Array Canada Inc. Ratings Placed On CreditWatch Negative On COVID-19 Concerns

  • The COVID-19 outbreak is leading to a growing number of closures of all major retail stores in North America. The shutdown and emphasis on social distancing is causing mall traffic and consumer discretionary spending to weaken significantly.
  • This situation along with looming risks of an economic recession will result in demand declines and may significantly affect Toronto-based specialized in-store marketing service provider Array Canada Inc. in the near term.
  • Based on our revised assumptions, we anticipate continued drop in cash flows leading to weakening credit measures and tight fixed charges. As a result, S&P Global Ratings placed all of its ratings on Array Canada, including its 'CCC+' issuer credit rating on the company, on CreditWatch with negative implications.
  • The CreditWatch placement reflects uncertainty about the extent of the negative impact of COVID-19 on the company's EBITDA and cash flows. We could lower our ratings on Array if we envision a specific default scenario over the next 12 months, including a shortfall in near-term liquidity.
TORONTO (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above. We anticipate a widespread shutdown and retail closures could severely pressure Array's revenues and EBITDA for fiscal 2020. As the efforts to contain COVID-19 result in retail and specialty, including beauty, store closures and changes to shopping habits globally, we expect Array to face pressure on its operating performance in fiscal 2020. Specifically, we expect Array's customers who are mass and specialty retailers as well as beauty brand partners will likely curtail expenditures on renovations and refreshes. Furthermore, as retailers strive to preserve liquidity, they could also lower or defer their discretionary capital investment in new stores for fiscal 2020. A continued economic recession could also result in the loss of customers and sharp revenue declines for Array. We forecast Array's fiscal 2020 revenues to decline 12%-15% compared with previous forecasts. We also expect EBITDA and EBITDA margins on an S&P Global Ratings-adjusted basis to further weaken, and credit measures to increase to about 10x for fiscal 2020. Considering such potentially high leverage, we view Array's capital structure as unsustainable in the short term absent favorable changes in business conditions.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak between June and August, and we are using this assumption in assessing the economic and credit implications. We believe measures to contain COVID-19 have pushed the global economy into recession and will cause a surge of defaults among nonfinancial corporate borrowers (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
The CreditWatch placement reflects uncertainty about the extent of the negative impact of COVID-19 on the company's EBITDA and cash flows. We could lower our ratings on Array if we envision a specific default scenario over the next 12 months, including a shortfall in near-term liquidity.
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