CI Financial has spun off its US wealth management business, Corient, with separate boards and management, and day-to-day Corient operations are run from its headquarters in Miami.

Debts from CI's M&A moves in the US space are the only thing that still connects the two entities. But the Toronto-based asset and wealth manager will close that chapter by January 2025, CEO Kurt MacAlpine said during the firm's first-quarter earnings call.

“The debt is the last part of Canada's separation from American business,” he said. “Businesses are essentially divisible now, or IPO-ready, to put it another way.”

As of Q4 2023, CI still had $281 million in outstanding US M&A obligations, but that number fell to $235 million during the quarter. CI expects these obligations to be settled in full by next January, with payments over the next four quarters to be $106 million, $63 million, $42 million and $24 million, respectively (all totals are in Canadian dollars).

This quarter, CI also received covenant relief on the 2025 and 2027 notes that prevented Corient from borrowing independently, and after the 2024 notes mature in July, the US business will be better able to take on third-party debt if it wants to . That would “support inorganic growth opportunities” in the US, according to MacAlpine.

“From Corient's perspective, the goal is for Corient not to rely on Canada's cash flow as it relates to financing future acquisitions,” he said.

When those obligations are settled, to the extent Corient engages in M&A, it will be financed by cash flow and the debt it assumes, MacAlpine said. The CEO said that looking at Corient's earnings and expense patterns shows that the company has “huge cash flows” and that the cash (along with access to moderate leverage) would enable Corient to grow at a strong pace. .

“But I wouldn't foresee Corient competing with high leverage,” he said.

Both the Canadian and US wealth management businesses saw positive organic growth in the first quarter. At Corient, adjusted EBITDA grew 8% quarter-on-quarter and 26% year-on-year. There were no purchases this quarter.

CI has acquired dozens of US-based firms since entering the US market four years ago, and is currently bringing them all under Corient brand established last year. Firm first planned to sell as much as a fifth of its US wealth business in a public offering to pay down a debt ratio of more than four times earnings, but in May 2023 she decided to sell 20% of the shares for several investors (including Bain Capital and Abu Dhabi Investment Authority) for just over $1 billion.

While Corient received an independent credit rating of A by Kroll Bond Ratings Agency in February, Moody's downgraded CI Financial's debt rating earlier this month from Baa2 to Baa3, which is still investment grade.

According to the Moody's report, the downgrade was due to “elevated liabilities associated with acquisitions and share repurchase activities, resulting in a high debt leverage that is no longer commensurate with its previous rating level.”

During the first-quarter earnings call, MacAlpine said credit ratings will largely be “a function of how the credit agencies view debt reduction” at the company. Once CI's obligations to Corient are met, cash flow in Canada will be “specifically focused” on share buybacks and debt reduction. According to MacAlpine, the firm is currently focused on the former.

“If we have the opportunity to buy shares at the price we share, we think it's the best move,” he said.