DBRS Comments on Superior Plus Corporation’s Dividend Cut

DBRS notes that Superior Plus Corporation (the Corporation) has reduced its monthly dividends by 50% to $0.05 (from $0.10) per share, or $0.60 (from $1.20) on an annualized basis, effective with the November 2011 dividend. In announcing the dividend cut, the Corporation indicated that the primary rationale was to reduce its dividend payout ratio and provide additional funds to repay debt. With the revised dividend, the Corporation anticipates approximately $70 million to $75 million per year of free cash flow available for debt reduction based on its current 2012 guidance. The current dividend reduction follows the 26% reduction effective with the March 2011 dividend from $0.135 per unit, or $1.62 on an annualized basis.

On September 12, 2011, DBRS downgraded the Senior Secured Notes and Senior Unsecured Debentures ratings of Superior Plus LP (Superior) to BB (high) and BB (low), respectively, from BBB (low) and BB (high), respectively, with both trends changed to Stable from Negative. DBRS also assigned an Issuer Rating of BB (high) with a Stable trend to Superior. Superior is a 99.9%-owned subsidiary of the Corporation.

DBRS notes that the current dividend reduction represents a material step toward reducing the Corporation’s relatively high debt levels and preserving its reasonable liquidity level ($237 million of availability on September 30, 2011, under its credit facility maturing on June 27, 2014), although its cost of equity capital will likely remain high, at least in the near term. The Corporation’s plan to reduce the principal amount of its 5.75% convertible subordinated debentures maturing at year-end 2012 to approximately $50 million on December 15, 2011, will reduce its 2012 maturities to more manageable levels. Finally, DBRS also notes that the current economic environment presents downside risk to the Corporation’s 2011 and 2012 financial guidance and that any material deterioration in Superior’s business risk profile or financial profile would likely lead to negative rating actions.

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

The applicable methodologies are Rating Companies in the Industrial Products Industry and DBRS Rating Methodology for Leveraged Finance, which can be found on our website under Methodologies.