Press Release

DBRS Morningstar Confirms Ratings on Federated Co-operatives Limited at BBB (high) with Stable Trends

November 18, 2021

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes rating of Federated Co-operatives Limited (FCL or the Company) at BBB (high) with Stable trends. The rating confirmations and Stable trends are based on the Company’s recovery in its operating performance for the last 12 months ended July 31, 2021, with fuel volume increasing year over year (YOY), tracking the economy’s reopening and recovery. Furthermore, FCL’s financial profile is expected to remain exceptionally strong for the current overall rating category, mainly because of its low level of debt and financial flexibility. FCL’s ratings continue to be supported by the strong brand and market position of the Co-operative Retailing System (CRS), its co-operative structure, and the high barrier to entry of the refinery business. The ratings also continue to consider the cyclicality of refinery operations, geographic concentration, associated environmental and regulatory risks, and intense competition.

Going forward, DBRS Morningstar expects FCL’s earnings profile to remain supportive of the rating category on a through-the-cycle basis based on the staple nature of the products offered and the integrated nature of the CRS network, while continuing to reflect the variance in crude oil and fuel prices, refiners’ margins, and capacity utilization of the refinery. DBRS Morningstar notes that fuel volume has improved YOY, tracking the economy’s reopening and recovery and expects fuel volume recovery to continue over the near term as people return to office and are able to travel again. DBRS Morningstar expects revenue to increase in the near term to approximately $8.5 billion, primarily driven by increased fuel demand, while partially offset by modestly lower sales for Foods and Home and Building Solutions segments. Although Food and Home and Building Solutions segments showed strong results during the height of the pandemic, DBRS Morningstar expects consumers to redirect an increasing portion of discretionary spending toward previously unavailable services, including restaurants, travel, and leisure. DBRS Morningstar expects EBITDA margins to improve moderately in the near term compared with F2020, primarily driven by the impact of changes in crude oil and fuel prices and, to a lesser extent, moderately higher fuel volume sold, partially offset by increasing inflationary pressures in input costs, transportation costs, and wages. As such, DBRS Morningstar expects FCL’s EBITDA to increase moderately compared with F2020 toward $850 million but notes that the earnings will likely be challenged to return to pre-pandemic levels in the near to medium term.

DBRS Morningstar expects FCL’s financial profile to remain exceptionally strong and continue to underpin the overall rating category, primarily driven by its low level of debt and financial flexibility. Cash flow from operations is expected to continue to track operating income. Capital expenditure is expected to increase meaningfully in the near to medium term as the Company resumes capital investments delayed last year as a result of the pandemic. Furthermore, DBRS Morningstar expects the Company to increase investments to achieve its goals related to reduction in companywide emissions. DBRS Morningstar expects the Company to generate sufficient cash flow (after distributions but before changes in working capital) to invest in growth, increase cash returns, and/or grow the Company’s cash balance for potential future investments. As such, FCL’s credit metrics are expected to remain more than acceptable for the current ratings (i.e., lease-adjusted debt-to-EBITDA below 1.25 times) over the medium term. Although DBRS Morningstar views it highly unlikely, should the Company’s credit metrics weaken beyond the range on a through-the-cycle basis as a result of weaker-than-expected operating performance and/or more aggressive financial management, the ratings could be pressured.

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

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Merchandising Industry (June 26, 2021;; Rating Companies in the Oil and Gas and Oilfield Services Industries (August 16, 2021;; and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021;, which can be found on 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;

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 or contact us at [email protected].

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