DBRS Morningstar Confirms George Weston Limited at BBB, Stable

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Notes & Debentures rating of George Weston Limited (George Weston or the Company) at BBB as well as its Preferred Shares rating at Pfd-3, all with Stable trends. DBRS Morningstar also discontinued and withdrew George Weston’s Short-Term Issuer Rating, noting that the discontinuation does not reflect any change in DBRS Morningstar’s view of the Company’s credit quality. The confirmation is concurrent with DBRS Morningstar’s confirmation of Loblaw Companies Limited’s (Loblaw) ratings at BBB (high) (see the press release dated September 17, 2021) as well as its confirmation of Choice Properties Real Estate Investment Trust (Choice) rating at BBB (high) (see the press release dated September 17, 2021).

The confirmation of George Weston's ratings is based on (1) the Company’s position as the holding company of Choice (approximately 61.7% ownership), (2) the Company's position as the holding company of Loblaw (approximately 52.6% ownership), (3) the Company’s ownership of Weston Foods, and (4) the strength of George Weston's credit metrics and liquidity profile. DBRS Morningstar calculated a weighted-average subsidiary rating (WASR) of BBB based on each subsidiary’s contribution to George Weston’s available cash flow, adjusted for George Weston’s ownership interest in each respective subsidiary with a one-notch penalty for the structural subordination on the leveraged cash flows received from Loblaw and Choice. DBRS Morningstar combined this WASR with the assessment of George Weston’s financial and liquidity profile, which DBRS Morningstar views as strong for the BBB rating.

On March 23, 2021, George Weston announced that the Company intends to divest its bakery business, Weston Foods (see DBRS Morningstar’s press release dated March 23, 2021). The Company expects to complete the sale process in late 2021 and has signaled that the proceeds from the sale are likely to be returned to shareholders through share repurchases over time.

While no definitive sale agreement has been reached and details around the ultimate allocation of proceeds for such a divestiture are not yet known, DBRS Morningstar believes that the Company’s ratings are likely to remain the same. DBRS Morningstar would expect to continue to base its ratings on George Weston on (1) the Company’s position as the holding company of Choice, (2) the Company’s position as the holding company of Loblaw, and (3) the quality of the Company’s liquidity profile. DBRS Morningstar expects the WASR to remain at BBB, based on the respective contributions of Loblaw and Choice to George Weston’s cash flows, through dividends and distributions, and adjusted for George Weston’s ownership interest in each entity with a one-notch penalty for structural subordination.

DBRS Morningstar notes that, as long as the ratings on Loblaw and Choice are BBB (high), the ratings on George Weston, as a pure holding company, would effectively be capped at the BBB level because of the structural subordination. Conversely, although unlikely, George Weston's ratings could be lowered if DBRS Morningstar downgraded Loblaw and Choice or should George Weston’s nonconsolidated debt levels exceed 20% of nonconsolidated capital, which may result in the one-notch differential between the subsidiaries, Loblaw and Choice, and George Weston being inadequate.

For details on Choice’s and Loblaw's credit risk profile and operating performance, please see the respective press releases, which can be found on dbrsmorningstar.com.

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 https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Companies in the Consumer Products Industry (July 26, 2021; https://www.dbrsmorningstar.com/research/382072) and DBRS Morningstar Criteria: Rating Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2, 2020; https://www.dbrsmorningstar.com/research/369165), which can be found on dbrsmorningstar.com 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; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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@dbrsmorningstar.com.

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 www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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