DBRS Places Canadian Oil Sands Limited Under Review-Developing

DBRS Limited (DBRS) has today placed the Issuer Rating and Senior Unsecured Long-Term Debt rating of Canadian Oil Sands Limited (COS; rated BBB (low) by DBRS) Under Review with Developing Implications after further review of the announcement of an agreement between COS and Suncor Energy Inc. (Suncor; rated A (low) Under Review with Developing Implications by DBRS) supporting an amended all-equity offer by Suncor to purchase all shares of COS. DBRS notes that the likelihood of the tender offer succeeding is now much higher, following the announced agreement compared with Suncor’s initial unsolicited bid in October 2015. The Under Review with Developing Implications status reflects the change in ownership should the transaction proceed as Suncor’s credit quality is significantly stronger than that of COS. Assuming a successful offer, COS’s Syncrude interest will comprise a part of Suncor’s sizable and diversified oil and gas (O&G) portfolio versus a single-asset company as it currently stands. As a result, the potential ownership by Suncor could result in a rating uplift from COS compared with COS a stand-alone basis. DBRS notes, however, that COS’s current financial profile on a stand-alone basis is expected to erode significantly as reflected by the previous Negative trend on the ratings, given the steep decline in oil prices.

The Under Review with Developing Implications action only relates to this announced transaction. As noted in its commentary on December 22, 2015, DBRS is in the process of completing a full review of the O&G portfolio in response to the recent price declines and outlook for a continued weak pricing environment. In its December commentary, DBRS noted the possibility of more widespread rating actions given the weak pricing environment. This portfolio review is expected to be completed in the near future.

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

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.

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