DBRS has announced that it:

today downgraded the long- and short-term ratings of George Weston Limited (Weston or the Company). The Notes & Debentures have been downgraded to BBB from BBB (high), the Exchangeable Debentures to BBB (low) from BBB and the Preferred Shares to Pfd-3 from Pfd-3 (high), all with a Stable trend. At the same time, DBRS has downgraded Weston’s Commercial Paper rating to R-2 (high) from R-1 (low), also with a Stable trend.

This action removes Weston’s ratings from Under Review with Negative Implications, where they were placed on November 16, 2007 along with Loblaw Companies Ltd.’s (Loblaw).

Although management of Loblaw and Weston are separate, and there is no cross-default or cross-collateralization covenants on the respective debt, Weston’s ratings reflect the investment in Loblaw, as it is a significant portion of the group’s consolidated operations. DBRS’s approach in considering Weston’s debt ratings includes: 1) the implied rating for Weston’s wholly-owned operating businesses; and 2) the support of the Loblaw rating.

Last week, Loblaw’s long-term rating was downgraded to BBB (high) from A (low), while the short-term rating was downgraded to R-2 (high) from R-1 (low). The trend is Negative for the long-term ratings and Stable for the short-term rating. (See separate Loblaw Press Release dated February 7, 2008 for details.)

DBRS has completed its review of Weston and confirmed that the stand-alone businesses are well placed in the BBB rating category. The view reflects Weston’s above average operating efficiency, strong brands, and reasonable financial profile for companies within the bakery sector. The Stable trend reflects the fact that Weston has been successful at passing on price increases and maintaining its market position in a rising cost environment. With regards to the short-term rating, Weston’s liquidity profile is commensurate with the R-2 (high) category based on its long-term rating, the dividend income received from Loblaw, reasonably stable cash flow, a high level of cash and marketable investments and manageable debt levels.

With the downgrade of Loblaw’s ratings to BBB (high) and R-2 (high), the ratings for Weston at BBB and R-2 (high) reflect more its operating businesses and less the support from the Loblaw rating. As such, if there is any further deterioration in Loblaw’s long-term rating, it will not necessarily affect the long-term rating of Weston.

The November 16 Credit Watch has been previously reported. S&P has not yet made any changes from their P-3(high)/Watch Negative level.

One Response to “WN.PR.A WN.PR.B WN.PR.C WN.PR.D WN.PR.E Downgraded by DBRS”

  1. […] Readers will doubtless remember their comment at the time of the Weston downgrade: With the downgrade of Loblaw’s ratings to BBB (high) and R-2 (high), the ratings for Weston at […]

Leave a Reply

You must be logged in to post a comment.