S&P: Caisse du depot et placement du Quebec Affirmed At 'AAA' On Low Financial Leverage; Outlook Stable
"The ratings reflect S&P Global Ratings' view of the Caisse's low financial leverage; good liquidity; legal, financial, and operational independence from the Province of Quebec," said S&P Global Ratings credit analyst Stephen Ogilvie.
We assess the fund's stand-alone credit profile (SACP) to be 'aaa'.
The Caisse's financial leverage is low in our opinion. Debt, which consists of loans, term notes, and commercial paper (CP), stood at C$13.8 billion at the end of 2015 and represented 4.8% of total investments. Debt was down slightly from 2014 when it totaled C$14.1 billion or 5.3% of total investments. CP outstanding was C$3.8 billion in 2015 and term debt stood at C$9.9 billion. Total liabilities represented 14.7% of total assets, which has decreased from the past two years. We do not expect any significant increase in debt or total liabilities in the next two years.
We view the Caisse as operationally and financially independent of Quebec. While an agent of the province, the fund is a legally separate and autonomous entity with natural person powers, including legal ownership of its assets. It also possesses what we consider solid governance standards, including a largely independent board with a strong fiduciary spirit. We believe it would be financially resilient to political intervention, given ownership of its assets, large net asset position, and ability to limit withdrawals to about C$15 million per month per depositor if required. Moreover, the province has long taken what we consider a hands-off approach in its dealings with the Caisse and has had no involvement in investment strategy development or day-to-day operations. We expect Quebec will maintain the hands-off approach owing to the fund's legal ownership of assets, the fiduciary obligations of board members, and the government's affirmation of the Caisse's independence.
The stable outlook reflects our expectation that the Caisse's net asset position will increase moderately during our two-year rating horizon. We also expect the fund to maintain its strong management practices and risk management. We further expect that liquidity and financial leverage will be stable.
We could lower the ratings if we came to expect the fund to materially increase its financial leverage (such that total liabilities are greater than 40% of total assets); weaken its liquidity profile; increase its portfolio concentration in Canada or Quebec; or erode its commitment to its risk management framework. We could also lower the ratings if we came to expect the province to deviate from its hands-off approach through legislative changes that undermined the Caisse's operational or financial independence that would cause us to revise our assessment of the fund's link to very strong or integral.