Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

A sign is displayed in front of a home in Toronto in this December 15, 2009 file photo.

Mike Cassese/Reuters

Monopolies on land registries should make for good business in a real estate boom, yet Teranet was just dealt a debt downgrade.

The company, which controls Ontario and Manitoba's land registry systems, saw its debt downgraded by rating agency Standard & Poor's to 'BBB' from 'BBB+.' The new rating still classifies the debt as investment grade, but it suggests there is more uncertainty about the company's future.

The root reason for S&P's action: too much debt. Or as the rating agency put it, a "highly leveraged financial risk profile over the next few years." You may remember Teranet from its blockbuster $700-million initial public offering in 2006 – a major deal in what was otherwise a slow summer. Just a few months after the IPO closed, management's dreams were dashed when the federal government banned the income trust structure that the company employed. The private equity arm of the Ontario Municipal Employees Retirement System pension fund, which is tax-exempt, ultimately took Teranet private in 2008, and the business looked promising coming out of the financial crisis because the real estate market soared. Teranet makes money by charging fees to buyers and sellers of real estate, who must register land, and it also earns income from those who pay to access the company's database to research properties.

Story continues below advertisement

More recently, Teranet has expanded by licensing Manitoba's equivalent land registry, and the company also acquired a New Zealand-based firm that is in the same business. However, those deals came with financial burdens – Teranet paid $75-million up front for Manitoba's business and agreed to help upgrade the province's real estate systems – and commitments such as these have led the company to borrow money.

While debt itself isn't problematic if there are strong revenues to offset the interest payments, S&P worries that Teranet's income streams are looking less lucrative.

The company's "registration activity rate (RAR) has been below our expectations in recent years," the rating agency noted. "The RAR is the company's key revenue driver, and is determined by dividing registration volumes by the total parcel base. We believe a combination of tepid refinancing activity in recent years (given relatively stable interest rates), mortgage rule changes, and structural changes in the composition of the parcel base have contributed to the depressed RAR." Because revenues are weaker, Teranet has less money to cover its interest payments. S&P puts a lot of weight on what it calls the "adjusted funds from operations interest coverage" – and Teranet's adjusted funds from operations amount to only two times its interest payments for the next few years.

By no means is Teranet in dire straits. But the latest downgrade serves as caution, especially if the Ontario and Mantioba real estate markets cool.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies