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S&P affirms Loblaw's ratings on Choice REIT spinoff announcement


According to Market Intelligence, December 2022


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S&P affirms Loblaw's ratings on Choice REIT spinoff announcement

S&P Global Ratings on Sept. 5 affirmed Loblaw Cos. Ltd.'s BBB issuer credit rating with a stable outlook following the Canadian food retailer's decision to spin out its 61.6% stake in Choice Properties Real Estate Investment Trust to its parent, George Weston Ltd.

The rating agency said it believes that Loblaw generates the majority of George Weston's EBITDA and that it is highly unlikely to be sold. It regards Loblaw as the largest food retailer in Canada with a strong market share and is integral to George Weston's overall group strategy.

S&P also affirmed its BBB issue-level ratings on the company's unsecured debt and its BB+ global scale and P-3(High) Canada scale ratings on Loblaw's preferred stock.

The agency expects that after the spinoff, Loblaw's adjusted debt-to-EBITDA ratio will improve to about 2.5x from 3.0x on a run-rate basis since Choice REIT's debt and cash flow will no longer be consolidated in the company's financial results.

Following the spinoff, George Weston will own 65.4% of Choice REIT and 50% of Loblaw.

Furthermore, S&P revised its financial risk profile on Loblaw to intermediate from significant to reflect the company's improved credit measures, on a pro forma basis.

S&P said it could raise its ratings on Loblaw over the next two years if it raises its issuer credit rating on George Weston.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.