DBRS Morningstar Maintains GMP Capital Inc.'s Under Review with Developing Implications Status

DBRS Limited (DBRS Morningstar) maintains its Under Review with Developing Implications status on the Pfd-4 rating of GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares. The rating was initially put Under Review with Developing Implications on June 18, 2019, following the announcement that GMP had agreed to sell substantially all of its capital markets business to Stifel Financial Corp. (Stifel). The review was maintained on September 18, 2019, as the transaction had yet to close.

On December 6, 2019, GMP announced that it sold all of its capital markets business to Stifel for a cash consideration of the net tangible book value of the business at closing plus a premium of $40 million. The premium was subject to a $5 million reduction from the original terms of the agreement because of certain specified adjustments made prior to closing. GMP’s assets are now comprised of its 34.4% stake in Richardson GMP Limited (Richardson GMP), $31 million in preferred share investments in Richardson GMP, and working capital worth between $156 million and $166 million. The Cumulative Preferred Shares rated by DBRS Morningstar have remained with GMP.

Furthermore, Harris Fricker, former President of GMP Securities L.P., resigned from the board on the closing of the transaction. GMP’s board is now comprised of eight members: four independents, two representatives of GMP, and two representatives of Richardson Financial Group Limited (RFGL).

GMP, under the leadership of Interim President and chief executive officer Kish Kapoor, is continuing discussions with RFGL to consolidate full ownership of Richardson GMP. Richardson GMP is the Company’s wealth management joint venture in Canada and could become a wholly owned subsidiary and the cornerstone of GMP’s business if this transaction closes. The acquisition would also be subject to separate shareholder and regulatory approvals.

KEY RATING CONSIDERATIONS
The continuation of the review period takes into consideration that the future ultimate ownership and structure of GMP’s business has still not been finalized. DBRS Morningstar will assess GMP’s pro forma structure once it is known whether or not GMP is able to consolidate full ownership of Richardson GMP. This assessment will review the assets and liabilities composition, the Company’s ownership, the Company’s future strategic direction, and management’s ability to execute on this plan.

RATING DRIVERS
DBRS Morningstar could upgrade the rating if GMP’s franchise prospects and its post-transaction pro forma financials are deemed to be stronger with the consolidation of Richardson GMP. Conversely, the rating could be downgraded if GMP’s credit fundamentals weaken.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2019) and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2019), which can be found on our website under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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