TEXT - Fitch rates Brookfield Asset Management notes 'BBB'
Jan 31 - Fitch Ratings has assigned 'BBB' ratings to Brookfield Asset Management, Inc.'s (BAM) issuance of CAD$175 million 3.95% Medium Term Notes due April 9, 2019 and CAD$175 million 4.54% Medium Term Notes due March 31, 2023. The new issuances are each a reopening of notes originally issued in April 2012 and September 2012, respectively. The Rating Outlook is Stable. Proceeds will be used for general corporate purposes including the redemption or repurchase of BAM's outstanding 8.95% Notes due in 2014. 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. SENSITIVITY/RATING DRIVERS 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). 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. 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. 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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