PrefBlog

DBRS has announced that it:

has today confirmed the Issuer Rating, Medium-Term Notes and Debentures ratings of Loblaw Companies Limited (Loblaw or the Company) at BBB, its Commercial Paper rating at R-2 (middle) and its Cumulative Redeemable Second Preferred Shares, Series A, rating at Pfd-3, all with Stable trends. This action follows the conclusion of DBRS’s review of the Company’s intended acquisition of Shoppers Drug Mart Corporation (Shoppers) and removes Loblaw’s ratings from Under Review with Developing Implications.
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In terms of financial profile, DBRS recognizes that the Transaction would result in a meaningful increase in Loblaw’s balance-sheet debt (approximately $4.5 billion) and leverage. Lease-adjusted debt-to-EBITDAR attributable to the retail operations is expected to peak at the time of closing at approximately 3.79 times (x), materially higher than current levels (2.70x for the LTM ended Q2 F2013). The Company will nevertheless generate healthy levels of free cash flow (estimated in the $600 million to $700 million range after dividends).
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DBRS recognizes that Loblaw possesses the ability to deleverage at a good pace going forward, based on its solid free cash flow generating capacity. DBRS believes that the Company will use such free cash flow primarily for debt reduction over the near to medium term. Specifically, DBRS expects lease-adjusted debt-to-EBITDAR attributable to the retail operations to return below 3.50x, a level that would be considered acceptable for the current rating category, within a reasonable timeframe. The Company’s intention to deleverage, combined with the notable improvements to its business risk profile, lead DBRS to believe that Loblaw is best positioned in the BBB rating category. Should the Company not deleverage to indicated levels within an acceptable timeframe (12 to 24 months) as a result of more aggressive-than-expected financial management or should the Company experience weaker-than-expected operating performance, the current ratings could be pressured.

The instigation of the Review-Developing was reported on PrefBlog.

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

This entry was posted on Thursday, August 29th, 2013 at 9:26 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.