Morningstar DBRS Upgrades Credit Ratings on AtkinsRéalis to BBB (low), Maintains Positive Trends

DBRS Limited (Morningstar DBRS) upgraded the Issuer Rating and Senior Debentures credit rating on AtkinsRéalis Group Inc. (AtkinsRéalis or the Company) to BBB (low) from BB (high) and maintained the Positive trends.

KEY CREDIT RATING CONSIDERATIONS
The credit rating upgrades reflect AtkinsRéalis' improving credit profile commensurate with an investment-grade rating. Morningstar DBRS had previously indicated that a credit rating upgrade would likely occur if AtkinsRéalis continued to demonstrate immaterial earnings volatility from the remaining lump-sum turnkey (LSTK) projects such that the Company were able to maintain a debt-to-EBITDA ratio below 3.0 times (x). In 2024, AtkinsRéalis' financial profile was strengthened by a meaningful improvement in earnings and cash flow generation. The credit rating upgrades also reflect AtkinsRéalis' investment-grade business risk profile, underpinned by the Company's position as a top-tier international design and nuclear services firm, its capacity for handling large-scale and complex service activities across a variety of subsectors, its geographic diversification, and its long-term relationships with high-quality clientele. In maintaining the Positive trends, Morningstar DBRS expects the Company's financial risk profile will continue to strengthen as a result of a more simplified business model with less earnings volatility and a commitment to maintain a leverage target of net debt to EBITDA within 1.0x to 2.0x.

The Company achieved 12% organic revenue growth in 2024, largely driven by its engineering services and nuclear segments. AtkinsRéalis reduced debt to EBITDA to 2.0x in 2024 from 2.3x in 2023. Morningstar DBRS also notes that in March 2025, the Company announced it had entered into an agreement to sell its 6.76% stake in 407 International Inc. (Highway 407 ETR) for gross proceeds of up to approximately $2.79 billion. The transaction, which is expected to close in Q2 2025, has been structured as a Share Purchase Agreement and a Put and Call Option Agreement exercisable during the 18 months after closing. Morningstar DBRS expects the Company to use the sale proceeds for debt repayment, including repayment of associated limited recourse debt. Morningstar DBRS also expects the Company will accelerate its engineering services growth strategy including funding small to mid-size acquisitions as well as using funds for share buybacks. In line with the above, AtkinsRéalis' overall credit profile has improved to levels that provide a meaningful cushion in the context of the upgraded credit rating.

CREDIT RATING DRIVERS
A positive credit rating action could occur if the Company continues to demonstrate (1) immaterial earnings volatility from the remaining LSTK projects, (2) operational improvement of the Linxon segment and/or a sale of this business, and (3) debt-to-EBITDA below 2.5x on a normalized and sustainable basis. Morningstar DBRS could change the trends and/or take a negative credit rating action if there were a deterioration in operating results such that debt-to-EBITDA rises above 3.0x for an extended period and/ or a sustained weakening of market position within AtkinsRéalis' core markets.

EARNINGS OUTLOOK
Supported by the Company's record backlog and the robust demand for its engineering services and nuclear segments, Morningstar DBRS expects AtkinsRéalis will continue on its growth trajectory, both organically and through strategic acquisitions, and may surpass $11 billion in gross revenues by F2026. Morningstar DBRS expects EBITDA margins to improve modestly in the near term largely because of its engineering services margin improvement plan. In 2025, Morningstar DBRS expects adjusted EBITDA (Morningstar DBRS' calculation) to approach $1 billion. Over the medium term, Morningstar DBRS expects the Company's earnings to remain at sound levels, anchored by its strong market positions, notably in the UK and Canada, as well as its nuclear expertise and the global opportunities that it presents.

FINANCIAL OUTLOOK
Morningstar DBRS expects operating cash flow to increase in line with earnings growth and cash flow-to-debt to remain above 30% in the near term to medium term. The Company's capital expenditure is expected to remain elevated in the near term because of the development of the 1000 megawatt Candu Monark reactor. Debt-to-EBITDA is expected to decline to around 1.0x at F2025 from 2.0x at F2024, largely because the proceeds of the Highway 407 ETR sale are to be used for debt repayment. Morningstar DBRS expects debt-to-EBITDA to remain below AtkinsRéalis' stated leverage target in the near term as it carefully deploys capital. Over the medium term, Morningstar DBRS anticipates leverage to increase toward the Company's stated target.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBB
The credit ratings are underpinned by the Company's geographic and end market diversification, the strong market position of its engineering services and expertise, and the competitive advantages of its nuclear segment. The credit ratings also acknowledge the fragmented nature of the global engineering market and the Company's exposure to changes in client spending plans. AtkinsRéalis is also susceptible to development risks associated with nuclear technology; integration and financial risks associated with acquisitions; the need to manage reputational, geopolitical, and macroeconomic risks; and the potential impact of litigation and/or material penalties.

Comprehensive Financial Risk Assessment (CFRA): A
In 2024, AtkinsRéalis continued the transformational journey that it began in 2019, and which has resulted in a less volatile financial profile underpinned by the strength and resilience of its engineering services business. Morningstar DBRS anticipates the transformation to continue in the near term, with the sale of the Highway 407 ETR opening opportunities for engineering services growth; the ultimate delivery of the remaining LSTK projects; and the continued operational improvement of Linxon in preparation for an eventual sale. Morningstar DBRS considers the ultimate sale of Linxon to be positive from an operational and earnings standpoint.

The Company's balance sheet is expected to be strengthened significantly with the proceeds of the Highway 407 ETR sale, providing it considerable financial flexibility to allocate toward measured growth. Morningstar DBRS has applied a -2 notch FRA adjustment reflective of the temporarily strong forward-looking metrics as a result of sale of the Highway 407 ETR.

Intrinsic Assessment (IA): BBB (low)
The IA is below the IA range, reflective of the Positive trends. Upon the closing of the sale of Highway 407 ETR, Morningstar DBRS expects the proceeds and associated debt repayment to temporarily improve AtkinsRéalis' credit profile. Morningstar DBRS takes a longer-term view of the Company's credit profile while also taking into consideration peer comparisons, among other factors. If applicable, a positive credit rating action would place the IA at the bottom of the IA range.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Further details on the Issuer's Intrinsic Assessment can be found at https://www.dbrsmorningstar.com/research/452431.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (February 3, 2025) https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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