DBRS Confirms TMX Group Limited Ratings at A (high) and R-1 (low)

DBRS has today confirmed the A (high) ratings on TMX Group Limited’s (TMX or the Company) Issuer Rating and Senior Unsecured Debt, and confirmed the Company’s Commercial Paper rating at R-1 (low). The trends remain Stable. The terms of the Senior Unsecured Debt rank it pari passu with outstanding bank debt and, consequently, it has been set equal to the Issuer Rating. The Company has appropriate liquidity backstops provided by well-rated banks to support the Commercial Paper program, which in turn supports use of DBRS’s standard short-term to long-term rating mapping.

TMX is a strong franchise whose various businesses operate in equities, fixed income, derivatives and energy markets by providing services encompassing listings for issuers, trading, clearing, settlement and depository facilities, data delivery solutions and products and technology services. In Canada, TMX is by far the preeminent player in these markets with significant market share across a breadth of products. Risk management, reputational risk issues and governance are critical for TMX’s exchanges and clearinghouse operations. TMX has a plethora of controls, collateral agreements, margin arrangements, delivery versus payment processes, risk sharing by members, the ability to assess members to cover losses, legal super priority positioning, etc., which DBRS views as appropriate to mitigate risks. TMX businesses do not actively take direct market risk, as they are not making markets or taking proprietary positions in the markets they shepherd. Furthermore, as a neo-regulator themselves, TMX sets a good example for governance best practices. TMX appears to be successfully managing operational risk as losses have not been notable.

TMX is a public company, with significant ownership by a group of prominent participants in the Canadian investment industry. DBRS believes that the importance of the Company’s operations, such as The Canadian Depository for Securities Limited (CDS) and the Toronto Stock Exchange (TSX), to the Canadian financial system could potentially prompt government intervention in the event of a major capital markets disruption; however, the holding company, TMX, would not be a direct receiver of this support and therefore no government support has been applied in the rating assessment. The operating subsidiaries of TMX have no externally issued debt (other than operating/clearing lines). Consequently, DBRS has not found it necessary at this time to apply the “Rating Holding Companies and Their Subsidiaries” methodology that might otherwise call for an additional rating notch down compared to the strength of the operating companies. Any change in this regard would require re-examination of the structural subordination.

TMX subsidiaries have extensive oversight by various regulators, in and outside of Canada. This oversight provides additional scrutiny at the operating subsidiaries, which is positive for the ratings. Notwithstanding, TMX subsidiaries also are exposed to additional regulatory risk due to uncertainty surrounding regulatory requirements.

Following the Maple transaction that included the acquisition of CDS and Alpha Trading Systems Inc. in 2012, TMX’s debt level continues to be high, limiting financial flexibility. Although some progress has been made, in order to support the current rating DBRS expects management to continue to improve the overall absolute level of debt, proportion of debt in the capital structure (debt-to-capitalization), EBITDA interest coverage levels and debt-to-EBITDA levels in a paced, but methodical, manner.

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 primary rating methodology used by DBRS to assess TMX is the General Corporate Methodology, including the TMX Group Limited specific section in Appendix 1. Supporting methodologies include Rating Holding Companies and Their Subsidiaries and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers. Supporting document includes Rating Scales: Short-Term and Long-Term Rating Relationships, which can be found on our website under Rating Scales.

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