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Citing its improving debt position, DBRS Ltd. has upgraded its credit rating trends on independent asset manager CI Financial Corp. to stable from negative.

The Toronto-based rating agency affirmed its ratings on CI and revised its ratings trends for both the parent company and its main subsidiary, CI Investments Inc., due to the stabilization of the company’s debt-to-EBITDA ratio.

“While elevated from historical levels, the company’s good earnings and cash flow generation enable it to adequately service its debt,” DBRS said, noting that it’s assuming CI will not significantly increase its debt levels from current levels, and that it won’t finance future share buybacks with large quantities of new debt.

In affirming the company’s ratings, DBRS pointed to CI’s strong market share in the Canadian asset management industry, and its large assets under management (AUM) position, which enables it to produce enough cash flow to service its debt and to maintain high returns on equity.

“CI’s scale enables it to compete effectively among peers and positions it well within the mature asset management landscape in Canada, where consolidation of both manufacturers and distributors is taking place,” DBRS said.

In its report, DBRS said, “The company is experiencing growth in its asset administration segment even as it continues to experience a high rate of redemptions in its asset management business. Despite net redemptions, CI has managed to grow its AUM in recent years through acquisitions and market appreciation.”

The rating agency noted that CI is attempting to return to positive net sales, “partly by enhancing its product suite to include more active exchange-traded funds and offerings geared toward the high-net-worth investor as well as by further investing in its distribution networks.”

Looking ahead, DBRS said that CI is well positioned to “adapt to changing market conditions through investing in digital technology and distribution and enhancing its product suite.”

Despite these generally positive considerations, DBRS noted that there are still some concerns about the company’s financial flexibility due to its elevated debt levels and continued fund redemptions.

“While earnings remain strong and have not yet been materially impacted by the current environment of declining asset management fees, high debt levels leave the company vulnerable to a potential scenario of declining fees coupled with a rapid decline in its AUM base,” it said.

A further decline in financial flexibility, a material loss of market share, or continued net outflows could put negative pressure on the company’s ratings, DBRS said.

Conversely, a material reduction in leverage, success in stemming the flow of redemptions, or a sustained increase in free cash flow could lead to ratings upgrades.