Dominion Bond Rating Service confirmed the ratings of Industrial Alliance Financial Services Inc. following news that Industrial Alliance is playing white knight to Clarington Corp.

DBRS notes that Industrial Alliance has made an offer of about $273 million for Clarington, in the form of cash or shares. The transaction is subject to regulatory approval and is expected to close in January 2006.

“Upon completion, this transaction would add significant scale to the company’s wealth management operations, and further improve the diversification of the overall business profile of Industrial Alliance,” it says. “DBRS believes integration risks to be manageable, given the continuing role of Clarington senior management.”

Industrial Alliance has increased assets under management, through strong growth and the benefit of past acquisitions, to about $21 billion as at September 30, DBRS says. Clarington will add about $4.2 billion of mutual fund assets, increasing assets under management to about $25 billion. In addition, Industrial Alliance also reported assets under administration of $11.7 billion at the end of the third quarter.

In terms of the deal’s funding, IA expects to utilize its strong existing liquidity and also issue $100 million of Tier 1 preferred shares, DBRS notes. “With total capital of $1.7 billion at September 30, this transaction is significant for the company, but still quite manageable. Favourable capital ratios will be maintained, with minimum continuing capital and surplus requirements expected to remain at about 200% and the ratio of debt+preferred/capitalization to increase from the current 19% to a still reasonable 23%.”

Rating agency A.M. Best Co. said that all ratings of Industrial Alliance Insurance remain unchanged following the insurer’s offer to purchase Clarington.

The ratings agency said it expects that at the conclusion of this transaction, the overall leverage and coverage ratios will remain within the target range for the current ratings. Industial Alliance expects to issue approximately $100 million of Tier 1 preferred shares to add to its capital structure. A.M. Best will assign a rating to these securities when they are issued.