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DBRS has commented:

RONA inc. (RONA or the Company) today announced that it has offered to purchase for cash, by way of two successive offers, up to $200 million of the aggregate principal amount of its 5.40% unsecured debentures due October 20, 2016.
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On May 11, 2011, DBRS revised RONA’s trend to Negative from Stable. That rating action reflected DBRS’s concern that weak operating performance and a challenging consumer environment may result in RONA’s credit risk profile deteriorating to a level that is no longer consistent with the current rating categories. DBRS’s concern was highlighted by continued weakness in same-store sales growth and the negative impact this was having on operating margins and income. At that time (end of Q1 2011), lease-adjusted debt-to-EBITDAR had increased to 2.82 times (x) from 2.55x a year earlier. DBRS stated that if RONA was successful in implementing a sustainable recovery, including improved operating performance (during the critical summer season, in particular) and prudent capital management that results in a lease-adjusted debt-to-EBITDAR ratio closer to the 2.5x level by the end of the year, it may consider changing the trend to Stable. On the other hand, a lack of improvement in sales, operating income and key credit metrics could result in a downgrade to the ratings before the end of the year.

Since then, RONA released its Q2 2011 results, which delivered same-store sales growth of -9.6%, overall revenue decline of -2.4% and EBITDA of $90 million (versus $133 million year-over-year) as the Company continued to engage in heavy promotional activity to spur growth. This performance resulted in the last 12 months lease-adjusted gross debt-to-EBITDAR of 3.1x.
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DBRS maintains its view that stabilization will require significant improvement in sales, operating income and significant capital conserving measures – including prudence with regards to capex, working capital management, dividend payouts, share repurchases and debt-financed acquisitions – for an extended period. Lack of improvement in sales, operating income, and key credit metrics in the near term could result in a ratings downgrade.

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