DBRS Morningstar Confirms Caisse de dépôt et placement du Québec at AAA and CDP Financial Inc. at AAA and R-1 (high)

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Caisse de dépôt et placement du Québec (La Caisse or CDPQ) at AAA. DBRS Morningstar also confirmed CDP Financial Inc.’s (CDP Financial) Long-Term Debt rating at AAA as well as its Canadian Short-Term Promissory Notes, U.S. Commercial Paper Notes, and Euro Commercial Paper Notes ratings at R-1 (high). All trends are Stable. The ratings are supported by a legislative framework that results in a substantial and captive asset base, a low-recourse debt burden, ample liquidity, and strong operating performance.

La Caisse achieved a total return of 10.4% in 2019, driven by a strong performance in equity portfolios, including public and private equities, as well as a high return from fixed income investments. On a relative basis, the overall portfolio underperformed its benchmark (BM) by 150 basis points (bps). Net assets increased by $30.6 billion to $340.1 billion in 2019 as a result of $31.1 billion in net investment results, which was offset by $0.5 billion net withdrawals by depositors. Net returns measured over both a five-year and a 10-year investment horizon have outperformed their BMs by 90 and 100 bps, respectively.

La Caisse’s investment approach has remained largely unchanged in recent years. The key pillars of the strategy continue to be BM-agnostic management, a bias toward quality assets, developing investment partnerships, increasing global diversification, and contributing to the economic development of Québec. At the same time, management continues to enhance its risk management and depositor relationship management functions. La Caisse’s credit profile continues to benefit from a diverse and captive group of depositors that has continued to grow in recent years. In 2019, the board reviewed and approved the 2020–23 strategic priorities of each investment group, which are in line with the previous plan. In 2019 and early 2020, La Caisse announced two key appointments to its management team: a new chief economist and a new president and chief executive officer. In April 2020, La Caisse combined the International Private Equity, Infrastructure, Capital Solutions, and CDPQ Infra into the Real Assets and Private Equity group and announced an internal appointment for its new head. Other changes to the management team included a new head of equity markets and a new head of Québec Investments and Stewardship Investing. In addition, La Caisse is seeking a new head of Liquid Markets after the prior head moved to his new role as the head of Real Assets and Private Equity.

Debt with recourse to La Caisse increased to $21.1 billion in 2019, or 5.8% of adjusted net assets. Despite the slight increase, recourse debt burden remains well below the board-approved limit of 10% of adjusted net assets, providing considerable room for cyclical fluctuations in asset values. La Caisse meets the DBRS Morningstar criteria for commercial paper (CP) liquidity support, as outlined in the Appendix to the DBRS Morningstar methodology “Rating Canadian Public Pension Funds & Related Exclusive Asset Managers” under the heading “Self-Liquidity for Canadian Public Pension Funds and Related Exclusive Asset Managers’ CP Programs.” La Caisse’s liquidity position remains sound, with sufficient same-day available funds equal to at least five business days of upcoming liabilities and discounted assets equal to the remaining maximum authorized CP program limit, which is consistent with DBRS Morningstar’s policy on backup liquidity support for pension plans and provides considerable short-term financial flexibility.

DBRS Morningstar notes that a USD 4.0 billion credit facility guaranteed by CDPQ for general corporate purposes was put in place in 2017 as an additional source of liquidity. The credit facility was renewed in 2019 and remained undrawn as at December 31, 2019.

The rating includes additional analysis on the expected performance as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19) pandemic.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 27, 2020) and North American Structured Finance Flow-Through Ratings (January 2, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on these issuers took place on July 5, 2019, when DBRS Morningstar confirmed the outstanding ratings with Stable trends.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Clara Vargas, Senior Vice President
Rating Committee Chair: Tim O'Neil, Managing Director
Initial Rating Date: September 23, 2002

The full report providing additional analytical detail is available by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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-- Rating Canadian Public Pension Funds & Related Exclusive Asset Managers (April 27, 2020)
https://www.dbrsmorningstar.com/research/360302/rating-canadian-public-pension-funds-related-exclusive-asset-managers
-- North American Structured Finance Flow-Through Ratings (January 2, 2020)
https://www.dbrsmorningstar.com/research/355220/north-american-structured-finance-flow-through-ratings