Moody's Ratings has downgraded the debt of CI Financial, the Toronto-based asset and wealth manager that spun off its US wealth management business into a sister company, Corient. earlier this year.
In an April 22 report, the rating agency downgraded the firm's long-term issuer and unsecured debt ratings from Baa2 to Baa3. The new rating is still investment grade, a notch above junk. Moody's outlook on the ratings is stable.
Earlier this year, CI announced that it had completely disbanded US wealth management business Corient from its Canadian concerns, except for the $281 million in outstanding US debt still on CI's Canadian balance sheets. It still owns 80% of Corient.
Corient also received an independent A credit rating from Kroll Bond Rating Agency on February 20.
But CI lending still has to do with rating agencies; The firm's debt grew as it went on a buying spree of US RIAs, buying dozens of firms since it went public in 2019.
Moody's report cited “elevated liabilities associated with acquisitions and share repurchase activities, resulting in a persistently high debt leverage that is no longer commensurate with its previous rating level.”
At the end of 2023, about C$493 million (or about C$360 million at Friday's conversion rates) of CI's acquisition-related obligations included deferred consideration, earnings and share-based compensation, Moody's said. most of which are due year. Adjusted debt to EBITDA is 4.8x for Baa-rated companies at the end of 2023.
“The proportion of acquisition-related obligations relative to CI's total contractual obligations has become sufficiently material to warrant their inclusion in debt based on Moody's standard adjustments,” the agency said.
A CI spokesman declined to comment.
After months of planning to sell as much as one-fifth of its U.S. wealth management business in a public offering to pay down a companywide debt ratio of more than four times earnings (about $2.9 billion), the firm announced last May that the country of this will to sell 20% of the shares to a syndicate of investors — including Bain Capital, the Abu Dhabi Investment Authority and the state of Wisconsin — for just over $1 billion.
The proceeds from that transaction, as well Sale of Congress Wealth Management to Audax Private Equity for $112 million in April, enabled CI to reduce net leverage by about $746 million, repurchase 17 million shares and increase dividend payments by 11% to $0.60 per share beginning in the quarter fourth of 2023.
CI has worked to integrate its US acquisitions under a single, unified brand, culminating in the launch of an integrated technology platform and new brand last year. The firm has centralized its tax planning and preparation services, along with its investment platform and estate planning and trust services.
As of March 2024, CI had total assets of C$474.2 billion (about $346.6 billion in US currency), including $222.3 billion (about $162 billion in US currency) of US wealth management assets.