CI Financial has severed its U.S. wealth management business Corient, with separate boards and management, and day-to-day Corient operations run out of its Miami headquarters.
The obligations from CI's M&A moves in the U.S. space is the only thing still connecting the two entities. But the Toronto-based asset and wealth manager will close that chapter by Jan. 2025, CEO Kurt MacAlpine said during the firm's first quarter earnings call.
“The debt is the final piece of the separation of Canada from the U.S. business,” he said. “The businesses are essentially separatable now, or IPO-ready, to put it otherwise.”
As of the fourth quarter 2023, CI still had $281 million in remaining U.S. M&A obligations, but that number dropped to $235 million during this quarter. CI expects those obligations to be fully satisfied by next January, with payments in the next four quarters to be $106 million, $63 million, $42 million and $24 million, respectively (all totals are in Canadian dollars).
This quarter, CI also received covenant relief on 2025 and 2027 notes that prevented Corient from standalone borrowing, and following the maturity of 2024 notes in July, the U.S. business will be better able to take on third-party debt if it chooses. This would “support inorganic growth opportunities” in the U.S., according to MacAlpine.
“From Corient’s perspective, the goal is to not have Corient rely on Canada’s cash flow as it relates to funding future acquisitions,” he said.
When those obligations run off, to the extent Corient is involved in M&A, it will be funded from its cash flow and debt it takes on, MacAlpine said. The CEO said that looking at Corient’s earnings and spending patterns shows the company has “great cash flow,” and that cash (along with access to moderate leverage) would enable Corient to grow at a strong pace.
“But I wouldn’t anticipate Corient running at high leverage,” he said.
Both the Canadian and U.S. wealth management businesses saw positive organic growth in the first quarter. At Corient, adjusted EBITDA grew 8% quarter-over-quarter and 26% year-over-year. There were no acquisitions this quarter.
CI acquired dozens of U.S.-based firms since entering the U.S. market four years ago, and is currently bringing them all under the Corient brand established last year. The firm originally planned to sell as much as a fifth of its U.S. wealth business in a public offering to pay down a debt ratio of more than four times earnings, but in May 2023 it opted to sell a 20% stake to several investors (including Bain Capital and the Abu Dhabi Investment Authority) for a little more than $1 billion.
While Corient obtained an A- independent credit rating from Kroll Bond Ratings Agency in February, Moody’s downgraded CI Financial’s debt ratings earlier this month from Baa2 to Baa3, which is still investment grade.
According to the Moody’s report, the downgrade was due to “elevated acquisition-related liabilities and share repurchase activities, resulting in a persistently high debt leverage no longer commensurate with its previous ratings level.”
During the first quarter earnings call, MacAlpine said the credit ratings would largely be “a function of how the credit agencies view the deleveraging” at the company. After CI’s obligations for Corient are met, the cash flow in Canada will be “singularly focused” on share buybacks and debt reduction. The firm’s currently focused on the former, according to MacAlpine.
“If we have the opportunity to buy shares at the price we’re sharing, we feel that’s the best move,” he said.
