PrefBlog

Standard & Poor’s has announced:

• We are removing our ratings on Loblaw Cos. Ltd., George Weston Ltd. (GWL), and Choice Properties Real Estate Investment Trust from CreditWatch, where they were placed with negative implications July 16, 2013.
• At the same time, we are affirming our ‘BBB’ ratings on all three companies. GWL and Choice Properties are Loblaw’s parent and subsidiary, respectively.
• We are also keeping our ratings on Shoppers Drug Mart Corp. on CreditWatch with negative implications (where they were placed July 16), as we expect to equalize our ‘BBB+’ rating on Shoppers with our ‘BBB’ rating on Loblaw upon completion of Loblaw’s acquisition of Shoppers and remove Shoppers from CreditWatch.
• The stable outlook on Loblaw and its parent and subsidiary reflects our expectation that stronger profitability from synergies and debt reduction from free cash flow should enable the company to lower its leverage to about 3x in the next two years, which we view as consistent with the ‘BBB’ rating.

On Aug. 2, 2013, Standard & Poor’s Ratings Services removed its ratings on Loblaw Cos. Ltd., George Weston Ltd. (GWL), and Choice Properties Real Estate Investment Trust from CreditWatch, where they were placed with negative implications July 16, 2013. At the same time, Standard & Poor’s affirmed its ‘BBB’ ratings on all three companies. GWL and Choice Properties REIT are Loblaw’s parent and subsidiary, respectively. The outlook on all three companies is stable.

At the same time, Standard & Poor’s kept its ratings on Shoppers Drug Mart Corp. on CreditWatch with negative implications (where they were placed July 16), as we expect to equalize our ‘BBB+’ rating on Shoppers with our ‘BBB’ rating on Loblaw upon completion of Loblaw’s acquisition of Shoppers and remove Shoppers from CreditWatch. Should alternative acquisition proposals emerge, we would reassess all our ratings after considering each company’s response.
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Giving effect to the acquisition, Loblaw’s financial risk profile weakens somewhat, with leverage that is very high for the rating and is exposed to earnings risk amid the Shoppers integration, reduced cash flow protection because of higher debt service, and adequate liquidity to support a heavy debt repayment schedule. We estimate that Loblaw’s pro forma fully adjusted debt to EBITDA will be 3.8x at closing, which is consistent with the ‘BB’ median for industrials, but we expect this would improve gradually to about 3.5x in 2014 and approach 3.0x in 2015.
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We could lower the ratings if leverage remains above 3.5x with poor prospects for improvement, which we expect could occur if intense competition or integration disruptions stagnate revenues and margin improvements, or if unexpected increases in restructuring costs or capital expenditures reduce cash flow for debt reduction.

The placement of these companies on Watch Negative was reported on PrefBlog.

Loblaws has a single preferred share issue outstanding, L.PR.A, an OperatingRetractible.

Weston has four preferred share issues outstanding, WN.PR.A, WN.PR.C, WN.PR.D and WN.PR.E, all Straight Perpetuals.

This entry was posted on Friday, August 2nd, 2013 at 9:52 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.