CI Financial Inc. CIX-T says Morningstar DBRS has refused its request to withdraw its credit ratings, marking the second tussle between the debt-heavy company and an agency that has issued it unfavourable opinions.
In a press release issued Wednesday evening, CI said it made its demand because Morningstar DBRS uses metrics calculated with International Financial Reporting accounting standards but doesn’t make the adjustments that the investment management company “believes necessary to appropriately reflect the company’s underlying results and financial condition.”
Under the rating agency’s methodology, CI says double-digit swings in its leverage ratio have occurred over short time periods. A leverage ratio compares debt with some measure of earnings to assess a company’s ability to pay its obligations.
CI said, however, that Morningstar DBRS “has indicated that it will continue its ratings on CI on an unsolicited basis. CI management is no longer engaging with Morningstar DBRS and any unsolicited ratings are based solely on publicly available information.”
Morningstar DBRS spokesperson Susan Morton had no comment on CI’s statement. She was unable to say how many ratings Morningstar DBRS has currently issued “unsolicited,” without the co-operation of the company or entity it’s rating. Because companies and other debt issuers typically pay such agencies to provide a rating, this means Morningstar DBRS will no longer collect a fee from CI Financial.
The agency downgraded CI on June 17 to its BBB (low) rating, the final step before non-investment grade, known as junk status. It also kept the trend on the CI’s credit ratings negative, which telegraphs the potential for another future downgrade. Morningstar DBRS described the company’s funding and liquidity as “weak” and its capitalization as “weak/very weak” at the time.
CI, which has racked up debt to finance an expansion, had previously asked Standard & Poor’s to stop rating its debt in May, 2023, after the agency downgraded it to junk status. S&P agreed to withdraw its ratings.
Under chief executive officer Kurt MacAlpine, CI purchased more than 30 wealth management companies, most of which were in the United States, over roughly three years. From the end of 2019 to the end of 2022, CI’s debt rose to $4.2-billion from $1.6-billion. The burgeoning U.S. business, dubbed Corient Private Wealth LLC, is at the core of Mr. MacAlpine’s growth strategy for one of Canada’s oldest money management companies.
Debt-rating agency Moody’s Ratings downgraded CI’s debt in late April to its Baa3 rating – the last step before non-investment grade. Moody’s cited CI’s “persistently high debt leverage no longer commensurate with its previous ratings level.” The agency pointed the finger at what it called “elevated” liabilities from CI’s acquisitions.
Egan-Jones Ratings Co. downgraded CI to BBB+ on Aug. 21. The agency’s BBB ratings are its fourth-highest tier, reflecting a “moderate level of creditworthiness.”
Stockholders, however, seem to have become more forgiving of CI’s balance sheet, as the shares hit a 52-week high of $17.64 in Thursday morning trading on the Toronto Stock Exchange, up more than 40 per cent from their 52-week low last October. (CI stock remains well below its recent peak of more than $30, set in November, 2021.)
Mr. MacAlpine told analysts in May that he is “very, very comfortable with the debt levels” at CI and is prioritizing share buybacks. Cash flow from CI’s legacy Canadian operations “will be singularly focused on share buybacks and debt reductions,” as they “would take precedence over deleveraging right now,” he said. He reiterated his preference for buybacks in the company’s August earnings call.