DBRS Places George Weston Limited Under Review with Developing Implications

DBRS has today placed the long-term and short-term ratings of George Weston Limited (Weston or the Company) – the Notes & Debentures at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high) – Under Review with Developing Implications.

The action follows Weston’s announcement today that its subsidiary, Dunedin Holdings S.a.r.l. (Dunedin), has entered into an agreement to sell its U.S. fresh bread and baked goods business to Grupo Bimbo for net proceeds of approximately US$2.5 billion. The completion of the transaction is subject to normal closing conditions, including regulatory approval; if the closing conditions are met, the parties expect the transaction to close in the first quarter of 2009.

Although the transaction represents an opportunity for Weston to realize a significant gain on the sale of this business, which it acquired in 2001, it will fundamentally alter the Company’s profile as the business to be sold represents more than half of Weston’s (ex-Loblaw Companies Limited (Loblaw)) operating income.

Dunedin contributed US$255 million of EBITDA to Weston’s consolidated results for the 52-weeks ended October 4, 2008. On this basis, DBRS estimates Weston’s pro forma (from continuing businesses) EBITDA for the same period to be approximately $175 million – this estimate also adjusts for the December 1, 2008 sale of Neilson Dairy (approximately $50 million of annual EBITDA) to Saputo Inc. for net proceeds of approximately $400 million.

The proposed divestiture of these assets would also have a meaningful impact on Weston’s financial risk profile. DBRS estimates the Company would have total cash and cash equivalents of more than $3.5 billion, after repaying $250 million of notes that come due in February 2009 and satisfying it current intention to redeem approximately $265 million of preferred shares in 2009. This cash and equivalent balance would compare to an estimated gross debt balance of $775 million (after February 2009) and preferred share balance of $835 million.

In its review, DBRS will focus on Weston’s intention with regards to its large cash and cash equivalent balance, its remaining operating business and its investment in Loblaw. DBRS believes that with an appropriate financial profile, Weston has the ability to remain placed in the BBB rating category with its continuing businesses (i.e., gross debt-to-pro forma EBITDA a maximum of 2.5 times).

The ratings for Loblaw (rated BBB and R-2 (middle) with Negative trends) remain unaffected at this point as DBRS believes the proposed transaction, in and of itself, does not impact the credit risk profile of Loblaw.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Consumer Products and Food Retailers, which can be found on our website under Methodologies.

This is a Corporate rating.