confirmed its A (low) ratings on the Senior Unsecured Debentures of CI Financial Corp. (CI or the Company) and on both the Issuer Rating and the Senior Unsecured Debt rating of CI’s major operating subsidiary, CI Investments Inc. (CII). The trends on all of the ratings remain Stable. The Issuer Rating of CII reflects CII’s contribution to CI as its major operating subsidiary, housing the mutual fund manufacturing operation and representing more than 95% of consolidated CI revenues and earnings. CI’s senior debt benefits from a CII guarantee that ranks pari passu with the senior obligations of CII. Conversely, CII’s outstanding debt is likewise supported by a guarantee from CI on the same senior basis.

The primary driver of the ratings is the Company’s business franchise and its relatively large size in the Canadian mutual fund industry. Tempering the Company’s strong franchise is the uncertainty and volatility inherent in equity markets, generally, and increased competition from other wealth management service providers and products, which are pressuring the business model, market share and margins.

Supporting the business has been strong fund performance, achieving first or second quartile performance from more than 75% of Company assets under management (AUM). DBRS attributes much of the Company’s success to effective operating procedures, discipline and active risk management controls.

As evidence of its strong and diversified product portfolio and effective distribution relationships, the Company has experienced positive net sales in each of the past 12 years with the exception of 2003. Most of the recent net sales were accounted for by institutional funds, which earn a lower margin but can be stickier, and by the Sun Life Financial Inc. (Sun Life) channel. While the Company’s own asset administration business, Assante Wealth Management (Canada) Ltd. (Assante), is break-even at best, it accounts for more than 14% of consolidated AUM with attendant revenue synergies.

The Company’s cash flow continues to be strong and consistently covers cash commission outlays by greater than three times. With limited need for capital, the Company has maintained a high payout ratio, in excess of 60% last year, in addition to regular repurchases of outstanding common shares. Debt-to-EBITDA nevertheless remains conservative as the Company approaches its 1:1 target, having improved from 1.5 times in 2008 to 1.07 times for the first three quarters of 2012. The levels of financial leverage are consistent with the rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Asset Management Companies (July 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.