PrefBlog

DBRS has announced that it:

has today downgraded the long-term rating of RONA inc. (Rona or the Company) to BBB (low) from BBB, maintaining the Negative trend. At the same time, DBRS has downgraded the Company’s Preferred Shares rating to Pfd-3 (low) from Pfd-3, also with a Negative trend.

On May 11, 2011, DBRS changed the trends on Rona’s ratings to Negative from Stable.
…
Subsequent to that statement, Rona released its Q2 2011 results, which delivered same-store sales growth of -9.6%, overall revenue decline of -2.4% and EBITDA of $90 million (versus $133 million year-over-year) as the Company continued to engage in heavy promotional activity to spur growth. Yesterday, Rona released its Q3 2011 results, which delivered same-store sales growth of -5.1%. Overall revenue increased by 2.1% (due to the inclusion of acquisitions and new store openings), resulting in EBITDA of $105.4 million, an increase of 1.7% year-over-year. As such, combined with a moderate increase in debt from the previous year, lease-adjusted debt-to-EBITDAR for the last twelve months ended Q3 2011 increased to 3.1x.
…
The deteriorating operating performance and weakened credit metrics result in a credit risk profile that is no longer consistent with a BBB rating. In terms of outlook, DBRS has maintained the Negative trend on the ratings as we believe meaningful recovery will remain challenging, since Rona is expected to continue facing intense competition in a highly promotional-based, consumer-challenged environment. The Company expects to generate some cost savings, which may help offset investment in pricing. Nevertheless, DBRS expects that any significant improvement in performance will be difficult to realize without same-store sales and margin stabilization over the near term.

If the Company’s plans and performance lead to signs of stabilization in same-store sales, operating income and key credit metrics (lease-adjusted debt-to-EBITDAR of approximately 3.0x) over the next year, the ratings outlook could stabilize. However, a continued and meaningful decline in same-store sales, operating income and key credit metrics over the course of 2012 could result in a downgrade to BB (high).

RON.PR.A was last discussed on PrefBlog in the post RON.PR.A: Ripe for Credit Downgrade?. RON.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

This entry was posted on Friday, November 11th, 2011 at 12:14 am 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.