Finning International Inc. Ratings Placed On CreditWatch Negative On Industry Headwinds

  • We believe Finning International Inc. faces heightened risk that its earnings and credit measures will weaken from our previous estimates, with volatility beyond what we envision for its ratings.
  • Significant commodity market headwinds have recently emerged in the company's key regions of operation, notably in Western Canada and Chile.
  • In addition, S&P Global Ratings expects a global recession in 2020, and the impact of the COVID-19 outbreak on the company's business is uncertain.
  • As a result, on March 26, 2020, S&P Global Ratings placed all of its ratings on Finning, including its 'BBB+' issuer credit rating on the company, on CreditWatch with negative implications.
  • The CreditWatch placement reflects the increased risk of a downgrade within the next few months because we believe Finning's credit measures could weaken beyond levels we view as commensurate for the ratings.
TORONTO (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions above.

Leverage is high for the rating, and weaker earnings could impede improvement in 2020.

We believe Finning faces the prospect of weaker credit measures over the next two years, following higher-than-expected leverage in 2019. The company's adjusted debt-to-EBITDA was 2.6x at year-end 2019, which is high for the rating. We believe the company could generate leverage at or above this level over the next two years, mainly given the heightened downside risk to earnings.
The CreditWatch placement reflects the increased risk of a downgrade based on the potentially significant headwinds Finning faces that could lead to weaker-than-expected credit measures. In particular, we believe lower earnings this year could mitigate the impact of expected debt reduction on the company's adjusted debt-to-EBITDA. In this case, it is likely we would no longer view the company's credit measures as commensurate with the ratings. In addition, we would likely consider Finning's business as more volatile than previously envisioned.

We expect to resolve the CreditWatch placement within the next few months. During this period, we anticipate greater visibility on Finning's prospective earnings, cash flow, and credit measures, most likely related to prevailing macro-economic and commodity markets conditions. At that point, we believe we will be in a better position to assess Finning's prospective credit profile.
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