DBRS Morningstar Confirms IGM Financial Inc.’s Issuer Rating at A (high), Stable Trend, Following Announcement of Rockefeller Capital Management Investment and Sale of Investment Planning Counsel

DBRS Limited (DBRS Morningstar) confirmed IGM Financial Inc.’s (IGM or the Company) Issuer Rating and Unsecured Debentures rating at A (high). All trends are Stable. The rating confirmations follow the announcement that IGM has purchased an approximately 20.5% equity interest in Rockefeller Capital Management (RCM) for consideration of approximately USD 622 million (approximately $840 million). IGM also announced the sale of Investment Planning Counsel Inc. (IPC) to The Canada Life Assurance Company (rated AA with a Stable trend by DBRS Morningstar) for $575 million, which is expected to close in late 2023. The RCM transaction is expected to be financed with senior unsecured debt and a short-term financing facility to bridge to the IPC transaction closing.

KEY RATING CONSIDERATIONS
The rating confirmations and Stable trends reflect DBRS Morningstar’s view that the investment in RCM is aligned with IGM’s strategic plan to enter the wealth management business in the United States, enabling it to diversify its earnings geographically as well as grow its expertise in products targeted at the high-net-worth and ultra-high-net-worth market segments. While the investment in RCM is not expected to be earnings accretive in 2023 and IGM will lose IPC’s contributions, DBRS Morningstar views the overall impact to IGM’s earnings as modest. The sale of IPC to a related party nonetheless results in the Company’s loss of an established Canadian wealth management platform. Leverage will temporarily increase in the interim period prior to the close of IPC, as a result of bridge financing, but is expected to return closer to current levels by the end of 2023.

RATING DRIVERS
A further increase in scale, as evidenced by higher assets under management and advisement (AUM&A), while maintaining strong profitability and balance sheet metrics would result in a ratings upgrade. Conversely, sustained net outflows affecting the Company’s profitability or material losses related to investments in associates that significantly affect earnings and capital would result in a ratings downgrade.

RATING RATIONALE
The purchase of RCM is expected to be funded through a combination of $575 million from the proceeds of the IPC sale and up to $300 million in long-term debt financing. The IPC transaction close is subject to customary regulatory approvals from the Office of the Superintendent of Financial Institutions and the Department of Finance that may take up to the end of 2023 to complete. The Company will require bridge financing, resulting in a temporary increase in IGM’s debt-to-EBITDA to close to 2.0 times (x) before it declines after the IPC close. The Company expects to maintain debt-to-EBITDA below 2.0x in the long term. DBRS Morningstar considers IGM to be well equipped in handling increases in debt, given the Company’s ample liquidity, strong cash generation, and sufficient financial flexibility.

The sale of IPC will result in a decline in total consolidated AUM&A by approximately $31 billion; while material, DBRS Morningstar does not expect this to meaningfully affect earnings. While IPC generated $326 million in total revenues in 2022, high advisory and business development expenses contributed to EBITDA margins being much lower than the Company’s other investment subsidiaries. IGM also continues to maintain a strong presence in the Canadian wealth and asset management space through its IG Wealth Management and Mackenzie Investments subsidiaries. As a result, the IPC sale will not affect DBRS Morningstar’s view on IGM’s earnings power or franchise strength.

The acquisition of RCM, a hybrid registered investment advisor (RIA), allows IGM to gain a foothold in the competitive U.S. wealth management market, the largest wealth market in the world. The hybrid RIA market segment is also one of the fastest-growing segments in the U.S., offering good opportunities for growth. RCM's track record is short but its well-recognized brand and capable leadership position it for success.

Commensurate with the current ratings, IGM continues to benefit from consistent cash flow generation and strong profitability metrics. Additionally, the Company has maintained positive net flows and a stable net income during a challenging operating environment.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

The Grid Summary Grades for IGM Financial Inc. are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong/Good; Funding/Liquidity – Strong/Good; Capitalization – Strong.

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

The principal methodology is the Global Methodology for Rating Investment Management Companies (December 7, 2022; https://www.dbrsmorningstar.com/research/407010). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.dbrsmorningstar.com.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

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