DBRS Morningstar Comments on the Outcome of the Legal Process Related to SNC-Lavalin’s Fraud and Corruption Charges

DBRS Limited (DBRS Morningstar) notes that SNC-Lavalin Group Inc. (SNC or the Company; rated BBB (low) with a Negative trend by DBRS Morningstar) has settled the legal proceedings related to fraud and corruption charges.

SNC, along with two subsidiaries (SNC-Lavalin Construction Inc. and SNC-Lavalin International Inc.), faced federal corruption and fraud charges arising from their activities in Libya between 2001 and 2011. Today, SNC settled those charges. In accordance with the settlement, SNC-Lavalin Construction Inc. pleaded guilty in the Superior Court of Québec to a single charge of fraud and agreed to pay a $280 million penalty. Further, SNC agreed to a three-year probation order that requires SNC to engage an independent monitor for periodic review/reporting review of the compliance and ethics programs. Following the settlement, all fraud and corruption-related charges related to Libyan activities were withdrawn against SNC and SNC-Lavalin International Inc.

Earlier this year, DBRS Morningstar noted that the outcome of the legal process remains highly uncertain and, hence, would be assessed at the time of conclusion of the court proceedings. While DBRS Morningstar continues to view this as separate of the Company’s rating, DBRS Morningstar believes that today’s outcome is positive for the Company since it deals with a key overhang that could have resulted in materially negative event risk. The $280 million penalty is payable in equal instalments over a period of five years and is not expected to have a material financial impact on the Company. DBRS Morningstar expects SNC to be able to comfortably fund the penalty payments given its ample liquidity position, supported by a cash balance of $938.9 million as at September 30, 2019 (primarily the proceeds from the 407 sale), and stable operational cash flow generation. Further, DBRS Morningstar notes that the Company’s construction subsidiary had already stopped bidding on contracts in 2015 and SNC believes that the guilty plea by its construction subsidiary will not affect the Company’s eligibility to bid on future projects; thus, DBRS Morningstar does not expect any material impact on the Company’s overall operations or credit metrics.

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