Brookfield Corp. stockpiles cash and refinances loans to prepare for uptick in deals

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Brookfield Corp. BN-T is stockpiling spare cash and refinancing loans across its portfolios in anticipation of an uptick in deal-making over the course of next year as confidence returns to volatile markets.

The parent company of Brookfield Asset Management Ltd. BAM-T is sitting on US$120-billion of capital that is available to be deployed, with US$4-billion in cash and undrawn credit lines and another US$60-billion in liquid securities.

Given widespread uncertainty in financial markets, Brookfield CEO Bruce Flatt reminded investors that “cash is king” in a letter to shareholders. Higher interest rates have made it tougher for asset managers and private-market investors to fundraise or secure financing, which has curbed deal-making.

But Brookfield appears to have largely resisted those trends so far. And Mr. Flatt said he believes interest rates “have crested around the world” and, as inflation cools, confidence in pricing financial risks is gradually increasing.

All of that should add up to “a very busy period of transaction activity through to the end of next year,” he said. And though Brookfield has been spending some of its cash on share buybacks, as the company believes its shares are undervalued, it expects to rebuild that cash pile and to see more opportunities to put it to work.

Brookfield Corp.’s distributable earnings – a measure of the company’s profits that could be paid out to shareholders – were down 2.6 per cent to nearly US$1.1-billion in the third quarter, before accounting for realizations and after adjusting for the spinoff of the asset manager as a separate business.

Over the past 12 months, distributable earnings before realizations increased 11 per cent year-over-year to US$4.2-billion.

Brookfield earned a profit of US$35-million, or 12 U.S. cents a share, compared with US$716-million, or 24 U.S. cents a share, in the same quarter last year, when profits were boosted by one-time valuation gains.

Over the first nine months of the year, Brookfield has sold about US$25-billion of assets, and US$35-billion over the past 12 months, to bolster its cash reserves.

The company is also waiting to close its acquisition of insurers Argo Group International Holdings Ltd. and American Equity Investment Life Holding Co., which would double the insurance float available to be invested to US$100-billion.

At the same time, the company has refinanced nearly US$15-billion of debt in its private equity business, without significantly increasing its overall cost of debt. And it has refinanced US$23-billion of debt across 131 real estate loans, despite the mounting pressure on commercial real estate.