DBRS Limited (DBRS Morningstar) confirmed all ratings of Brookfield Corporation (BN or the Company, formerly Brookfield Asset Management Inc.) and its guaranteed subsidiaries. All trends are Stable. The confirmations reflect BN's ability to continue to grow assets under management (AUM) and fee-bearing capital (FBC); massive size; well-diversified businesses; BN’s strong credit metrics and liquidity, currently and in the medium term; as well as solid financial and operational performances at its affiliates and subsidiaries. The confirmations incorporate challenges currently faced by most segments, particularly the real estate business, including rising interest rates and a potential global economic recession.
DBRS Morningstar reviewed BN's July 2023 announcement regarding Brookfield Reinsurance entering into a definitive agreement to acquire all outstanding shares of common stocks of American Equity Investment Life (the Transaction) not already owned by Brookfield Reinsurance, and opined that the proposed Transaction, as currently planned, would not have a material impact on BN's credit profile,
BN's credit quality is primarily underpinned by its ability and reputation to raise capital from institutional partners to grow AUM and FBC. At the end of March 2023, AUM and FBC amounted to $825 billion and $432 billion, respectively (compared with $725 billion and $379 billion, respectively, at March 31, 2022). This massive size of AUM and FBC allows BN to leverage its global presence and synergies to maintain a solid growth profile and profitability across market cycles. It also allows the asset management (AM) segment to generate strong cash flow from base management fees directly to BN to service its corporate debt obligations. Despite the 25% interest distribution to the shareholders, compared with other segments, this segment continued to be the largest cash distributor to BN in 2022 and Q1 2023. The Company's AUM and capital are invested across businesses. The Company credit profile is further supported by strong cash flow from its affiliates, subsidiaries, and partnerships (renewable power and transition, infrastructure, private equity, real estate, and credit), which are long-life and high-quality assets and are either essential or important to the global economy. Revenues from these well-diversified operations are largely contracted and inflation-linked, and this allows the Company's affiliates and subsidiaries to generate stable cash flows, as well as growing funds available for distributions to BN.
In the medium-to-long term range, DBRS Morningstar expects fundamental operations and business profiles at its subsidiaries, listed partnerships, and private funds to continue to distribute significant cash flow to BN. Firstly, the Real Estate segment, although facing significant headwinds with respect to high debt leverage at asset levels, rising interest rates, and a riskier retail leasing profile, should continue to benefit from high-quality assets, superior diversification, and long leases with solid investment-graded tenants. Secondly, the Renewable and Transition segment and the Infrastructure segment are supported by long-term contracts with solid investment-graded counterparties, good regulatory profiles, and modest volume risk. Lastly, the Private Equity segment continues to grow and generate significant cash flow through an increase in FBC and the strength of its flagship private equity funds.
DBRS Morningstar expects BN to remain resilient in coping with rising interest rates as well as potential global economic weakness in the near-to-medium term. With respect to rising interest rates, BN’s corporate debt maturity is well spread. There are no corporate debt maturities until March 2024 (which is expected to be partially refinanced with $550 million bonds issued in June 2023). Future debt should face higher interest rates, but the refinancing risk remains manageable, reflecting BN’s strong credit profile.
From a financial profile perspective, BN’s liquidity remained very strong as at March 31, 2023, with approximately $2.8 billion in cash and approximately $2.5 billion in available credit facilities as well as approximately $120 billion of capital available at its perpetual affiliates and uncalled commitments at its managed funds (as at the end of 2022). BN's credit metrics for the 12 months ended March 31, 2023, remained above DBRS Morningstar's required levels to support the current ratings. DBRS Morningstar expects BN's metrics and liquidity to continue to remain strong in the medium term, reflecting the strong asset management segment (which benefits from good asset management expertise and continuing growth of AUM and FBC) and its corporate investment of cash and financial assets, as well long-term contractual arrangements at its affiliates and subsidiaries.
In light of the challenges presented by rising interest rates and economic uncertainties, DBRS Morningstar believes the Company's ratings could be under pressure if BN's ability to raise external capital weakens, the credit quality of BN’s affiliates and subsidiaries deteriorates significantly, and/or its corporate credit metrics decline below required levels on a sustained basis. A positive rating action may be taken if BN's AUM and FBC increase significantly from the current level while its credit metrics continue to stay within required levels.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).
All figures are in U.S. dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Entities in the Real Estate Industry (April 11, 2023; https://www.dbrsmorningstar.com/research/412477)
-- Global Methodology for Rating Companies in the Independent Power Producer Industry (May 9, 2023; https://www.dbrsmorningstar.com/research/413646)
-- Global Methodology for Rating Companies in the Pipeline and Midstream Energy Industry (November 3, 2022; https://www.dbrsmorningstar.com/research/404917)
-- Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616)
-- DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 20, 2022; https://www.dbrsmorningstar.com/research/404248)
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)
-- DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (Feb 24, 2023; https://www.dbrsmorningstar.com/research/410196)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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