TEXT - Fitch affirms Brookfield Asset Management issuer default rating
Feb 26 - Fitch Ratings has affirmed the long-term IDR of Brookfield Asset Management Inc. (BAM) at 'BBB'. The affirmation affects approximately $3.5 billion of parent level long term debt issued by BAM. The rating outlook is Stable. The affirmation reflects BAM's strong credit profile which is supported by the equity values of BAM's subsidiaries, the largest of which are publicly traded, as well as substantial dividends or distributions from its subsidiaries and investments which are concentrated in the real estate and power generation sectors. BAM receives approximately $600 million annually in dividends from its four largest publicly traded investments, Brookfield Office Properties, Brookfield Infrastructure Partners, General Growth Properties, and Brookfield Renewable Energy. BAM's equity interests in these same investments has an aggregate market value of approximately $18 billion providing substantial interest and asset coverage to BAM's outstanding debt. BAM is a holding company that through majority-owned or controlled operating subsidiaries owns a diversified business portfolio, principally commercial real estate and power generation assets, which provide a stable stream of earnings and cash flows. BAM also derives a stable and recurring revenue stream from its asset management business. BAM is a holding company with a portfolio of investments, rather than an operating company. Therefore Fitch analyzes recurring cash flows that directly accrue to BAM in the form of dividends, distributions, and asset management fees of approximately against parent level debt. The resulting Adjusted Parent Only Cash Flow (APOCF, a non-GAAP or non-International Financial Reporting Standards measure) approximates $1.1 billion and produces a debt service coverage measure of approximately 4.5x in Fitch's models. APOCF to parent level debt is approximately 24%. As recent investments mature, Fitch expects coverage measures to improve 4.5x to 5.0x through 2015, and leverage to improve slightly to 25% to 27%. 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 publicly-listed and maintaining direct access to capital 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 --Opportunistic value oriented investment strategy can alter the risk profile BAM announced the restructuring of its real estate holdings with the majority of its investments held by a new entity, Brookfield Property Partners (BPP). BAM will spin-off an approximate 7% to 10% interest in BPP to its shareholders and BPP will be listed on major U.S. and Canadian exchanges. Key assets of BPP include a 51% interest in Brookfield Office Properties (BOP) and a 21% stake in General Growth Properties (GGP). 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. Liquidity is strong. BAM maintains $2.2 billion in unsecured credit facilities with a consortium of banks and debt maturities are manageable. In January 2013, BAM raised CAD$350 million in seven and ten year debt with coupons of 3.95% and 4.54% to primarily repay higher coupon debt. 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. The holding company structure also protects BAM from the legal risks of its subsidiaries and parental guarantees or other contingent supports are limited. Additionally, there are no cross default provisions between subsidiaries or between the parent and subsidiaries. Rating Sensitivities 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 Fitch currently BAM as follows: Long-term IDR 'BBB' Senior unsecured notes 'BBB' The Rating Outlook is Stable
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