DBRS Ltd. has placed its credit ratings for Toronto-based asset-management firm CI Financial Corp. and its operating subsidiary, CI Investments Inc., under review with negative implications citing concerns about CI’s debt levels.
The Toronto-based credit-rating agency said on Monday that it has “concerns over CI’s growing long-term debt levels” and noted that the company’s debt/EBITDA ratio has increased, with the current ratio “now commensurate with a lower rating category.”
DBRS reported that CI’s “operating cash flow generation remains good” but that, “general expenses, share capital repurchases and dividend payments, rather than investment in the company’s operations, appear to be absorbing the proceeds of the increased debt.”
Added DBRS: “Although CI continues to generate stable earnings, its debt-servicing capacity is deteriorating with its rising debt levels. CI also faces a reduction in its financial flexibility.”
Moreover, DBRS noted that “the persistence of net outflows of assets under management at the company is also a concern.
“The ratings could be downgraded if CI’s debt levels continue to increase and its debt coverage ratios deteriorate to levels commensurate with a lower rating category,” DBRS concluded. “Conversely, the ratings could be confirmed at the current level if the company demonstrates a material reduction in leverage and a reduced dependence on its credit facility.”