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These issues are currently rated P-2(low) by Standard & Poors, which today placed them on Credit Watch Negative:

At the same time, Standard & Poor’s placed its ratings, including its ‘BBB+’ long-term corporate credit rating, on parent company George Weston Ltd. on CreditWatch with negative implications.
     “The CreditWatch placement reflects the magnitude of challenges faced by Loblaw,” said Standard & Poor’s credit analyst Don Povilaitis. These challenges include substantially lower profitability, supply chain difficulties, significant senior management changes, a new corporate structure which involves substantially reducing the number of employees at head office, and a material goodwill impairment charge.

…
The ratings on Loblaw and George Weston, which has a 62% equity interest in Loblaw, are linked and jointly influenced by the respective credit profiles. The ratings on the two companies are likely to move in tandem, as Loblaw represents a significant portion of George Weston’s revenues and earnings, and is therefore a key driver of George Weston’s overall performance.

This is due to Loblaw’s announcement of lower earnings and goodwill impairment:

Basic net earnings per common share for the fourth quarter, before taking into account a charge with respect to an expected goodwill impairment, were $0.16 compared to $0.73 in 2005. For the year, basic net earnings per common share, before taking into account a charge with respect to an expected goodwill impairment, were $2.12 compared to $2.72 in 2005.
    The Company has performed its annual goodwill impairment test analysis. Based on this analysis, it is anticipated that the carrying value of the $1.5 billion of goodwill associated with the acquisition of the Provigo business in 1998 is impaired. As a result, the Company expects to record in the fourth quarter an initial estimate of a goodwill impairment charge, which the Company estimates to be in the range of $600 million to $900 million, in its audited consolidated financial statements for the year ended December 30, 2006. This is a non-cash charge that is expected to be finalized and adjusted as necessary in the first half of 2007. This expected charge will result in a negative impact to basic net earnings per common share for the fourth quarter and the full year of $2.19 to $3.28 per share. After the impact of this charge, the Company expects to record a basic net loss per common share in the range of $2.03 to $3.12 in the fourth quarter. For the year, after the impact of this charge, the Company expects a basic net loss per common share in the range of $0.07 to $1.16.

There has as yet been no announcement from DBRS, which rates the issues at Pfd-2(low).

Update, 7:50pm EST DBRS has announced that Weston is “Under Review with Negative Implications”.

This entry was posted on Thursday, February 8th, 2007 at 5:42 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.