DBRS has announced that it:
has today confirmed Loblaw Companies Limited’s (Loblaw or the Company) long-term debt ratings at BBB and its Cumulative Redeemable Second Preferred Shares, Series A rating at Pfd-3, and revised the trends to Stable from Negative.
DBRS believes that the management changes and strategic initiatives made in early 2008 have proved successful in stabilizing the business. Loblaw has been able to keep market share almost level and deliver reasonable revenue growth while improving margins for a full year now. The performance over the past year has led to a significant improvement in key credit metrics – lease-adjusted gross debt-to-EBITDAR for the 52 weeks ending June 20, 2009 is now 2.8 times (x) (compared with 3.1x for 2008, and 3.7x for the 52 weeks ending June 14, 2008), a level that is well within the BBB rating category for Loblaw. With solid performance for four quarters in a row, DBRS is prepared to revise the trend on its long-term ratings for Loblaw to Stable from Negative.
DBRS is prepared to take this action despite the fact that operating performance and credit metrics may actually moderate over the near term due to the effects of food price deflation, a weak economic environment, and intense competition. We believe a more stable Canadian food retailing sector, combined with the initiatives taken by Loblaw over the past year and a half to address its internal problems, have strengthened the Company and positioned it to withstand a more challenging environment within the current rating category. DBRS also acknowledges that Loblaw’s intention to increase its capital budget for the remainder of the year (to $1 billion from previous guidance of $750 million) will use much of the free cash flow that could have been used to reduce net debt further.
L.PR.A was last mentioned on PrefBlog when a bond issue offered a pricing clue last May.
L.PR.A is tracked by HIMIPref™. It is relegated to the “Scraps” index on credit concerns.