Planned U.S. spinoff a positive for CI: Moody’s

CI Financial Corp.’s plan to spin off part of its fast-growing U.S. wealth management division to reduce debt and unlock value in the company is a positive for the firm, says Moody’s Investors Service.

In a research note, the rating agency said CI’s recently announced plan to sell up to 20% of its $151-billion U.S. wealth management business in an initial public offering is credit positive, “because CI has taken on significant debt to support its aggressive expansion into the U.S. wealth management market.”

CI has financed its strategy of buying registered investment advisors (RIAs) primarily with debt. As a result, Moody’s said the company’s financial leverage has risen to levels that exceed its current rating expectations.

“A significant paydown of the company’s $3.8 billion of outstanding debt would help alleviate negative pressure on the company’s credit profile arising from the rapid increase in financial leverage,” it said.

At the same time, the rating agency said the company aims to “unlock value that it believes is not reflected in its share price.”

Moody’s noted that CI is currently valued at about 10 times cash flow, compared to 19 times for a close peer, Focus Financial Partners, LLC.

“Provided the company is able to achieve similar valuation levels for its U.S. business, CI could gain greater financial flexibility as a controlling owner of a business that is expected to grow by 10% annually for the next five years, according to McKinsey,” the report said.

Additionally, Moody’s noted that the planned spinoff would provide a public currency, separate from its Canadian operations, “that could be used to further support M&A and manage the interests of key principals within the U.S. wealth management business.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.