TEXT-Fitch rates Brookfield Asset Management notes 'BBB'
Sept 10 - Fitch has assigned 'BBB' ratings to Brookfield Asset Management, Inc.'s (BAM) CAD$425 million 4.54% Medium Term Notes due March 31, 2023. The rating Outlook is Stable. Proceeds will be used for general corporate purposes including the partial redemption or repurchase of BAM's outstanding 8.95% Notes due in 2014. BAM's ratings are supported by its diversified business portfolio, principally commercial real estate and power generation assets, which provide a stable stream of earnings and cash flows. 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 and publicly-listed investments. Key Negative Rating Drivers --Structural subordination of BAM's cash flows to debt at the project level or subsidiary debt; --High degree of leverage at the operating entities. BAM's real estate and power assets are largely encumbered at the project level; --Opportunistic value oriented investment strategy can alter the risk profile. BAM recently announced a corporate restructuring which will consolidate almost all of BAM's real estate assets into a new entity, Brookfield Property Partners (BPP). BPP will be publicly traded with BAM owning the vast majority of its outstanding shares. 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 Energy Partners. Following the creation of BPP, BAM has largely completed its evolution into a holding company. 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. As a holding company with a portfolio of investments, rather than an operating company, Fitch analyzes cash flows that directly accrue to BAM in the form of dividends, distributions, and asset management fees against parent level debt currently around CAD$4.5 billion. The resulting Adjusted Parent Only Cash Flow produces a debt service coverage measure of approximately 4.5x in Fitch's models. The creation of BPP does not materially alter cash flow and Fitch expects coverage measures to remain relatively stable over the intermediate term. What Could Trigger A Rating Action 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.
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