DBRS has confirmed its ratings on the Caisse de dépôt et placement du Québec and CDP Financial Inc., the rating agency said Thursday.

The rating agency notes that the Caisse’s total portfolio recorded a return of negative 25% in 2008 and missed its benchmark by a substantial 658 basis points, erasing nearly two and a half years of returns, and taking the 10-year average return down to 3.6%.

Nevertheless, the trends on the ratings remain stable in spite of the erosion in the Caisse’s net asset base, which was primarily driven by the sharp downturn in global equity markets. “This reflects the Caisse’s strong liquidity position, large base of unencumbered assets ($120.1 billion at Dec. 31, 2008) and low level of recourse debt,” DBRS explains.

Following the poor results, the Caisse underwent substantial changes, including the appointment of a new CEO, a chairman and some group heads, DBRS notes. “As a result of the poor 2008 results, the Caisse also came under a great deal of public scrutiny, which led to a parliamentary commission and new administrative requirements to improve transparency and accountability. The parliamentary commission also expressed its desire to maintain the Caisse’s mandate, essentially reaffirming its strong support for the independence of the organization,” it said.

“As the global economy continues to show signs of volatility and weakness, the Caisse is expecting relatively modest returns for 2009. Nonetheless, the Caisse remains well positioned to take advantage of attractive investment opportunities in the current market, which should generate returns in excess of the depositor’s requirements as the economy and financial markets recover,” it says.

As for CDP Financial, the financing vehicle guaranteed by the Caisse, DBRS reports that it increased debt by $3.4 billion to $6.7 billion in 2008 in an effort to bolster liquidity. “This pushed recourse debt to net assets up to 5.6%, which remains well below the Caisse’s internal limit of 7.5% and leaves considerable financial flexibility for the organization,” it says. “Debt needs are expected to remain minimal in 2009 given the intention to decrease the portfolio’s leverage; recourse debt is expected to be modestly reduced by year’s end.”

IE