DBRS has announced that it has:
confirmed the ratings of Loblaw Companies Limited (Loblaw) and Shoppers Drug Mart Corporation (guaranteed by Loblaw) at BBB after the announcement that Choice Properties Real Estate Investment Trust (CP REIT; rated BBB by DBRS) has entered into an agreement to acquire the assets and assume the liabilities of Canadian Real Estate Investment Trust (CREIT; the Acquisition). The trend on the ratings has been changed to Stable from Positive.
CP REIT is expected to acquire the assets of CREIT for a total value of approximately $6 billion, forming the largest real estate investment trust (REIT) in Canada with a combined gross leasable area of approximately 69 million square feet and pro forma net operating income of approximately $889 million. The Acquisition is expected to be financed using a combination of CP REIT units, the assumption of existing CREIT indebtedness (nearly $1.5 billion of mortgage debt and $450 million unsecured debentures) and incremental debt in the form of a $1.25 billion term loan facility, as well as an $850 million bridge facility.
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The trend change to Stable from Positive reflects the increase in leverage attributable to Loblaw and CP REIT (estimated by DBRS at approximately 3.66 times (x) lease-adjusted debt-to-adjusted EBITDAR pro forma the Acquisition versus 3.04x for the last 12 months ended Q3 2017) as a result of the Acquisition and the Company’s ongoing litigation related to tax avoidance claims by the Canada Revenue Agency, combined with ongoing uncertainty surrounding the possible impacts of lawsuits, settlements and other costs related to the bread price-fixing investigation by the Competition Bureau. These factors have been considered in conjunction with headwinds faced by the retail business in 2018 from minimum wage increases and recently announced and possible additional generic-drug pricing and health-care reforms.
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If DBRS becomes confident that the ultimate impact of the bread-price fixing investigation and its related costs, as well as the ongoing tax litigation, will not have a material impact on Loblaw, including any effects on future profitability; that the Company’s operating performance will remain sound (in particular the Company’s ability to offset the effects of the minimum wage increase and generic drug pricing reforms in the near term and its capacity to continue to deliver same-store sales and EBITDA growth over the medium term); and credit metrics improve toward the new range considered appropriate for the BBB (high) rating category (i.e., lease-adjusted debt-to-adjusted EBITDAR below 3.50x), a positive rating action could result.
The only affected issue is L.PR.B. Note that DBRS confirmed Weston, Loblaws’ parent, at Pfd-3 [stable] in November, 2017, and there was no further announcement on the Weston issues today.
James,
Could this series L.PR.B be added to PrefInfo and the older L.PR.A tagged there as redeemed? I also found the Prospectus issued on 02 Jun 2015 for the L.PR.B on SEDAR if that helps. 5.3% fixed with a sliding redemption price window that we are in now that ends up at $25 in 2024.
According to the Loblaws corporate site L.PR.A was redeemed as L.PR.B was being issued. “Per its June 1, 2015 news release, Loblaw announced the redemption of all of its outstanding Second Preferred Shares, Series A (TSX:L.PR.A) for cash on July 31, 2015.”
Thanks,
Peter
Could this series L.PR.B be added to PrefInfo and the older L.PR.A tagged there as redeemed?
Well, it’s no secret that PrefInfo has been neglected for a few years now and I’m sorry for that.
The problem has been twofold – my illness, which has now basically cleared up, and the fact that I had first one and now two gigantic projects in hand that have been sucking up all my time.
I hope to be in a position to announce the completion of these projects before year-end. At that point, vast quantities of time will be freed up and I have revisions of PrefInfo on the list; it should, for instance, be reasonable straightforward to get HIMIPref™ to produce the entire PHP script from its own files, meaning that updating the page will merely require pressing a button and uploading the output, rather than half an hour’s worth of fussy copy-pasting.
Until then, I can only suggest that interested readers simply search for tickers of interest in PrefBlog and get subscriptions to PrefLetter.