SNC-Lavalin under debt-rating review ‘with negative implications’
|Toronto Star 15 Feb 2019 at 12:56|
Already at the centre of a burgeoning political scandal, facing criminal charges, and a disastrous mining project in Chile, the engineering giant is now being hit by ratings agencies.
Friday, SNC-Lavalin was placed under review “with negative implications” by debt-rating agency DBRS. That’s the first step before a potential downgrade from the company’s current BBB rating.
DBRS cited concern over a $350 million loss in SNC-Lavalin’s mining and metallurgy division, which was largely caused by a dispute over a project in Chile, currently in arbitration.
“The rating actions are largely based on growing concerns regarding risk management and project control issues following the Company’s announcement of a considerable project loss within the Company’s Mining and Metallurgy division of approximately $350 million, absent any expected recoveries,” DBRS said in a release.
SNC-Lavalin announced in late January that its fourth-quarter earnings will be lower than expected, largely because of the loss in the mining unit. It also announced it wouldn’t be bidding on any new mining contracts, and would be reviewing the structure of its mining management team.
SNC-Lavalin signed at least $68M in federal contracts last year
A company spokesperson wouldn’t say whether that means Jose Suarez, has been ousted as head of the mining unit, saying “we do not comment on individual employees.”
The next step down from BBB is BB, which would put the Montreal-based engineering company’s debt a step below investment grade, potentially hampering its access to more funding. Many institutional investors don’t buy bonds which are rated below investment grade. It would also increase SNC-Lavalin’s cost of borrowing.
A spokesperson for SNC-Lavalin said the company had no comment on DBRS’s statement.
The company is to release its fiscal fourth-quarter earnings Friday, Feb. 22.
The move comes a day after SNC-Lavalin was downgraded by U.S.-based ratings agency S&P, which knocked it down from BBB to BBB-.
The federal ethics commissioner is investigating whether the office of Prime Minister Justin Trudeau pressured ex-attorney general Jody Wilson-Raybould to help SNC-Lavalin avoid criminal prosecution.