DBRS has announced that Weston is under review with negative implications due to the review of Loblaw:
DBRS has today placed the ratings of Loblaw Companies Limited (Loblaw, or the Company) Under Review with Negative Implications based on the Company’s deepening decline in earnings that shows no sign of abating. DBRS is increasingly concerned about Loblaw’s ability to execute on its turnaround plan and achieve the improvements required to maintain its current ratings.
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(1) Operational problems such as supply chain management and integration of the management team.
(2) An intensifying competitive environment and Loblaw’s ability to generate meaningful same-store sales growth and improve operating income using a price-reduction strategy in this environment.
(3) Implementation of meaningful cost saving initiatives.
This follows the downgrade to Pfd-3(high) on May 22. Weston has the following preferred issues trading on the TSX: WN.PR.A WN.PR.B WN.PR.C WN.PR.D & WN.PR.E. All except WN.PR.B are fixed-rate perpetual; WN.PR.B is retractible.
This follows a similar announcement by S&P:
Standard & Poor’s Ratings Services today said it placed its ratings, including the ‘BBB+’ long-term corporate credit rating, on Toronto-based retailer Loblaw Companies Ltd. on CreditWatch with negative implications. At the same time, we placed the ratings on parent company George Weston Ltd., including the ‘BBB’ long-term corporate credit rating, on CreditWatch with negative implications.
“The CreditWatch placement follows Loblaw’s announcement of its very weak third-quarter performance,” said Standard & Poor’s credit analyst Maude Tremblay.
Update, 2008-2-7: DBRS has today:
downgraded the long-term ratings of Loblaw Companies Limited (Loblaw or the Company) to BBB (high) from A (low) and has also downgraded the short-term rating to R-2 (high) from R-1 (low). The trend is Negative for the long-term ratings and Stable for the short-term rating.
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DBRS’s ratings for George Weston Limited remain Under Review with Negative Implications (where they were placed on November 16, 2007), until the review is completed this month.
S&P also downgraded Loblaws to BBB (no modifier!) and still with a negative trend, while maintaining Weston on Watch Negative.
[…] It should be noted that Weston is on Credit Review Negative by DBRS; I am advised that one factor in non-arbitrage of yield is that some institutional holders know very well that there is an opportunity, but are not empowered to take advantage of it. They bought WN when it was investment-grade; they have decided to keep the name despite the downgrade; but they cannot buy non-investment-grade issues; therefore they cannot execute a swap. […]