Morningstar DBRS also confirmed Loblaw's Second Preferred Shares credit rating at Pfd-3 (high). All trends remain Stable.
KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations and Stable trends reflect Loblaw's strong operating performance over the last 12 months ended
CREDIT RATING DRIVERS
Should Morningstar DBRS gain increased confidence that the Company will be able to maintain key credit metrics at levels acceptable for an A (low) credit rating on a normalized and sustainable basis (i.e., debt-to-EBITDA, excluding financial services, of less than 2.25 times (x)) supported by further growth in earnings and the continued strengthening of the Company's business risk profile, Morningstar DBRS could take a positive credit rating action. Conversely; although unlikely, should Loblaw's key credit metrics deteriorate for a sustained period (i.e., debt-to-EBITDA, excluding financial services, increase to more than 3.25x) as a result of either weaker-than-expected operating performance and/or more aggressive financial management, the credit ratings could be pressured.
EARNINGS OUTLOOK
Morningstar DBRS forecasts Loblaw's consolidated revenues to increase to approximately
FINANCIAL OUTLOOK
Morningstar DBRS believes Loblaw's financial profile will continue to gradually strengthen in line with the projected growth in earnings, considering the Company's strong free cash flow (FCF) generating capacity and relatively stable debt levels (excluding financial services). Morningstar DBRS anticipates that consolidated cash flow from operations will continue to track operating income, while capital expenditures and dividends are expected to average out to be higher than
CREDIT RATING RATIONALE
Loblaw's credit rating continues to reflect the Company's strong business risk profile, including its position as
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Loblaw, the relative weighting of the BRA factors was approximately equal.
(B) Weighting of FRA Factors
In the analysis of Loblaw, the relative weighting of the FRA factors was approximately equal.
(C) Weighting of the BRA and the FRA
In the analysis of Loblaw, the BRA carries greater weight than the FRA.
Notes:
All figures are in Canadian dollars unless otherwise noted.
Morningstar DBRS applied the following principal methodology:
Global Methodology for Rating Companies in the Merchandising Industry (
https://dbrs.morningstar.com/research/431175.
Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (
The following methodologies have also been applied:
Morningstar DBRS Global Corporate Criteria (
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.
The credit ratings were initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for these credit rating actions.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.
These are solicited credit ratings.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Tel. +1 416 593-5577
(C) 2024 Electronic News Publishing, source