Dominion Bond Rating Service has confirmed its A (high) & Pfd-2 (high)ratings of Power Financial Corp., citing the firm’s overall credit position.

In a new report, DBRS says that, since downgrades in mid-2003 (as a result of its subsidiary Great-West Lifeco’s acquisition of Canada Life Financial Corp and related rating downgrades on GWL), the overall credit position of Power Financial remained unchanged and provides good support for present ratings.

As part of the Canada Life transaction, Power Financial bought $800 million of GWL treasury shares in 2003, in addition to shares purchased on the open market. Funding for the deal came from a combination of cash and new issuances of preferred shares and debt. “Although the acquisition reduced Power Financial’s financial flexibility somewhat, the overall financial-risk profile still remains favourable,” it says. “Through the first nine months of 2003, Power Financial’s operating income increased, largely due to GWL, which benefited from a combination of organic improvement and the inclusion of Canada Life since purchase. The contribution from Investors Group improved slightly, while the contribution from Parjointco NV to operating earnings was practically unchanged.”

It notes that within the Pargesa holding, improved contributions from Total Fina Elf SA, Suez and Imerys were mainly offset by a loss at Bertelsmann AG. “Fortunately, although the Pargesa investment is meaningful, the major drivers for cash flow and earnings continue to be the more sizeable GWL and Investors Group holdings. Continued progress in these areas are expected to drive ongoing earnings growth for Power Financial in 2004, again partly including the contribution from the Canada Life acquisition. For the first nine months of 2003, core return on common equity remained in the favourable 18%-to-19% range.”

DBRS says that it expects that PFC will maintain its conservative investment and capital philosophies, but it does not expect the low debt ratio to be maintained indefinitely. “With limitations, present ratings would thus allow for higher debt levels at Power Financial, which has a lengthy history of maintaining an unusually conservative balance sheet, even allowing for some movement due to funding for Canada Life.”