Legal fight amid credit downgrade
DBRS says move not related to legal issues faced by engineering company
Lawyers for SNC-Lavalin were in court on Friday for a preliminary hearing, where a judge will decide whether there is enough evidence to bring the company to trial for allegedly bribing Libyan officials.
It’s a case that has sparked a scandal in Ottawa, after allegations emerged that Prime Minister Justin Trudeau allegedly pressured former attorney-general Jody Wilson-Raybould to reach a deal with the company that would see it avoid prosecution.
At the same time as arguments were being made at the Montreal courthouse, credit rating agency DBRS announced that it was placing SNC-Lavalin’s credit rating, and the credit rating of its senior debentures “under review with negative implications.”
The announcement comes just three days after credit rating agency Standard & Poor’s downgraded SNC-Lavalin’s credit rating from triple-B to triple-B-minus.
Both SNC-Lavalin and its senior debentures (a type of debt instrument that bears some similarities to a bond) currently have a triple-B rating from DBRS — described by the company as “adequate credit quality.”
However, the credit rating review wasn’t related to the outgoing court proceedings, DBRS said, explaining that while the prosecution of SNC-Lavalin could affect ratings in the future, “the legal process could be lengthy and the outcome remains highly uncertain.”
Rather, the review is “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,” DBRS said.
SNC-Lavalin made that announcement on Monday — revealing that it has entered arbitration with a client in Latin America after the two companies were unable to reach an agreement.
Without that agreement, SNC-Lavalin said in a statement that it cannot recognize revenue from the project and has had to write down its profit expectations.
The announcement came exactly two weeks after SNC-Lavalin first warned its profits would not meet forecasts.
On Feb. 11, it said the loss “will be higher in 2018 than the company expected or could have known on Jan. 28, 2019.”
SNC-Lavalin is scheduled to announce its fourth-quarter 2018 results on Feb. 22.
SNC-Lavalin said it has stopped bidding on all mining engineering, procurement and construction contracts as part of the announcement on Monday.
On Tuesday, credit rating agency S&P responded to the warning by downgrading SNC-Lavalin’s credit rating to triple-B-minus, the lowest “investment grade” rating.
“We also believe the significant loss on SNC’s problematic mining project calls into question the company’s risk mitigation processes and could lead to higher costs from restructuring efforts,” S&P said in a statement.
“Growth prospects have also deteriorated within SNC’s oil and gas business in the Middle East, following a deterioration in Canada-Saudi Arabia diplomatic relations, resulting in the $1.24-billion writedown the company announced Jan. 28.”