DBRS Confirms George Weston Limited’s Ratings and Removes Them from Under Review with Developing Implications

DBRS has today confirmed the Notes & Debentures rating of George Weston Limited (Weston or the Company) at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high), all with Stable trends.

The ratings have been removed from Under Review with Developing Implications, where they were placed on December 10, 2008, following Weston’s announcement that its subsidiary, Dunedin Holdings S.a.r.l. (Dunedin), had 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. In its review, DBRS intended to focus on Weston’s intentions with respect to its large cash and cash equivalent balance, its remaining operating business and its investment in Loblaw Companies Limited (Loblaw). On January 21, 2009, this transaction was completed as planned.

DBRS believes Weston’s business risk profile remains well placed in the BBB rating category. The view reflects Weston’s strong brands and above-average operating efficiency. DBRS estimates that Weston’s pro forma (from continuing businesses) adjusted EBITDA for 2008 was $185 million – better than our original expectations of approximately $175 million. 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, and DBRS’s expectation that Weston will achieve growth in EBITDA (based on continued brand development, operational efficiency gains and increased investment in the Frozen segment).

As for the short-term rating, DBRS believes Weston’s liquidity profile remains commensurate with the R-2 (high) category, based on its long-term rating, positive free cash generating capacity, high level of cash and marketable investments and manageable debt and maturity schedule.

With the sale of its U.S. fresh bread and baked goods business, Weston is in a flexible position to pursue new, value-creating opportunities. DBRS estimates that Weston currently has cash and cash equivalents of approximately $3.5 billion, while the gross debt balance is only $770 million and the preferred share balance, after adjusting for the announced redemption of its Preferred Shares, Series II, is $835 million. That said, the Company has stated that it will take its time in deciding how it will deploy its cash on hand. DBRS believes Weston has the ability to remain in the BBB rating category (with its continuing businesses) with an appropriate financial profile (i.e., gross debt-to-pro forma EBITDA a maximum of 2.5 times).

Although Weston has not announced any final decisions on the use of the proceeds from divestitures, DBRS has decided to confirm the ratings and remove them from Under Review with Developing Implications at this point in time. The current ratings reflect the Company’s financial capacity and intentions and its core business risk profile. DBRS will reassess the ratings after Weston makes an announcement that relates to the intended use of its cash and cash equivalents on hand.

In terms of Loblaw, although the credit risk profile remains less certain in the near term (long-term rating of BBB with a Negative trend, short-term rating of R-2 (middle) with a Stable trend), the ratings for Weston at BBB and R-2 (high) primarily reflect its stand-alone operating businesses and financial risk profile without any support from Loblaw. 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.

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

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

This is a Corporate rating.