PrefBlog

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”.

TransCanada Corporation today announced that:

it has entered into an agreement with a syndicate of underwriters, led by BMO Capital Markets, RBC Capital Markets, and TD Securities Inc. under which they have agreed to purchase from TransCanada and sell to the public 39,470,000 Subscription Receipts.The purchase price of $38.00 per Subscription Receipt will result in gross proceeds of approximately $1.5 billion. The net proceeds of the offering will be used by TransCanada towards financing the proposed acquisition of the American Natural Resources Company and ANR Storage Company (collectively, ANR). TransCanada announced the acquisition of ANR together with the acquisition of an additional interest in Great Lakes Gas Transmission Limited Partnership for a total of approximately US$3.4 billion, including US$457 million of assumed debt, on December 22, 2006.

TransCanada has also granted the Underwriters an option to purchase up to an additional 5,920,500 Subscription Receipts at a price of $38.00 per Subscription Receipt at any time up to 30 days after closing of the offering.

On closing of the ANR acquisition, the Subscription Receipts will automatically be exchanged on a one-to-one basis for common shares of TransCanada without any further action on the part of the holder and without payment of additional consideration.

Readers will recall that DBRS placed these issues Under Review with Developing Implications in December:

DBRS estimates that, on a pro forma consolidated basis, the Company’s debt-to-capital ratio (62% on a DBRS-adjusted basis as at September 30, 2006) would rise to 69% on a 100% debt-financed basis.

However, given new common equity worth $1.5-billion against a total price on the acquisition of about CAD $4-billion, it would appear that the debt-to-capital ratio will be materially unchanged … but note that I have not done a credit analysis or read any fine print!

I’ll update this post when we see what DBRS has to say.