DBRS Comments on Superior Plus’s Recent Announcements Regarding the Proposed Canexus Acquisition

DBRS Limited (DBRS) has today noted the recent developments regarding Superior Plus Corporation’s (SP-Corp) proposed acquisition via the arrangement agreement to purchase all equity interests of Canexus Corporation (Canexus) announced on October 6, 2015. The arrangement agreement has an Outside Date of June 29, 2016, after which either SP-Corp or Canexus will be entitled to terminate the agreement, unless the date is extended by mutual agreement.

Through the announcements on June 20, 2016, and June 27, 2016, SP-Corp indicated that the Federal Trade Commission has rejected remedy proposals made so far, has filed an administrative complaint that the acquisition would violate U.S. antitrust laws and is seeking a temporary restraining order and preliminary injunction to prevent the closing of the acquisition pending legal proceeding. SP-Corp also revealed that SP-Corp and Canexus have not reached an agreement to extend the Outside Date, although discussion is ongoing.

DBRS placed all ratings of Superior Plus LP (SP-LP or the Company), including its Issuer Rating and Senior Secured Notes rating (both at BB (high)) and Senior Unsecured Debentures rating (at BB (low)), Under Review with Negative Implication on October 6, 2015, in the view that, if and when the acquisition is complete, SP-Corp’s assumption of Canexus’ debt could weaken the pro forma combined financial metrics at closing to levels not consistent with its current ratings. SP-Corp has expressed its intention to reduce its debt-to-EBITDA back to its current level within 18 months to 24 months after closing.

Since there are still considerable uncertainties over the timing and the outcome of the proposed acquisition, DBRS will monitor developments in the near future and assess the impact to the ratings as more clarity emerges. DBRS reiterates its view that, if and when the acquisition closes as planned, DBRS could consider downgrading SP-LP in the event that weaker-than-expected operating results and/or higher-than-expected borrowing cause the Company’s financial metrics to be materially weaker than the pro forma levels anticipated at closing. Alternatively, DBRS could confirm the ratings but change the trend to Negative if pro forma financial metrics at closing are as expected, and monitor the progress in business integration and leverage reduction in the following 12 months to 18 months. Smooth integration and substantial progress toward SP-Corp’s leverage target of unadjusted debt-to-EBITDA between 3.0 times (x) and 3.5x could eventually lead to restoring the trends to Stable. DBRS could also confirm the ratings and change the trends to Stable if the acquisition does not materialize and SP-Corp maintains its current leverage and financial metrics.

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

The applicable methodologies are Rating Companies in the Industrial Products Industry and Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.

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