DBRS Confirms George Weston Limited at BBB, Trend Stable

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

The confirmation follows Weston’s announcement that it will pay a special one-time common share dividend of $7.75 per share, or a total of $1 billion, to shareholders in January 2011. The Company cited that a return of capital was appropriate given increased stability in the capital markets and its strong balance sheet. Weston also believes it is preserving sufficient financial flexibility to meet its ongoing operational and capital requirements, while it continues to assess opportunities to deploy its remaining holdings of excess cash and short-term investments.

DBRS expected Weston to pursue new, value-creating opportunities and/or return capital to shareholders while remaining disciplined in its overall financial management. As such, the special one-time dividend is consistent with DBRS’s ratings view, which reflected the Company’s financial capacity and intentions as well as its core business risk profile.

Weston (deconsolidated, excluding Loblaw) had cash, cash equivalents and short–term investments of $3.5 billion as at October 9, 2010. Pro forma, the special one-time dividend, cash and cash equivalents should be roughly $2.5 billion, while the gross debt balance is only $750 million and the preferred share balance is $835 million. In terms of business risk profile, Weston remains well placed in the BBB rating category based on its strong brands and above-average operating efficiency. The Stable trend reflects the fact that Weston has been successful at managing commodity cost increases and maintaining its market position in a competitive environment, and DBRS’s expectation that Weston will achieve growth in EBITDA (based on continued brand development, operational efficiency gains and increased investment including the recent acquisitions of Ace Bakery and Keystone Bakery Holdings, LLC).

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.

Weston will remain well positioned to pursue value-creating opportunities after the special one-time dividend, while DBRS believes the Company has the ability to remain in the BBB rating category with an appropriate financial profile (i.e., pro forma net debt-to-EBITDA of approximately 2.0 times).

DBRS will continue to monitor Weston’s decisions with regards to the deployment of its remaining cash, cash equivalents and short-term investments, and will assess the impact to the credit risk profile at such time.

In terms of Loblaw, Weston’s ratings primarily reflect its stand-alone operating businesses and financial risk profile without any support from Loblaw. As such, any change in Loblaw’s ratings would not necessarily affect the ratings of Weston.

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

The applicable methodology is Rating Food Retailers, which can be found on our website under Methodologies.