DBRS Morningstar Places SNC-Lavalin’s Issuer Rating and Senior Debentures Rating Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) placed SNC-Lavalin Group Inc.’s (SNC or the Company) Issuer Rating and Unsecured Debentures rating, both currently rated BB (high), Under Review with Negative Implications. The rating actions are largely based on continued concern about risk management and project control issues following the Company’s announcement of approximately $295 million in additional provisions taken for legacy lump sum turnkey (LSTK) litigation matters and commercial claims. It is also taking approximately $90 million in charges on its remaining LSTK projects that continue to be affected by the Coronavirus Disease (COVID-19) pandemic. As a result of this announcement, key credit metrics continue to face short-term deterioration, below that of the current rating.

On February 9, 2021, SNC also announced the sale of its existing oil and gas (O&G) business, which has reported losses for the past three years, allowing for a clean exit from nearly all O&G LSTK obligations. DBRS Morningstar notes that SNC is making progress towards realizing its strategic direction and de-risking the business to focus on its core engineering services business. The remaining Resources business, including Mining, will take a $95 million charge related to the close-out of SNC’s remaining LSTK mining project and historical claims and litigations. The transaction is expected to close in Q2 2021, subject to customary closing conditions.

DBRS Morningstar anticipates gradual improvement in SNC’s business profile in the medium term; however, earnings recovery and stability remain key issues in the near term. DBRS Morningstar expects to resolve the Under Review with Negative Implications status once SNC releases its fiscal 2020 results and upon further discussions with management about risk control processes and restructuring strategies as the Company continues to navigate the challenges surrounding its legacy business.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Companies in the Construction and Property Development Industry (November 20, 2020), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021), and DBRS Morningstar Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (August 24, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

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 under Related Documents or by contacting us at [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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