DBRS Confirms Wajax Corporation at BB (high) and BB (low), Stable Trends

DBRS has confirmed the Issuer Rating and Senior Unsecured Notes rating for Wajax Corporation (Wajax or the Company) at BB (high) and BB (low) with a Recovery Rating of RR6, respectively; all trends are Stable. The Issuer Rating reflects the Company’s adequate business profile and its satisfactory financial profile. Credit metrics exceed the currently assigned ratings, despite slightly softer results across the Company’s segments catering to resource-based industries. DBRS has determined Wajax’s asset value at default based on a liquidation analysis in which DBRS applies discount values to Wajax’s assets.

Wajax’s performance was slightly weaker in 2013 relative to DBRS’s expectations as revenues and earnings declined by more than expected. The ongoing challenging conditions in the resource sector as a result of softer commodity prices, decreased production and little or no expansion continued to weigh in on results. Revenues in the Company’s equipment and power systems segments were down, and operating income was affected across all three segments – Equipment, Power Systems and Industrial Components. Earnings declines were further exacerbated by competitive conditions across the capital goods dealership industry. Similar developments affected H1 2014, with particularly strong declines in Q1 2014.

Credit metrics for the last 12 months ended June 30, 2014 were slightly lower compared to those at year-end 2013, but remained above the currently assigned ratings. Wajax refinanced its credit facility, extending the maturity to by three years to August, 2019 and increasing the revolving term portion to $220 million from $190 million previously.

DBRS expects mixed conditions to continue to affect Wajax’s revenues, earnings and cash flows negatively over the next 12 months. The Company’s diversified exposure, including geographic and end-market multiplicity, should offset some of the declines in other areas, although substantial improvement to the financial profile is not expected over the next 12 months. DBRS expects the Issuer Rating to remain at BB (high), although a review will occur in the event that the Company’s indebtedness increases significantly or in the event of substantially lower-than-expected results.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Capital Goods Dealership Industry which can be found on our website under Methodologies.