Standard & Poor’s Ratings Services has placed the ratings of Great-West Lifeco Inc. and its subsidiaries, Power Financial Corp. and its parent, Power Corp. of Canada on CreditWatch with negative implications following Great-West’s offer to purchase Canada Life Financial Corp for $44.50 per share.

The placement reflects the expected increase in financial leverage and the integration risk that would arise if Lifeco were successful in completing its plan to purchase Canada Life, S&P says. “If Lifeco were successful, it is likely that the ratings on Lifeco and those on its subsidiaries would be lowered by one notch, and a negative outlook would be maintained.”

“The purchase would allow Lifeco to regain its number one position in the Canadian market in all of its major business lines, add scale and strength to its already strong franchise and business position, and contribute another channel and recognized brand name to its multichannel distribution network,” said S&P’s credit analyst Donald Chu.

“Although the benefits in the U.S. are less obvious, the acquisition would allow Lifeco to broaden its platforms and lower its unit cost. Canada Life’s European operations would provide Lifeco with a beachhead into the European market where currently it has very little presence, and would allow for a further diversification by customer, product, and geography,” Chu added.

As for Power, the CreditWatch placement reflects the economic importance of Lifeco to the firms. Lifeco represents 65% of Power Financial’s assets, based on current market values, while its second most important investment, Investors Group Inc. represents another 23%.

If the deal is successful it is likely that the ratings on Power Corp and Power Financial would be lowered by one notch, and a negative outlook would be maintained.