DBRS Places SNC-Lavalin Group Inc. Under Review with Negative Implications

DBRS Limited (DBRS) placed the Issuer Rating and Senior Debentures rating of SNC-Lavalin Group Inc. (SNC or the Company), each currently rated BBB, Under Review with Negative Implications.

The rating actions are largely based on growing concerns regarding risk management and project control issues following the Company’s announcement of a considerable project loss within the Company’s Mining and Metallurgy division of approximately $350 million, absent any expected recoveries. This (in addition to a weakening business outlook) is expected to result in a deterioration in financial metrics. Further, the Company required amendments to their financial covenants and, although lenders remain supportive, it is DBRS’s opinion that the necessary amendments to financial covenants in order to avoid a breach under its credit facility agreement is inconsistent with similarly rated companies. Despite current financial challenges, the Company’s liquidity remains positive, with $1.8 billion drawings available under its credit facility as well its access to saleable assets. In upcoming discussions with management, DBRS will be seeking clarification on how the Company plans to address lapses in its risk control framework as well as clarity on its financial outlook and use of Highway 407 sale proceeds, if and when available.

DBRS will be meeting with the Company in the weeks ahead, at which time it will seek to gain clarity regarding the Company’s plan to mitigate further project losses, strengthen internal processes, as well as details regarding proposed restructuring strategies. DBRS expects to resolve the Under Review with Negative Implications status within Q1 2019, subsequent to these discussions.

Regarding the ongoing corruption and fraud charges stemming from legacy contracts, while potentially causing negative rating pressures, DBRS continues to believe no rating action is warranted at this time in view that the legal process could be lengthy and the outcome remains highly uncertain. DBRS will evaluate any potential impact to SNC as and when the legal process progresses.

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.

The principal methodology is Rating Companies in the Construction and Property Development Industry (December 2018), which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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