DBRS Morningstar Confirms Ratings on WSP Global Inc.

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes Public rating of WSP Global Inc. (WSP or the Company) at BBB (high) with Stable trends. The rating confirmations and Stable trends are based on WSP’s robust investment-grade business profile, underpinned by its leadership position as a top international design firm, its proven project execution capabilities as a driving force behind its long-term relationships with high-quality clientele, as well as its global diversification, delivering more than 150,000 projects a year. In September 2022, WSP further expanded its market position in the Earth and Environment sector through the acquisition of John Wood Group plc’s Environmental and Infrastructure (E&I) business, which brings along with it approximately 6,000 professionals. Furthermore, the acquisition expands WSP’s customer and geographic reach, primarily in the U.S. market.

WSP’s recent operating performance has been strong, with net revenue growth of over 15% over the last 12 months (LTM) ended Q3 2022 compared with the LTM ended Q3 2021 and modest EBITDA margin improvement to 16.3% (DBRS Morningstar’s calculation). Gross debt (including lease liabilities) rose to $4.4 billion as of October 1, 2022, from $2.8 billion in December 2021, as a result of the debt financing related to the E&I acquisition. While managing its capital structure and leverage through equity issuances in 2022, WSP’s gross debt-to-EBITDA increased in October 2022 to 3.2 times (x) from 2.2x as of December 31, 2021. DBRS Morningstar expects the current debt-to-EBITDA level to be temporary and expects financial metrics to return to a level commensurate with the current ratings by 2023.

DBRS Morningstar expects WSP’s business risk profile to continue to improve modestly over the next 24 months as a result of strategic acquisitions. The Company has maintained financial discipline in its approach to acquisitions thus far, and DBRS Morningstar anticipates this to continue in the future. DBRS Morningstar expects WSP to primarily remain focused on the integration of E&I in 2023, while continuing to be opportunistic as it pertains to meaningful acquisitions. Given the substantial cash-generative power of the business, DBRS Morningstar anticipates improvement in the Company’s financial profile over the course of 2023 through debt repayment, E&I’s EBITDA contribution, and modestly improved margins in 2023. DBRS Morningstar expects margin improvement to be supported by the Company’s efforts toward internal efficiency as well as its ability to pass on inflationary cost increases because of the nature of its contracts.

The Company has a solid track record of successfully integrating large businesses, such as the acquisition of Ontario-based Golder Associates in April 2021, for which the integration is progressing well and as planned. As such, the current ratings incorporate the integration and financial risks associated with WSP's ongoing acquisition strategy. Furthermore, DBRS Morningstar expects that WSP will remain relatively resilient to any global activity slowdown because of its large exposure to the public sector as well as expertise in sustainability-linked projects, where spending is forecast to remain strong.

Overall, WSP remains well supported from a business risk and a financial risk perspective at the current rating level. Although not currently anticipated, if the Company were to substantially exceed DBRS Morningstar's expectations in terms of acquisition activity, leading to a prolonged period of leverage beyond the Company's stated target range and/or deteriorating operating results, DBRS Morningstar could consider a negative rating action. Conversely, a positive rating action would be considered if the Company demonstrated a long-term commitment to a financial risk profile even stronger than that of the currently guided range and/or a sustainable material increase in operating performance.

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

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/396929 (May 17, 2022).

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

The principal methodologies applicable to the ratings are Rating Companies in the Services Industry (January 28, 2022; https://www.dbrsmorningstar.com/research/391428) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683).

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

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

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

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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