DBRS Comments on Canadian Tire’s Intention to Seek Financial Services Partner

DBRS notes Canadian Tire Corporation, Limited’s (CTC or the Company) announcement yesterday that it intends to seek a financial partner for the credit card assets and related funding liabilities of its Financial Services business. CTC has indicated that any new arrangement would allow the Company to retain the majority of the financial and strategic benefits of its Financial Services business while reducing the financing risk associated with its credit card portfolio.

DBRS views the Financial Services business as a key complement to the retail operations but also recognizes the significant associated funding risks. CTC’s ratings are primarily based on the strength of its retail operations; as such, DBRS has historically made adjustments to financials and key credit metrics in order to better assess the Company’s credit quality and the performance of both its Retail and Financial Services segments on a stand-alone basis.

Should CTC ultimately undertake a partnership with respect to its Financial Services business in a form that allows the Company to retain a reduced income stream from and the strategic benefits of its credit card portfolio, the impact on the rating is likely to be neutral.

DBRS will monitor any new information as it becomes available and will review the nature and terms of any agreement as well as CTC’s intended use of any proceeds.

Notes:
The applicable methodology is Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.