Many are watching Saskatchewan Wheat Pool this week as the company’s next interest payment comes due.
The pool’s ability to make that payment on Jan. 18 is a concern, says credit rating company Standard & Poor’s, which downgraded the pool’s rating just days after the grain company announced a proposal to restructure its finances.
S & P lowered the pool’s rating on long-term corporate credit and senior secured debt from B+ to CCC-. The rating is considered to be very weak and indicates a higher risk of default.
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“We dropped the rating to CCC-, which is a reflection of the pool’s vulnerability to non-payment of interest,” said credit analyst Don Povilaitis in an interview.
“The ratings also take into account the impact of a severe drought on financial results, and a liquidity position that is limited to SWP’s existing credit facilities (the company had $95 million in bank line availability at year-end July 31, 2002), given that the company had no cash on hand as at fiscal year-end and asset disposals were, for the most part, complete.”
Povilaitis said the downgrade considers that the pool’s banks have said it is not in compliance with some non-financial covenants of its existing credit agreements.
The pool has already denied those allegations.
The company said the downgrade is not unusual and would not impact the pool’s plans.
“S & P hasn’t seen the final (restructuring) proposal,” said the pool’s director of investor relations, Colleen Vancha. “It’s going to be important to see how the proposal is accepted.”
Dominion Bond Rating Service downgraded the pool after an October financing announcement.
Vancha said the pool wants to make it clear the most recent proposal does not necessarily mean it will take on more debt. It could, in fact, mean less debt if bondholders approve a debt-for-equity conversion by the end of this month, she said.
“This proposal could have a very positive impact on our balance sheet,” she said.
Povilaitis said he will be watching to see if the interest payment is made and if restructuring is approved.
“At this point the onus is on them to prove that they can restructure,” he said.
