Montreal Gazette

Legal fight amid credit downgrade

DBRS says move not related to legal issues faced by engineerin­g company

- JACOB SEREBRIN

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.”

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