DBRS Confirms SNC-Lavalin at BBB (high), Trend Changed to Stable

DBRS has today confirmed the rating of SNC-Lavalin Group Inc. (SNC or the Company) at BBB (high) and has changed the trend to Stable from Positive. The rating confirmation follows the Company’s release of financial statements for the year ended December 31, 2011, and of the findings and recommendations outlined in the executive summary of an Independent Review (IR) relating to certain payments and contracts. With this confirmation, the rating has been removed from Under Review with Developing Implications, where it was placed on February 28, 2012.

The rating confirmation primarily reflects DBRS’s view that: (1) SNC should be able to maintain its currently strong financial risk profile and liquidity in light of the relatively moderate impact of the reported payments and related expenses, and (2) the recent developments should not materially affect SNC’s business capability.

Our view also reflects our expectation that management would expeditiously develop a plan and timetable to implement the IR’s recommendation to address the deficiencies identified in the Company’s internal control process and compliance environment, with SNC maintaining its currently strong financial metrics. In view of the findings by the IR that no agency agreements other than those being investigated came to light as being improperly documented in respect to projects to which they did not relate, DRBS expects that expenses related to further similar payments, if any, would not be material.

The trend change to Stable from Positive reflects DBRS’s view that the likelihood that the rating would be upgraded in the near term is reduced because of the following challenges facing the Company:

(1) The potential distraction caused by the recent change in top management and the time needed to develop and implement the recommendations outlined in the IR.

(2) The risk of possible sanctions and impaired reputation related to the payments identified in the IR.

(3) The relatively flat business outlook for the near term, particularly for the Company’s Hydrocarbons & Chemicals and Infrastructure & Environment segments.

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

The applicable methodology is Rating Companies in the Engineering and Construction Industry, which can be found on our website under Methodologies.