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